They can no longer be treated as trusts for the purposes of taxation statutes at least: ICICI Econet Internet and Technology Fund vs Commissioner of Central Tax (CESTAT Bangalore)

CESAT

Trusts carried out activity of Venture Capital Funds. They managed the amounts invested by Contributors/Subscribers/ Investors. They had discretion over the distribution of dividend/profit to entities other than subscribers

The impugned trusts have violated the principles of mutuality by concerning themselves in commercial activities and by using the discretionary powers to benefit a certain class of investors or nominees or employees or subsidiaries. They can no longer be treated as trusts for the purposes of taxation statutes at least. We find that the funds have been paying huge amounts to the AMCs in the form of Performance Fee and carry interest to the AMCs or their nominees. 

Revenue counsel has rightly submitted that VCFs bear no comparison to members of club, which, by its very incorporation, is a grouping of individuals who have chosen to be members of a particular institution or club for fulfilment of certain human needs social, sporting, recreational etc. that cannot be fulfilled except in such organised collectives.

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