Even If STT Not Paid At Time Of Acquisition, Trust Entitled To Claim LTCG Exemption: ITAT
The Mumbai Bench Income Tax Appellate Tribunal (ITAT) has held that even if the Securities Transaction Tax (STT) was not paid at the time of acquisition, the assessee-trust would be entitled to claim exemption of long-term capital gain (LTCG) under Section 10(38) of the Income Tax Act. The bench of C.V. Bhadang (President) and B.R. Baskaran (Accountant Member) has observed that as per...
The Mumbai Bench Income Tax Appellate Tribunal (ITAT) has held that even if the Securities Transaction Tax (STT) was not paid at the time of acquisition, the assessee-trust would be entitled to claim exemption of long-term capital gain (LTCG) under Section 10(38) of the Income Tax Act.
The bench of C.V. Bhadang (President) and B.R. Baskaran (Accountant Member) has observed that as per the notification issued by the Central Government as per the third proviso to Section 10(38) of the Income Tax Act, and hence, even if the assessee did not pay STT at the time of acquisition of shares, it is still eligible for exemption under Section 10(38) of the Income Tax Act.
The respondent assessee is established as a trust through a trust deed and registered under the Registration Act, 1908. Though the assessee applied for “Venture Capital Undertakings” (VCF) status to the SEBI on 18th May, 2006, yet it got the Certificate of Registration only on 10th October, 2008. Thus the assessee became a Venture Capital Fund (VCF) as per the Securities and Exchange Board (Venture Capital Funds) Regulations, 1996.
The venture capital funds are entitled to invest in “Venture Capital Undertakings” (VCU) as per SEBI Regulations. The assessee identified a VCU, which was an unlisted company then. The assessee made investments in the VCU by subscribing to its shares over a period of time.
All the shares were sold by the assessee from September 2017 to November 2017. There is no dispute that all the shares qualify as long-term capital assets. Consequently, the assessee earned a long-term capital gain (LTCG) of Rs. 247.67 crore.
In the return of income, the assessee claimed exemption of LTCG under Section 10(23FB) of the Income Tax Act. The provisions of Section 10(23FB) provide for exemption of any income of VCF from investments made in a venture capital undertaking.
The assessee had also earned dividend income of Rs. 3,97,300 and claimed it as exempt under Section 10(35) of the Income Tax Act. The return of income filed by the assessee was processed, in which the claim of exemption was denied.
The assessee is not eligible for exemption under Section 10(38) of the Income Tax Act. The AO rejected the claim for exemption of LTCG under sections 10(23FB) and 10(38).
The assessee filed the appeal before the CIT(A). The CIT(A) held that the assessee is eligible to claim exemption of LTCG under Section 10(38) of the Income Tax Act.
The department contended that the CIT(A) was not justified in granting exemption under Section 10(38) of the Act since the alternative claim made by the assessee was a fresh claim, which has been made without filing a return of income. The exemption under Section 10(38) has been allowed by the CIT(A) without considering the fact that the assessee has acquired shares from the off market without paying Securities Transaction Tax (STT).
The assessee contended that since the assessee has acquired „unlisted” shares, the transaction of acquisition could not have taken place through a recognized stock exchange. Hence the assessee was not liable to pay STT at all on its acquisition of shares. The case of the assessee would be covered by the notification, which states that all transactions of acquisition of equity shares entered on or after the 1st day of October, 2004 that are not chargeable to securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).
The tribunal held that the assessee, being a trust, is a legal entity and would fall under the definition of “person” under the Income Tax Act. Hence it is assessable under the Income Tax Act for the income earned by it, and it is entitled to avail all types of eligible exemption provided under the Act. The assessee would be entitled to claim exemption of long-term capital gain.
The tribunal upheld the decision of CIT(A) in holding that the assessee is eligible for exemption under Section 10(38) of the Income Tax Act.
Counsel For Appellant: Vijay Mehta
Counsel For Respondent: S. Srinivasu
Case Title: Dy. Commissioner of Income Tax- 23(1) Versus Business Excellence Trust
Case No.: ITA NO. 2879/MUM/2023 & CO NO. 15/MUM/2024