The Assessing Officer says my AIF scheme has its own PAN but no SEBI registration of its own, so it is not an 'investment fund' and section 10(23FBA) is gone. Is that right?
No, on these facts. The Mumbai Tribunal held that exemption under section 10(23FBA) cannot be denied solely because the scheme has a separate PAN while the SEBI registration stands in the name of the trust, where the scheme is floated under a SEBI-registered Category II Alternative Investment Fund trust — and it pointed to Explanation 1 to section 115UB, which itself recognises a 'scheme of the investment fund'. The consequential addition treating the book surplus in excess of the distributed income as business income was also deleted, because once the pass-through applies the premise for that addition disappears, and because the difference was only statutory indexation under section 48.
Decided by the ITAT (Shri Anikesh Banerjee, Judicial Member and Shri Makarand Vasant Mahadeokar, Accountant Member) on 2026-02-03, reported as ITA No. 7439/Mum/2025, Income Tax Appellate Tribunal, 'E' Bench, Mumbai; assessment year 2023-24; heard 29 January 2026, pronounced 3 February 2026. It bears on section 10(23FBA), section 115UB, section 48, section 143(3), section 144B, section 270A of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions, Assessment & Scrutiny and Capital Gains matters.
This is the single most common structural objection taken to Category I and II AIF returns, and it arises because SEBI permits one registered AIF trust to launch multiple schemes while the Income-tax Department issues a separate PAN for each scheme. The Tribunal's route is worth following exactly: a separate PAN is an identifier for tax administration and is not determinative of whether a separate trust exists; whether an arrangement is a separate 'fund established in the form of a trust' is a matter of substance and of the governing documents; and Explanation 1(c) to section 115UB defines a unit as beneficial interest 'in the investment fund or a scheme of the investment fund', which shows the Act contemplates schemes operating under a single registration. The Tribunal also used an admission in the assessment order itself — that the trust deed permitted the trust to float multiple schemes — as an important admission of the structural position. Note the limits. The order is a Tribunal decision on its own facts, it draws on a mutual fund case under section 10(23D) only for a narrow persuasive point, and the second issue turned on the assessee having recorded the securities as investments and not stock-in-trade and on the Revenue having brought nothing on record to show a business activity; a fund whose books show stock-in-trade or trading frequency will not get the same answer.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, Edelweiss Crossover Opportunities Fund, is a scheme of Edelweiss Alternative Investment Opportunities Trust, a trust registered with SEBI as a Category II Alternative Investment Fund under the SEBI (Alternative Investment Funds) Regulations, 2012 under registration number IN/AIF2/17-18/0502. It filed its return for assessment year 2023-24 on 27 July 2023 declaring nil income in the status of a trust under its own PAN. In assessment under section 143(3) read with section 144B, completed on 18 March 2025, the Assessing Officer noticed that the SEBI registration certificate stood in the name of the trust and not in the name of the scheme, held that the scheme had a separate PAN and a separate legal identity and did not itself hold a Category I or Category II registration, and therefore did not qualify as an 'investment fund' within section 115UB; he withdrew the exemption of Rs. 4,51,59,13,961 claimed under section 10(23FBA). Without prejudice, he treated the profit and loss account surplus of Rs. 4,68,22,29,447 as business income and brought the difference of Rs. 16,63,15,486 to tax, the assessee's case being that the difference represented indexation on long-term capital gains on the sale of unlisted equity shares. Penalty proceedings under section 270A were initiated. The Commissioner (Appeals), National Faceless Appeal Centre, dismissed the appeal on 4 November 2025, holding that the scheme did not itself possess SEBI registration. Before the Tribunal the assessee relied on the SEBI registration certificate of the trust, on the SEBI Regulations permitting an AIF to launch multiple schemes under a single registration, on a SEBI amendment recording that schemes of an AIF generally obtain separate PANs and are understood to be assessed separately, and on the private placement memorandum dated 13 November 2017 describing the assessee as a scheme of the registered trust.
The appeal was allowed. Exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the trust, where the scheme is floated under the SEBI-registered Category II AIF trust and the statute itself recognises a 'scheme of the investment fund' in the context of section 115UB; the addition of Rs. 4,51,59,13,961 was directed to be deleted (paragraph 27). The double taxation plea thereupon became academic and grounds 1.1 and 1.2 were allowed (paragraph 28). The addition of Rs. 16,63,15,486 as business income was also deleted, both because the premise for it did not survive the finding on eligibility and, on merits, because the difference arose from statutory indexation under section 48 and the Assessing Officer had brought no material to show that the gains arose from a business activity (paragraphs 30 and 31). Interest was directed to be recomputed and the penalty held not to survive (paragraph 32), and the appeal was allowed (paragraph 33).
The Tribunal began from an admission in the assessment order itself: the Assessing Officer had recorded that the trust could float multiple schemes under paragraph 4.2 of the trust deed, which the Tribunal treated as an important admission of the structural position that the trust is the AIF vehicle and schemes are floated under it (paragraph 22). It then rejected the reasoning that a separate PAN makes the scheme a separate trust required to obtain its own registration, holding that this proceeds on an assumption: a PAN is an identifier for tax administration, and whether an arrangement constitutes a separate fund established in the form of a trust, as contemplated for section 115UB, is a matter of substance and of the governing documents and not of PAN alone (paragraph 23). It found the statutory language decisive in the assessee's favour, noting that the Assessing Officer had himself referred to Explanation 1 to section 115UB, under which 'unit' means beneficial interest of an investor in the investment fund or a scheme of the investment fund; that recognition of a scheme of an investment fund fortifies the plea that the Act contemplates schemes operating under an investment fund framework and does not by itself require each scheme to obtain an independent registration (paragraph 24). The coordinate bench decision in UTI India Fund Unit Scheme 1986 was held to have persuasive value on the narrow point that exemption cannot be denied merely because the scheme has a separate PAN and the registration is in the parent's name, even though it arose under section 10(23D) and the statutory framework is not identical (paragraphs 25 and 26). On the second issue the Tribunal found that the securities were recorded as investments and not stock-in-trade, that the income was returned as capital gains and other sources and passed on under rule 12CB read with Form 64D, and that the difference between book surplus and distributed income was only statutory indexation under section 48, so it could not be regarded as independent taxable income; the addition had been sustained as business income without any material showing a business activity (paragraph 31).
the exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the Trust, when the scheme is stated to be floated under the SEBI registered Category II AIF trust and the statute itself recognises "scheme of the investment fund" in the context of section 115UB.
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Handle my notice → Ask a CA on WhatsAppNo, on these facts. The Mumbai Tribunal held that exemption under section 10(23FBA) cannot be denied solely because the scheme has a separate PAN while the SEBI registration stands in the name of the trust, where the scheme is floated under a SEBI-registered Category II Alternative Investment Fund trust — and it pointed to Explanation 1 to section 115UB, which itself recognises a 'scheme of the investment fund'. The consequential addition treating the book surplus in excess of the distributed income as business income was also deleted, because once the pass-through applies the premise for that addition disappears, and because the difference was only statutory indexation under section 48. This was decided by the ITAT (Shri Anikesh Banerjee, Judicial Member and Shri Makarand Vasant Mahadeokar, Accountant Member) and bears on section 10(23FBA), section 115UB, section 48, section 143(3), section 144B, section 270A of the Income Tax Act 1961. It is reported as ITA No. 7439/Mum/2025, Income Tax Appellate Tribunal, 'E' Bench, Mumbai; assessment year 2023-24; heard 29 January 2026, pronounced 3 February 2026. This is the single most common structural objection taken to Category I and II AIF returns, and it arises because SEBI permits one registered AIF trust to launch multiple schemes while the Income-tax Department issues a separate PAN for each scheme. The Tribunal's route is worth following exactly: a separate PAN is an identifier for tax administration and is not determinative of whether a separate trust exists; whether an arrangement is a separate 'fund established in the form of a trust' is a matter of substance and of the governing documents; and Explanation 1(c) to section 115UB defines a unit as beneficial interest 'in the investment fund or a scheme of the investment fund', which shows the Act contemplates schemes operating under a single registration. The Tribunal also used an admission in the assessment order itself — that the trust deed permitted the trust to float multiple schemes — as an important admission of the structural position. Note the limits. The order is a Tribunal decision on its own facts, it draws on a mutual fund case under section 10(23D) only for a narrow persuasive point, and the second issue turned on the assessee having recorded the securities as investments and not stock-in-trade and on the Revenue having brought nothing on record to show a business activity; a fund whose books show stock-in-trade or trading frequency will not get the same answer. If it applies to you, the first step is this: Put the SEBI registration certificate of the TRUST on the record, together with the trust deed clause permitting multiple schemes and the private placement memorandum describing the assessee as a scheme of that trust — those were the three documents the Tribunal relied on.
The assessee, Edelweiss Crossover Opportunities Fund, is a scheme of Edelweiss Alternative Investment Opportunities Trust, a trust registered with SEBI as a Category II Alternative Investment Fund under the SEBI (Alternative Investment Funds) Regulations, 2012 under registration number IN/AIF2/17-18/0502. It filed its return for assessment year 2023-24 on 27 July 2023 declaring nil income in the status of a trust under its own PAN. In assessment under section 143(3) read with section 144B, completed on 18 March 2025, the Assessing Officer noticed that the SEBI registration certificate stood in the name of the trust and not in the name of the scheme, held that the scheme had a separate PAN and a separate legal identity and did not itself hold a Category I or Category II registration, and therefore did not qualify as an 'investment fund' within section 115UB; he withdrew the exemption of Rs. 4,51,59,13,961 claimed under section 10(23FBA). Without prejudice, he treated the profit and loss account surplus of Rs. 4,68,22,29,447 as business income and brought the difference of Rs. 16,63,15,486 to tax, the assessee's case being that the difference represented indexation on long-term capital gains on the sale of unlisted equity shares. Penalty proceedings under section 270A were initiated. The Commissioner (Appeals), National Faceless Appeal Centre, dismissed the appeal on 4 November 2025, holding that the scheme did not itself possess SEBI registration. Before the Tribunal the assessee relied on the SEBI registration certificate of the trust, on the SEBI Regulations permitting an AIF to launch multiple schemes under a single registration, on a SEBI amendment recording that schemes of an AIF generally obtain separate PANs and are understood to be assessed separately, and on the private placement memorandum dated 13 November 2017 describing the assessee as a scheme of the registered trust. The matter was decided on 2026-02-03 by the ITAT (Shri Anikesh Banerjee, Judicial Member and Shri Makarand Vasant Mahadeokar, Accountant Member). On those facts the ITAT held as follows. The appeal was allowed. Exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the trust, where the scheme is floated under the SEBI-registered Category II AIF trust and the statute itself recognises a 'scheme of the investment fund' in the context of section 115UB; the addition of Rs. 4,51,59,13,961 was directed to be deleted (paragraph 27). The double taxation plea thereupon became academic and grounds 1.1 and 1.2 were allowed (paragraph 28). The addition of Rs. 16,63,15,486 as business income was also deleted, both because the premise for it did not survive the finding on eligibility and, on merits, because the difference arose from statutory indexation under section 48 and the Assessing Officer had brought no material to show that the gains arose from a business activity (paragraphs 30 and 31). Interest was directed to be recomputed and the penalty held not to survive (paragraph 32), and the appeal was allowed (paragraph 33).
The Tribunal began from an admission in the assessment order itself: the Assessing Officer had recorded that the trust could float multiple schemes under paragraph 4.2 of the trust deed, which the Tribunal treated as an important admission of the structural position that the trust is the AIF vehicle and schemes are floated under it (paragraph 22). It then rejected the reasoning that a separate PAN makes the scheme a separate trust required to obtain its own registration, holding that this proceeds on an assumption: a PAN is an identifier for tax administration, and whether an arrangement constitutes a separate fund established in the form of a trust, as contemplated for section 115UB, is a matter of substance and of the governing documents and not of PAN alone (paragraph 23). It found the statutory language decisive in the assessee's favour, noting that the Assessing Officer had himself referred to Explanation 1 to section 115UB, under which 'unit' means beneficial interest of an investor in the investment fund or a scheme of the investment fund; that recognition of a scheme of an investment fund fortifies the plea that the Act contemplates schemes operating under an investment fund framework and does not by itself require each scheme to obtain an independent registration (paragraph 24). The coordinate bench decision in UTI India Fund Unit Scheme 1986 was held to have persuasive value on the narrow point that exemption cannot be denied merely because the scheme has a separate PAN and the registration is in the parent's name, even though it arose under section 10(23D) and the statutory framework is not identical (paragraphs 25 and 26). On the second issue the Tribunal found that the securities were recorded as investments and not stock-in-trade, that the income was returned as capital gains and other sources and passed on under rule 12CB read with Form 64D, and that the difference between book surplus and distributed income was only statutory indexation under section 48, so it could not be regarded as independent taxable income; the addition had been sustained as business income without any material showing a business activity (paragraph 31). In the words reproduced by the source cited on this page: "the exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the Trust, when the scheme is stated to be floated under the SEBI registered Category II AIF trust and the statute itself recognises "scheme of the investment fund" in the context of section 115UB." The decision followed or applied DCIT (E) v. UTI India Fund Unit Scheme 1986, ITA Nos. 1859 to 1862/Mum/2023 and C.O. No. 92/Mum/2023, order dated 24 November 2023 — followed on the narrow point only, the Tribunal expressly noting that it arose under section 10(23D) and that the statutory framework is not identical.
It was decided by the ITAT on 2026-02-03 and is reported as ITA No. 7439/Mum/2025, Income Tax Appellate Tribunal, 'E' Bench, Mumbai; assessment year 2023-24; heard 29 January 2026, pronounced 3 February 2026. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 10(23FBA), section 115UB, section 48, section 143(3), section 144B, section 270A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed. Exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the trust, where the scheme is floated under the SEBI-registered Category II AIF trust and the statute itself recognises a 'scheme of the investment fund' in the context of section 115UB; the addition of Rs. 4,51,59,13,961 was directed to be deleted (paragraph 27). The double taxation plea thereupon became academic and grounds 1.1 and 1.2 were allowed (paragraph 28). The addition of Rs. 16,63,15,486 as business income was also deleted, both because the premise for it did not survive the finding on eligibility and, on merits, because the difference arose from statutory indexation under section 48 and the Assessing Officer had brought no material to show that the gains arose from a business activity (paragraphs 30 and 31). Interest was directed to be recomputed and the penalty held not to survive (paragraph 32), and the appeal was allowed (paragraph 33). It arises in Charitable Trusts & Exemption, Capital Gains Exemptions, Assessment & Scrutiny and Capital Gains matters, on section 10(23FBA), section 115UB, section 48, section 143(3), section 144B, section 270A of the Income Tax Act 1961, and was decided by Shri Anikesh Banerjee, Judicial Member and Shri Makarand Vasant Mahadeokar, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Cite Explanation 1(c) to section 115UB by its words: a 'unit' is the beneficial interest of an investor in the investment fund or a SCHEME of the investment fund. That is the statutory recognition the Tribunal treated as fortifying the claim. Meet the separate-PAN point head on: a PAN is an identifier for tax administration and does not by itself create a separate trust; whether a separate fund exists is a question of substance and of the governing documents. Look for an admission in the assessment order itself — here the Assessing Officer had recorded that the trust deed permitted multiple schemes — and quote it back. On any consequential 'business income' addition made by comparing the book surplus with the income distributed, reconcile the difference item by item; here it was statutory indexation under section 48, and the Tribunal held that a difference produced by a statutory adjustment is not independent taxable income. Show the securities as investments and not as stock-in-trade in the books, and keep the Form 64D filing and rule 12CB compliance available — the Tribunal noted both in deleting the addition. If another scheme of the same trust has been allowed the exemption in a scrutiny assessment, put that assessment order on the record; the assessee did so here.
Validity check could not be completed. Validity check could not be completed. The order was pronounced on 3 February 2026 and no search for any appeal against it, or for any later Tribunal or High Court decision taking a different view, was carried out this pass. Whether the Revenue has appealed to the High Court under section 260A is unknown. The holding was read in three independent ways — the plain document URL for the header, the opening paragraphs and the disposal; the print view for paragraphs 4 to 14 and 25 to 33; and a document fragment query for the operative sentence — and the operative sentence at paragraph 27 came back in identical words on two of those routes. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to 33 numbered paragraphs; that count was established by transcribing the closing paragraphs from the plain document URL and again through the print view, both of which end at paragraph 33 with the words 'In the result, the appeal filed by the assessee is allowed.' Paragraph 15 as returned by the print view repeats, word for word, the text returned as paragraph 14 by the same source in an earlier pass; the surrounding paragraphs 13, 16 and 17 are distinct and continuous, so the duplication appears to be an artefact of the retrieval rather than of the order, but a later pass should confirm the numbering of paragraphs 14 and 15 against a signed copy. The Tribunal's reliance on DCIT (E) v. UTI India Fund Unit Scheme 1986 (ITA Nos. 1859 to 1862/Mum/2023 and C.O. No. 92/Mum/2023, order dated 24 November 2023) is expressly limited: that case was under section 10(23D) and the Tribunal held only that on the narrow point — whether exemption can be denied merely because the scheme has a separate PAN and the registration is in the name of the parent fund — it has persuasive value. The words of section 10(23FBA) itself were not read this pass; the departmental section 10 pages truncate long before that clause. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed. Exemption under section 10(23FBA) cannot be denied solely on the ground that the scheme has a separate PAN while the SEBI registration is of the trust, where the scheme is floated under the SEBI-registered Category II AIF trust and the statute itself recognises a 'scheme of the investment fund' in the context of section 115UB; the addition of Rs. 4,51,59,13,961 was directed to be deleted (paragraph 27). The double taxation plea thereupon became academic and grounds 1.1 and 1.2 were allowed (paragraph 28). The addition of Rs. 16,63,15,486 as business income was also deleted, both because the premise for it did not survive the finding on eligibility and, on merits, because the difference arose from statutory indexation under section 48 and the Assessing Officer had brought no material to show that the gains arose from a business activity (paragraphs 30 and 31). Interest was directed to be recomputed and the penalty held not to survive (paragraph 32), and the appeal was allowed (paragraph 33).
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