Rule – 2D, Guidelines for approval under clause (23F) of section 10

2D. (1) For the purposes of clause (23F) of section 10, the prescribed authority shall be the Director of Income-tax (Exemptions) having jurisdiction over the venture capital fund or the venture capital company who makes application for approval under sub-rule (2).

(2) An application for approval shall be made in Form No. 56A by a venture capital fund or a venture capital company to the Director of Income-tax (Exemptions) referred to in sub-rule (1).

(3) Every application under sub-rule (2) may be made in any previous year in which any income by way of dividend or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking shall not be included in computing the total income of such venture capital fund or venture capital company.

(4) Every application for approval under sub-rule (2) shall be accompanied by the following documents, namely :—

 (a) a copy of trust deed or certificate of incorporation under the Companies Act, 1956 (1 of 1956);
(b) balance sheets and profit and loss account for three previous years immediately preceding the previous year in which the application is made;
(c) Forms 56B and 56C duly filled in and signed by the applicant; and
(d) a copy of the certificate of registration issued by the Securities and Exchange Board of India.

(5) The Director of Income-tax (Exemptions) shall approve the venture capital fund or the venture capital company, as the case may be, subject to the following conditions, namely :—

(a) the venture capital fund or the venture capital company, as the case may be, is registered with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(b) ⁶⁶[* * *]
(c) ⁶⁶[* * *]
(d) a venture capital fund or a venture capital company, as the case may be, shall not invest more than ⁶⁷[twenty] per cent of its total monies raised or total paid-up share capital in one venture capital undertaking;
(e) a venture capital fund or a venture capital company, as the case may be, shall not make investment of more than forty per cent in the equity capital of one venture capital undertaking;
(f) every venture capital fund and venture capital company, shall maintain books of account and get such books audited by an accountant, as defined in Explanation to sub-section (2) of section 288 and furnish the report of such audit duly signed and verified by such accountant to the Director of Income-tax (Exemptions) before the due date of filing of the return under sub-section (1) of section 139.

(6) The Director of Income-tax (Exemptions) shall pass an order in writing granting approval or refusing approval to the venture capital fund or venture capital company, as the case may be :

Provided that the Director of Income-tax (Exemptions) shall not refuse the approval except in concurrence with the Director-General of Income-tax (Exemptions):

Provided further that every venture capital fund or venture capital company, as the case may be, shall be given an opportunity of being heard before passing an order under this rule.

(7) The Director of Income-tax (Exemptions) shall withdraw the approval granted under sub-rule (6) in the following circumstances, namely :—

(a) if the venture capital fund or the venture capital company—

(i) fails to make investments in the manner specified in sub-rule (5);
(ii) invests more than ⁶⁷[twenty] per cent of the monies raised by a venture capital fund or ⁶⁷[twenty] per cent of paid-up share capital of the venture capital company, as the case may be, in one venture capital undertaking;
(iii) makes an investment of more than forty per cent in the equity capital in one venture capital undertaking;
(iv) fails to maintain books of account and get such accounts audited by an accountant or fails to file the audit report required in clause (f) of sub-rule (5);
(v) violates the provisions of the Act or rules made thereunder;

 (b) if the certificate of registration granted under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to a venture capital fund or a venture capital company is suspended or cancelled by the Securities and Exchange Board of India.]