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28-02-2019, HDFC Property Fund, Section 10(23FB), 10(35), Tribunal Mumbai

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2 months 2 weeks ago #8717 by amit
Section - 10(23FB), 10(35), 115U, 10
Order Date - 28-02-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - HDFC Property Fund
Respondent - ITO
Justice - G.S. Pannu VP & Ravish Sood JM
Citation - 219Taxpundit147
Appeal No. - ITA No. 7472/Mum/2017
Asstt. Year - 2014-15

Order

PER : G.S. Pannu

This appeal has been filed by the assessee against the order of the CIT(A)-28, Mumbai dated 09.10.2017 for A.Y. 2014-15.

2. The assessee has raised the following grounds of appeal: -

“1. The learned Commissioner of Income-tax (Appeals) hereinafter referred to as "the [CIT(A)"] erred in upholding the action of the learned Income tax Officer 17(1)(5), Mumbai (hereinafter referred as "the Assessing Officer") in bringing to tax a sum of Rs. 264,39,31,0807- [comprising of long term capital gains, dividend income and interest income from VCUs that were claimed exempt under section 10(23FB) of the Income Tax Act, 1961 (the Act)] as income of the appellant.

2. The CIT(A) erred in exceeding his jurisdiction in alleging that the appellant has violated the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 ("the VCF Regulations") to disallow the claim for exemption under section 10(23FB) of the Act. The CIT(A) failed to appreciate that it is not within the domain of the income-tax department to determine the infraction of other laws.

3. Without prejudice to what is stated above, the appellant submits that the CIT(A) failed to appreciate that for availing exemption under section 10(23FB) of the Act what is relevant is compliance of the provisions of the Act and not the provisions of the VCF Regulations.

4. The CIT(A) erred in confirming the action of the Assessing Officer that the appellant's action has resulted in following infraction of the VCF Regulations-

(a) The CIT(A) erred in observing that the clause in the appellant's Trust Deed dealing with "Temporary Investments" is contrary to the VCF Regulations. The appellant submits that the learned Commissioner of Income-tax (Appeals) failed to appreciate that the Temporary Investment represents deployment of funds that are pending either for investment in Venture capital undertakings (VCUs) or to meet future expenses or pending distribution to the contributors and such temporary deployment is general trade practice and accepted by SEBI (which has also approved appellant's Trust Deed while granting registration).

(b) The CIT(A) erred in observing that the appellant has accepted that its investments in liquid mutual funds has resulted in violation of the VCF Regulations. The appellant reiterates that temporary deployment of funds in mutual funds is accepted by SEBI and the appellant has not made any violation of the VCF Regulations at all.

(c) The appellant submits that the CIT(A) erred in observing that its activity of deploying funds in mutual funds is a systemic and continuous activity of a substantial amount. The appellant submits that the CIT(A) failed to appreciate that it had made temporary deployment of its funds in mutual funds pending utilization and the said activity was neither continuous nor substantial considering its fund size.

5. The appellant submits that the CIT(A) (Appeals) failed to appreciate that the appellant has made submissions re: Negative list in the VCF Regulations only to highlight that its investments in VCUs are not violative of such Regulations and the CIT(A) erred in making observations at Para 6.3.2 of his appellate order (that it was an attempt to mislead the appellate authority) and the appellant strongly objects to the same.

6. The appellant submits that as the beneficiaries (Investors) had included the income from the fund (the appellant) in their individual returns and the same would have been assessed in their hands, such income cannot be assessed in appellant's hands as the same would amount to double taxation of the same income .

7. Without prejudice, the appellant submits that in the event the benefit of exemption under section 10(23FB) of the Act were to be denied to it, a suitable direction be given that the benefit of taxes paid by the contributors on the same income be allowed to the appellant.

8. Without prejudice the appellant submits that the CIT(A) failed to appreciate the fact that even if exemption under section 10(23FB) of the Act is denied, the income of the appellant ought to have been computed as per other provisions of the Act and not under head "Income from other sources."

9. Without prejudice to what has been stated above, the appellant submits that the CIT(A) failed to appreciate the fact that income from mutual funds ought to have been granted exemption under section 10(35) of the Act.

10. Without prejudice to what has been stated above the appellant submits that the CIT(A) erred in upholding the action of the Assessing Officer in holding that the appellant in not a "person" and hence not eligible to claim exemption under section 10(23FB) of the Act.

The appellant submits that in the event the appellant is held not to be a "person" no assessment is permissible in case of the appellant.

11. The appellant submits that the Assessing Officer be directed:

a. to grant exemption to the appellant under the provisions of section 10(23FB) of the Act and to delete addition of a sum of Rs.264,39,31,082/-;

b. Without prejudice to what has been stated above, if contention at (a) above is not accepted, to direct the Assessing Officer to tax income as per normal provisions of th Act and not under the head "Income from other sources";

c. Without prejudice to what has been stated above, if contention at (a) above is not accepted, to give direction for giving benefit for taxes paid by the contributors on the same income to the appellant; and to modify the assessment in accordance with the pro visions of the Act.”

3. Briefly put, the relevant facts are that, the assessee is a trust established under Indian Trust Act, 1882 in terms of trust deed dated 06.11.2004, which has been settled by Housing Development Finance Corporation Ltd. The settlor, i.e. Housing Development Finance Corporation Ltd. has identified investment opportunities in various high growth sectors including real estate sector in India and in order to pool

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