NATIONAL STOCK EXCHANGE INVESTOR PROTECTION FUND TRUST, MUMBAI V. ASST DIT (E) II(2), MUMBAI

ITA 1021/MUM/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78972 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRITAM SINGH
• Assessee Lawyers: A V SONDE SHRI SUNIL NAHTA
• Keywords: Charitable institution; Opportunity of being heard; Transactions in derivatives; Additional evidence
• Section: 234B; 10B; 12; 154; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH, MUMBAI , ! '# $ $ $ $ % && , '# ' BEFORE SHRI N.K. BILLAIYA, AM & SHRI SANJAY GARG , JM ./ I.T.A. NO.1021/MUM/2014 ( ( ( ( ( / ASSESSMENT YEAR :2010-11 M/S. NATIONAL STOCK EXCHANGE INVESTOR PROTECTION FUND TRUST, EXCHANGE PLAZA, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. THE ADIT(E)-11(2), PIRAMAL CHAMBERS, PAREL, MUMBAI-400 012 #) ! ./ %* ./ PAN/GIR NO. : AAATN 2497A ( )+ / APPELLANT ) .. ( ,-)+ / RESPONDENT ) )+ . / APPELLANT BY: SHRI A.V. SONDE SHRI SUNIL NAHTA ,-)+ / . / RESPONDENT BY: SHRI PRITAM SINGH / 01! / DATE OF HEARING :26.03.2014 23( / 01! / DATE OF PRONOUNCEMENT :23.05.2014 '4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. CIT(A)-1, MUMBAI DT.1.11.2013 PERTAINING TO A.Y. 2 010-11. ITA NO. 1021/MUM/2014 2 2. THE GRIEVANCE OF THE ASSESSEE CAN BE SUMMARIZED IN FOLLOWING CATEGORIES: I) DENIAL OF THE BENEFIT OF SEC.11 OF THE ACT BY INVOK ING PROVISIONS OF SEC. 13(1)(C) OF THE ACT. II) DENIAL OF THE EXEMPTION U/S. 10(23EA) OF THE ACT. III) DOUBLE ADDITION OF RS. 30 LAKHS BEING CAPITAL GAIN ALREADY ADDED AND CONSIDERED IN ARRIVING THE ASSESSEES INC OME. IV) LEVY OF INTEREST U/S. 234B AND 234D OF THE ACT. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT CE NTRAL GOVERNMENT VIDE NOTIFICATION NO. F.NO. 14/4/SE/85 DT. 22 ND AUGUST, 1985 STIPULATED SETTING UP OF THE INVESTOR PROTECTION FUND (IPF)/CU STOMER PROTECTION FUND (CPF) BY THE STOCK EXCHANGE. THE SAID NOTIFIC ATION STIPULATES AS UNDER: UNDER THE EXISTING PROVISION IN THE RULES, BYE-LAW S AND REGULATIONS OF THE STOCK EXCHANGES, THERE IS NO PRO VISION FOR PAYING OF ANY DUES TO NON- MEMBERS CLIENTS WHENEVER A MEMBER IS DECLARED A DEFAULTER. THE AVAILABLE ASSETS OF THE A MEMBER WHO IS DECLARED DEFAULTER ARE DISTRIBUTED FIRST TO THE STO CK EXCHANGE AND LAST TO THE MEMBER OF STOCK EXCHANGE HAVING CLAIMS AGAINST THE DEFAULTING MEMBER ON PRORATA BASIS. AS A RESULT, TH ERE IS NO PROTECTION FOR ANY CLIENT OF A MEMBER, WHO IS DECLA RED A DEFAULTER. IN THE LIGHT OF THE EXISTING POSITION, WHICH IS NOT CONDUCTIVE TO INSTILLING CONFIDENCE IN THE MINDS OF THE INVEST ING PUBLIC OF THE STOCK EXCHANGES, THERE IS ALSO AN IMPERATIVE NEED F OR THE CREATION OF A COMPENSATION FUND TO TAKE CARE OF THE LEGITIMA TE INVESTMENT CLAIMS WHICH ARE NOT OF A SPECULATIVE NATURE OF THE CLIENTS OF DEFAULTING MEMBERS. THE FUND WILL HAVE TO BE INITIA LLY FINANCED BY WAY OF LEVY ON THE TURNOVER OF MEMBERS AS WAS DONE BY THE SECURITIES INVESTOR PROTECTION CORPORATION OF THE I NDIAN STATES. SIMILARLY, THE STOCK EXCHANGES SHOULD ALSO CONTRIBU TE TO SUCH A ITA NO. 1021/MUM/2014 3 FUND, EVERY YEAR, 1% OF THE LISTING FEES RECEIVED B Y THE EXCHANGE [EMPHASIS SUPPLIED] FURTHER, AS PER THE TERMS OF THE SAID DIRECTIVES, N O PART OF THE INCOME OR PROPERTY OF THE TRUST FUND ARE TO BE UTIL IZED FOR THE MEMBERS OF THE STOCK EXCHANGE. SEBI HAS WITH A VIEW TO BRING UNIFORMITY IN THE PRA CTICES FOLLOWED BY STOCK EXCHANGES WITH RESPECT TO CONSTIT UTION, MANAGEMENT AND THE UTILIZATION OF THE TPF/CPF AT TH E STOCK EXCHANGE ISSUED A COMPREHENSIVE GUIDELINES ALONGWIT H ANNEXURE VIDE LETTER NO. MRD/DOPISE/CIR-8/2004 DATED OCTOBER 28,2004. IN TERMS OF THE SAID GUIDELINES THE INVESTOR PROTECTIO N FUND / CUSTOMER FUND SHALL BE ADMINISTERED BY WAY OF TRUST . 1.2 ACCORDINGLY, UNDER THE SAID DIRECTION GIVEN BY MINISTRY OF FINANCE, THE NATIONAL STOCK EXCHANGE INVESTOR PR OTECTION FUND TRUST (NSEIPFT) WAS SET UP ON 11.07.1995 IN TERMS OF RULES AND BYE-LAWS OF NATIONAL STOCK EXCHANGE OF INDIA LTD. (NSEJL) (WHICH RULES & BYE-LAWS ARE SEBI APPROVED) AND GUID ELINES ISSUED BY SEBI TO ALL STOCK EXCHANGE VIDE LETTER NO . SMD/RCG/PJ/268/96 DATED JANUARY 19, 1996 WITH AN OB JECT FOR SAFEGUARDING THE INTEREST OF THE SMALL INVESTORS A ND PROMOTION OF THE HEALTHIER AND TRANSPARENT STOCK MARKET. THE MAI N OBJECT AND PURPOSE OF THE APPELLANT TRUST HAVE BEEN DESCRIBED IN CLAUSE 10 AND 1OA OF THE TRUST DEED DATED 11.07.1995 WHICH RE ADS AS UNDER: A. TO COMPENSATE FOR ANY LOSS WHICH MAY BE SUFFERE D BY ANY PERSON INCLUDING A TRADING MEMBER OR A CONSTITUENT ARISING FROM A TRADING MEMBER BEING DECLARED AS A DEFAULTER BY THE SETTLER, UNDER CHAPTER XII OF THE BYE-LAWS OF THE SETTLER, UPTO A LIMIT AS MAY BE DETERMINED BY THE TRUSTEES. B. FOR SUCH OTHER PURPOSE OF THE PUBLIC UTILITY AS THE TRUSTEES MAY DEEM FIT AND CONSISTENT WITH THE OBJECT OF THE TRUST. C. TO UTILIZE INTEREST INCOME ON INVESTOR PROTECTI ON UND FOR INVESTOR EDUCATION, AWARENESS AND RESEARCH. ITA NO. 1021/MUM/2014 4 4. THE ASSESSEE FILED ITS RETURN OF INCOME ON 6.10 .2010 ALONGWITH THE INCOME AND EXPENDITURE ACCOUNT, BALANCE SHEET AND A UDIT REPORT IN FORM NO. 10B DECLARING TOTAL INCOME AT RS. NIL. THE RET URN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTIC ES WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAS RECEIVED INTEREST INCOME AT RS. 26,48,15,331/- AND OTHER CONTRIBUTIONS AT RS. 21,81,71,167/- AND THE CAPITAL GAIN OF RS. 3 0 CRORES. THE AO FURTHER OBSERVED THAT RS. 8,45,25,315/- AND RS. 4,2 5,414/- HAVE BEEN RECEIVED FROM NSEIL AND NSEILS MEMBERS AND THE SAM E HAVE BEEN CLAIMED AS EXEMPT U/S. 10(23EA) OF THE ACT SPECIFIC ALLY PROVIDED FOR STOCK EXCHANGE INVESTOR PROTECTION FUNDS IN THE ACT . THE AO FURTHER NOTICED THAT FOR THE REMAINING INCOME OF RS. 69,80 ,35,769/- WHICH COMPRISES OF CAPITAL GAINS OF RS. 30 CRORES, THE AS SESSEE HAS CLAIMED EXEMPTION U/S. 11 OF THE ACT. 4.1. AFTER PERUSING THE MATERIAL EVIDENCES BROUGHT BEFORE HIM, THE AO WAS OF THE STRONG BELIEF THAT THE ASSESSEE IS HIT B Y PROVISIONS OF SEC. 13(1)(C) (I) THE AO FURTHER OBSERVED THAT THE ASSE SSEE IS ALSO HIT BY SEC. 13(3)(B) OF THE ACT. THE BONE OF CONTENTION IS THE FOLLOWING CLAUSE IN THE DEED OF TRUST. WHEREAS THE SETTLOR IS DESIROUS OF SETTING UP A TR UST FOR THE PURPOSE OF PROVIDING AN APPROPRIATE AVENUE FOR PAYMENT OF COMPENSATION UNDER CHAPTER XIII OF THE BYELAWS OF T HE SETTLOR TO PERSONS ACTING AS A TRADING MEMBER OF THE SETTLOR O R AS A CONSTITUENT OF THE TRADING MEMBER FOR ANY LOSS SUBJ ECT TO CERTAIN TERMS AND CONDITIONS ARISING FROM A TRADING MEMBER OF THE SETTLOR BEING DECLARED AS DEFAULTER BY THE SETTLOR UNDER CH APER XII OF THE BYE-LAWS OF THE SETTLOR. ITA NO. 1021/MUM/2014 5 4.2. TO SUPPORT HIS FINDINGS, THE AO OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS RECEIVED CONTRIBUTIONS FROM NATIONAL S TOCK EXCHANGE OF INDIA LTD. AT RS. 7,74,87,145 AND FROM TRADING MEMB ERS OF NSEIL AT RS. 4,25,414/- IS MORE THAN RS. 50,000/-. THEREFORE, P ROVISIONS OF CLAUSE (B) OF SEC. 13(3) OF THE ACT SQUARELY APPLY ON THE FACT S OF THE CASE READ WITH CLAUSE OF DEED OF TRUST MENTIONED HEREINABOVE. 4.3. CONSIDERING THESE FACTS IN THE LIGHT OF THE DE ED OF TRUST, THE AO WAS OF THE STRONG BELIEF THAT UNDER THE TERMS OF TH E TRUST OR THE RULES GOVERNING THE INSTITUTION, INCOME OF TRUST ENSURES DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF TRADING MEMBERS OF NSE. THUS, ASSES SEES CASE IS HIT BY PROVISIONS OF SEC. 13(1)(C)(I) OF THE ACT. THE AS SESSEE WAS SHOW CAUSED TO JUSTIFY ITS CLAIM. THE ASSESSEE FILED A DETAILE D REPLY STATING THAT THE TRUST WAS FORMED AS PER THE DIRECTIONS OF THE CENTR AL GOVT. AND SEBI. THE DIRECTIONS AND THE GUIDELINES OF THE SEBI CLEARLY S AYS THAT NO PART OF THE INCOME WILL BE UTILIZED FOR MEMBERS OF STOCK EXCHAN GE. IT WAS FURTHER POINTED OUT THAT THE OBJECTS OF THE TRUST CLEARLY S TATES THAT INCOME OF TRUST CANNOT BE UTILIZED FOR TRADING MEMBERS. IT WAS EXP LAINED THAT THE INCOME OF THE TRUST IS UTILIZED FOR PAYMENT OF INVESTORS O NLY AND THAT TOO ONLY WHEN THE ASSETS OF THE DEFAULTED MEMBERS COULD NOT MAKE UP FOR IT. THERE IS NO BENEFIT TO THE TRADING MEMBERS AND TO THE NAT IONAL STOCK EXCHANGE. THE COMPENSATION PAID IS TO THE GENERAL PUBLIC AT L ARGE AND THEREFORE ASSESSEES CLAIM OF EXEMPTION U/S. 11 IS NOT HIT B Y SEC 13(1)(C)(I) READ WITH SEC. 13(3) OF THE ACT. 4.4. REFERRING TO THE CLAUSE OF THE TRUST DEED MENT IONED ELSEWHERE, THE AO REITERATED THAT THE ARRANGEMENT IN THE TRUST DEE D MAKE SURE THAT INCOME OF TRUST ENSURES BENEFIT TO NATIONAL STOCK E XCHANGE AND ITS ITA NO. 1021/MUM/2014 6 MEMBERS DIRECTLY OR INDIRECTLY. THE AO WENT ON TO DENY THE BENEFIT OF SEC. 11 & 12 IN RESPECT OF THE REMAINING INCOME OF RS. 69,80,35,769/- WHICH INCLUDES CAPITAL GAIN OF RS. 30 CRORES. FURT HER, THE AO DECLINE TO ALLOW EXPENDITURE CLAIMED AND FURTHER DECLINE TO AL LOW 15% OF INCOME CLAIMED AS EXEMPT. THE ASSESSMENT WAS COMPLETED AT RS. 75,82,80,500/- 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) AT PARA 4.5.1 ON PAGE 18 & 19 OF HIS ORDER OBSERVED AS UNDER: FROM THE DETAILED APPRECIATION OF TRANSACTIONS MAD E BY THE APPELLANT DURING THE YEAR BY WAY OF PAYMENTS MA DE TO THE INVESTORS, IT IS SEEN THAT SAME IS CAUSED BY DEFAUL T OF MEMBER(STOCK BROKER) OF THE STOCK EXCHANGE. THE ME MBER OF THE STOCK EXCHANGE AND THE ACTIVITIES CARRIED OUT IN TH E STOCK EXCHANGE ARE OF PARTICULAR AND DEFINITE CHARACTER O F BUSINESS AND COMMERCE WHICH TAKE PLACE IN THE STOCK EXCHANGE. T HE INVESTORS THROUGH THE STOCK MEMBERS OR OTHERWISE IN THE ON GO ING BUSINESS OF THE STOCK EXCHANGE, PARTICIPATE FOR CARRYING OUT BUSINESS FOR RESULTING PROFIT/LOSS. THE STOCK MEMBERS (BROKERS) AND INVESTORS ARE ALL PART OF THE ONGOING BUSINESS IN THE STOCK E XCHANGE. THE ROLE ENVISAGED AND ACQUIRED BY THE APPELLANT IS FOR THE DEFAULTING STOCK MEMBER(BROKER) IN SUCH EVENTUALI TIES OF DEFAULT IN RELATION TO TRANSACTING PARTY. THUS, IN EFF3ECT AND FOR THE PURPOSE OF SETTLEMENT OF CLAIMS OF INVESTORS, THE A PPELLANT ACQUIRES THE ROLE OF DEFAULTING STOCK MEMBER (BROKE R). AT THE SAME TIME IT IS ALSO ON RECORD THAT DURING THE FINA NCIAL YEAR, NSE AND TRADING MEMBERS(BROKERS) HAVE CONTRIBUTED AN AM OUNT OF RS.8,45,25,315/- AND RS.4,25,414/- TO THE APPELLANT TOTALING TO RS.8,49,50,728/-. THUS, IT CAN BE SEEN THAT IT IS THE LIABILITIES OF THE STOCK MEMBER (BROKER) WHICH IS PAID BY THE APPE LLANT TO THE INVESTOR BY WAY OF SETTLEMENT OF THEIR CLAIMS. THE REFORE, IT IS OBVIOUS THAT BY MEETING/FULFILLING AND PAYING THE L IABILITY OF THE DEFAULTING MEMBER(BROKER), IT IS FIRSTLY THE BENEFI T TO THE PERSON WHOSE LIABILITIES ARE MET OUT/PAID AND IN EFFECT SU BSEQUENTLY TO THE INVESTOR WHO GETS HIS DUE. THUS, IT CAN BE SE EN THAT THE CONTRIBUTIONS MADE BY TRADING MEMBER(BROKERS) INDIV IDUALLY OR CONTRIBUTED COLLECTIVELY AND ROUTED THROUGH THE CON CERNED STOCK EXCHANGE TO THE APPELLANT ARE DIRECTED UTILIZED FOR MEETING THE INDIVIDUAL LIABILITIES OF ONE OR MANY FROM THEMSELV ES (BROKERS) ONLY. APPARENTLY THE INVESTOR RECEIVES THE AMOUNT BUT IT IS SOMETHING DUE TO HIM FROM THE DEFAULTING STOCK MEMB ER(BROKER) ITA NO. 1021/MUM/2014 7 AND IN FACT WHAT HE GETS IS DUE TO HIM (INVESTOR) A S PART OF HIS PROFITS/CAPITAL UTILIZED AND RESULTING FROM REGULAR BUSINESS TRANSACTION OF THE STOCK EXCHANGE; THROUGH ITS MEMB ERS(BROKER). THEREFORE, IT IS DEFINITE AND CLEAR THAT THE PAYMEN TS MADE BY APPELLANT TRUST TO THE INVESTORS ARE FOR AND ON BEH ALF OF THE DEFAULTING MEMBER(BROKER) AND SINCE IT IS THE LIA BILITY OF DEFAULTING MEMBER, HENCE, THE BENEFICIARY IS THE DEFAULTING MEMBER INDIVIDUALLY AND MEMBERS COLLECTIVELY , WHO ARE ALSO CONTRIBUTORS TO THE FUND/INCOME OF THE TRUST. THE ARGUMENTS AND SUBMISSIONS OF THE APPELLANT ON THIS ISSUE BY REFER RING TO THE BENEFIT OF STOCK MARKET, INVESTOR AND MANDATE OF RE GULATORY BODIES IS ONLY REMOTE, EXTENDED AND SECONDARY ASPEC T OF THE TRANSACTIONS AND ACTIVITIES CARRIED OUT BY IT DIREC TLY TO BENEFIT OF STOCK EXCHANGE, MEMBER(BROKER) AND INVESTOR, ALL II N THE BUSINESS OF STOCK EXCHANGE. ON FACTS, I FIND THAT RESULT AN D EFFECT OF ACTIVITIES AND TRANSACTIONS IS PRIMARILY TO THE BEN EFIT OF DEFAULTING MEMBER WHOSE LIABILITIES ARE PAID/MET BY THE APPELL ANT WHICH MAY HAVE SECONDARY AND EXTENDED EFFECT OF COMPENSAT ING TO INVESTOR RESTORING THE CONFIDENCE OF THE INVESTOR P ROVIDING SURETY/COVER TO THE BUSINESS OF THE STOCK EXCHANGE IN GENERAL AND SO ON. SINCE, THE CONTRIBUTORS TO THE INCOME AND FUNDS OF THE APPELLANT AND BENEFICIARIES ARE SAME I.E. THE STOCK MEMBER (BROKER) INDIVIDUALLY AND/OR COLLECTIVELY, HENCE PR OVISIONS OF SECTION 13(1)(C) ARE HELD TO BE APPLICABLE AS ALSO DISCUSSED AND HELD BY THE AO IN MANY OTHER MANNER. 5.1. THE LD. CIT(A) FURTHER REJECTED THE ALTERNATIV E CLAIM OF THE ASSESSEE THAT ITS INCOME OF RS. 13,02,20,438/- REC EIVED FROM NSECL IS EXEMPT U/S. 10(23EA) OF THE ACT FIRSTLY ON THE GROU ND THAT SUCH CLAIM WAS NEVER MADE BY THE ASSESSEE IN ITS RETURN OF INCOME. FURTHER EXEMPTION FOR TOTAL INCOME PROVIDED U/S. 10 OF THE ACT IS NOT IN REFERENCE TO INCOME AS APPEARING IN SEC. 11 OF THE ACT AS BOTH ARE DIFFERE NT UNDER THE INCOME TAX ACT. SECONDLY, SINCE EXEMPTION U/S. 10 OF THE ACT IS IN RESPECT OF TOTAL INCOME IS NOT SPECIFICALLY PROVIDED TO BE AL LOWED U/S. 11 READ WITH SEC. 12 AND 13 OF THE ACT. THE LD. CIT(A) FINALLY CONCLUDED THAT THE ALTERNATIVE CLAIM OF EXEMPTION U/S. 10 OF THE ACT I S NOT ALLOWABLE TO THE ASSESSEE. IN SO FAR AS THE CLAIM OF THE ASSESSEE T HAT THE CAPITAL GAINS HAVE BEEN DOUBLY TAXED. THE LD. CIT(A) FOUND THAT THE A SSESSEE HAS FILED ITA NO. 1021/MUM/2014 8 RECTIFICATION APPLICATION U/S. 154 WHICH IS PENDING FOR DISPOSAL. THEREFORE, THE LD. CIT(A) DECLINE TO ADJUDICATE ON THIS MATTER. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE SHRI A.V. SONDE STRONGLY SUBMITTED TH AT THE REVENUE AUTHORITIES HAVE GROSSLY ERRED IN HOLDING THAT THE CLAIM OF THE TRUST IS HIT BY THE PROVISIONS OF SEC. 13(1). THE LD. COUNSEL F URTHER STATED THAT THE REVENUE AUTHORITIES HAVE NOT APPRECIATED THE TERMS OF THE DEED OF TRUST IN LINE WITH THE DIRECTIONS OF THE CENTRAL GOVT. AN D THE SEBI. DRAWING OUR ATTENTION TO THE COMPREHENSIVE GUIDELINES FOR I PF/CPF AT STOCK EXCHANGES, SHRI ARVIND SONDE POINTED OUT TO CLAUSE -14 UNDER THE HEAD ELIGIBLE CLAIMS WHICH READS AS UNDER: THE CLAIMS OF THE INVESTORS/CLIENTS SHALL BE ELIGIB LE FOR COMPENSATION FROM THE IPF/CPF AND IN NO CASE THE CL AIMS OF A BORKER OR AN ASSOCIATE OF THE MEMBER BROKER OF TH E STOCK EXCHANGE SHALL BE ELIGIBLE FOR COMPENSATION OUT OF THE IPF/CPF. 6.1. THE LD. COUNSEL FURTHER POINTED OUT TO CLAUSE- 24 OF THE SAID GUIDELINES WHICH STATES THAT THE STOCK EXCHANGE S HALL ENSURE THAT THE AMOUNT REALIZED BY THE AUCTION/CLOSE OUT OF THE CAR D/REALIZATION OF ASSETS OF THE DEFAULTER MEMBERS ARE CREDITED TO THE IPF/CP F AFTER SATISFYING THE CLAIMS OF THE STOCK EXCHANGE AND THE SBEI IN ACCORD ANCE WITH THE BYE- LAWS OF THE STOCK EXCHANGE. THE LD. COUNSEL VEHEM ENTLY SUBMITTED THAT NO BENEFIT DIRECTLY OR INDIRECTLY HAS ENSURED TO ANY PERSON REFERRED TO IN SEC. 13(3) CLAUSE (B) OF THE ACT. FURTHER NO CO MPENSATION HAS BEEN PAID DIRECTLY OR INDIRECTLY FOR THE BENEFITS OF THE NSE OR ANY OF ITS TRADING MEMBERS. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE NOTIFICATION ISSUED BY THE UNDER SECRETARY TO THE GOVT. OF INDIA DT. 15.12.2003 BY ITA NO. 1021/MUM/2014 9 WHICH THE CENTRAL GOVERNMENT HAS NOTIFIED THE ASSES SEE FOR THE PURPOSES OF SUB-CLAUSE (IV) OF 23(C) OF SEC. 10 OF THE ACT. THE LD. COUNSEL FURTHER DREW OUR ATTENTION TO THE NOTIFICATION DT. 29.11.2 005 BY WHICH THE CENTRAL GOVERNMENT HAS NOTIFIED THE ASSESSEE AS THE RECOGNIZED STOCK EXCHANGE FOR THE PURPOSES OF CLAUSE 23EA OF SEC. 10 OF THE ACT. THE LD. COUNSEL CONCLUDED BY SAYING THAT THE OBJECTS OF THE TRUST ARE FOR CHARITABLE PURPOSE AND NO BENEFIT HAS BEEN DERIVED BY THE CONTRIBUTORS DIRECTLY OR INDIRECTLY. IN SUPPORT, RELIANCE WAS P LACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS A NDHRA CHAMBERS OF COMMERCE 55 ITR 722 (SC), CIT VS BAR COUNCIL OF MAH ARASHTRA 130 ITR 28 (SC). RELIANCE WAS ALSO PLACED ON THE DECIS ION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS SOUTH INDIAN PHOT OGRAPHIC AND ALLIED TRADES ASSOCIATION 166 ITR 166 AND ON THE DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF CANE DEVELOPMENT COUNC IL VS CIT 35 SOT 308. TRIBUNAL MUMBAI BENCH IN THE CASE OF INTER CON NECTED STOCK EXCHANGE INVESTOR PROTECTION FUND 38 TAXMANN .COM 329, BOMBAY HIGH COURT IN THE CASE OF NAV KETAN INTERNATIONAL F ILMS PVT. LTD. 209 ITR 976. THE LD. COUNSEL CONCLUDED BY SAYING THAT THE LD. CIT(A) HAS GROSSLY ERRED IN NOT ALLOWING THE EXEMPTION U/S. 1 0(23EA) OF THE ACT. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE S AY OF THE LD. DR THAT THE ACTIVITIES OF THE TRUST ARE NOT CHARITABLE EVEN IF THE TRUST IS CREATED AS PER THE DIRECTIONS OF THE CENTRAL GOVERNMENT. THE LD. DR FURTHER STATED THAT THE REVENUE AUTHORITIES HAVE CLEARLY SHOWN THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SEC. 13(1)(C) AND THEREFORE THE B ENEFIT OF EXEMPTION U/S. 11 OF THE ACT HAS BEEN RIGHTLY DENIED BY THE AO. I N SUPPORT, THE LD. DR RELIED UPON THE DECISION OF THE HYDERABAD BENCH IN THE CASE OF HYDERABAD STOCK EXCHANGE 46 SOT 01,- HIGH COURT OF DELHI IN THE CASE ITA NO. 1021/MUM/2014 10 OF DELHI STOCK EXCHANGE ASSOCIATION LTD 126 ITR 532 , SUPREME COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LTD. 2 25 ITR 235. THE LD. DR CONCLUDED BY SAYING THAT THE FINDINGS OF THE LOW ER AUTHORITIES ARE BASED ON THE FACTS OF THE CASE AND THEREFORE DESERV ES TO BE CONFIRMED. 7.1. IN SO FAR AS THE ALTERNATIVE CLAIM OF THE ASSE SSEE THAT ITS INCOME IS EXEMPT U/S. 10(23EA) OF THE ACT. THE LD. DR RELIED UPON THE FINDINGS OF THE LD. CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES WITH THE RELEVA NT MATERIAL EVIDENCE BROUGHT ON RECORD BEFORE US. FROM THE OBJECTS OF T HE TRUST AND IN TERMS OF DIRECTIONS OF CENTRAL GOVERNMENT AND SEBI, IT IS CL EAR THAT THE INCOME OF THE TRUST/PROPERTY OF THE TRUST IS TO BE APPLIED FO R COMPENSATING LOSSES IF ANY ARISING OUT OF DEFAULTS OF THE TRADING MEMBERS OF THE STOCK EXCHANGE, TO PROMOTE, EDUCATE AND SPREAD AWARENESS AMONG THE GENERAL PUBLIC AT LARGE ABOUT THE SECURITIES AND THE TRADING MARKET A ND TO APPLY THE INCOME OF THE TRUST ON SUCH OTHER PURPOSE OF PUBLIC UTILIT Y AS IT MAY DEEM FIT. 8.1. THE NSE HAS FORMED A DEFAULTERS COMMITTEE WHI CH IS A STATUTORY COMMITTEE OF THE EXCHANGE SET UP TO ADMINISTER THE ASSETS IN RESPECT OF THE DEFAULTERS/EXPELLED MEMBERS VESTING IN THE EXCHANGE . THE DEFAULTERS COMMITTEE DISTRIBUTES THE AMOUNT AVAILABLE IN THE D EFAULTERS ACCOUNT TO THE ADMITTED CLAIMS ON PRO-RATE BASIS. IN THE EVEN T OF DEFAULTERS ASSETS NOT BEING SUFFICIENT TO MEET THE ADMITTED CLAIMS O F INVESTORS , THE INVESTOR PROTECTION FUND TRUST (ASSESSEE) BASED ON THE RECOMMENDATIONS OF THE DEFAULTERS COMMITTEE AND SUBJECT TO THE GUI DELINES ISSUED IN THIS BEHALF BY SEBI, COMPENSATES THE INVESTORS TO THE EX TENT OF FUNDS FOUND INSUFFICIENT IN DEFAULTERS ACCOUNT TO MEET THE ADM ITTED VALUE OF CLAIM. BY PAYING THE COMPENSATION TO INVESTORS, THE ASSESS EE TRUST COMPLIES WITH ITA NO. 1021/MUM/2014 11 THE OBJECTS OF THE TRUST. REVENUES ALLEGATION IS THAT BY PAYING COMPENSATION TO THE INVESTOR AMOUNTS TO PROVIDING O F UNDUE BENEFIT DIRECTLY OR INDIRECTLY TO THE MEMBERS, ACCORDING TO THE REVENUE AMOUNT WHICH IS OTHERWISE DUE FROM THE DEFAULTED TRADING M EMBERS IS PAID OUT ITS INCOME BY THE ASSESSEE TRUST. THIS IS A CLEAR BENE FIT TO THE DEFAULTED TRADING MEMBER. THE REVENUE FURTHER ALLEGES THAT T HOUGH APPARENTLY INVESTOR PROTECTION FUND IS FORMED AS PER THE DIREC TION OF SEBI FOR INVESTOR PROTECTION; IT IS NONETHELESS BENEFITING FOR THE BUSINESS OF NSE AND ITS TRADING MEMBERS SIMULTANEOUSLY IN GENERAL AND BENEFITING DEFAULTED TRADING MEMBER IN PARTICULAR. 8.2. DURING THE YEAR UNDER CONSIDERATION A COMPENSA TION PAID OUT OF ASSESSEES INCOME TO TRADING MEMBERS AND RELATED C ONSTITUENTS (CASH MARKET) IS RS. 1,98,61,790/- AND TO TRADING MEMBERS AND RELATED CONSTITUENTS (F&O) IS RS. 21,39,699/-. THE REVENUE S DENIAL OF EXEMPTION ENTIRELY REVOLVES AROUND THE ALLEGATION T HAT SUCH OUTFLOW OF COMPENSATION HAS DIRECTLY OR INDIRECTLY BENEFITED TO THE NSE OR ITS MEMBERS WHICH IS HIT BY THE PROVISIONS OF SEC. 13( 1)(C) R.W. SEC. 13(3) OF THE ACT, IN THE LIGHT OF THE CLAUSE OF THE DEED OF TRUST MENTIONED AT PARA 4.1 OF THIS ORDER. 9. ON THE OTHER HAND THE ASSESSEE STRONGLY STATED T HAT NONE OF THE CLAIMANTS/BENEFICIARIES/RECIPIENTS OF COMPENSATION WHOSE CLAIMS WERE SETTLED BY TRUST WERE TRADING MEMBERS OF NSEIL. NO T ONLY DURING THE YEAR UNDER CONSIDERATION BUT RIGHT FROM THE INCEPTI ON OF THE TRUST TILL DATE. THIS CATEGORICAL ASSERTION BY THE ASSESSEE IS IN ST ARK CONTRADICTION TO THE ALLEGATIONS OF THE REVENUE AUTHORITIES. IN SUPPORT OF ITS CONTENTION, THE ASSESSEE HAS FILED A DEMONSTRATIVE EVIDENCE IN THE FORM OF CERTIFICATE FROM THE AUDITORS OF THE ASSESSEE TRUST. ALTHOUGH THE R EVENUE AUTHORITIES HAVE ALLEGED THAT PAYMENT OF COMPENSATION HAS DIRECTED O R INDIRECTLY BENEFITED ITA NO. 1021/MUM/2014 12 TO THE TRADING MEMBERS OF NSEIL, HOWEVER, NOTHING H AS BEEN BROUGHT ON RECORD IN SUPPORT OF THIS ALLEGATION. THE CERTIFICA TE OF THE AUDITORS GIVE A DIFFERENT COLOUR TO THE FACTS. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY WE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO FILE THIS CERTIFICATE (ADMITTEDLY WHICH IS AN ADDITIONAL EVIDENCE) BEFORE THE AO AND DEMONSTRATE ITS CLAIM B Y BRINGING COGENT MATERIAL EVIDENCE ON RECORD. THE AO IS DIRECTED TO VERIFY THE CORRECTNESS OR OTHERWISE OF THE FACTS STATED IN THE CERTIFICATE AND DECIDE THIS ISSUE AFRESH IN THE LIGHT OF THE FACTS ARISING OUT OF THE CERTIFICATE. NEEDLESS TO MENTION, THE AO WOULD GIVE A REASONABLE AND SUFFICI ENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WITH THESE OBSERVATIO NS, GROUND NO. 1, 2 AND 3 ARE ALLOWED FOR STATISTICAL PURPOSE. 10. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO T HE DENIAL EXEMPTION CLAIMED U/S. 10(23EA) OF THE ACT. THIS CLAIM WAS M ADE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DECLINED TO ENTERTAIN T HIS CLAIM FIRSTLY IT WAS NEVER CLAIMED IN THE INCOME TAX RETURN FILED FO R THE YEAR UNDER CONSIDERATION. SECONDLY, SEC. 10 EXEMPTIONS ARE NO T AVAILABLE TO TRUST WHO CLAIMED THE BENEFIT OF SEC. 11 TO 13 OF THE ACT AND LASTLY THE CONTRIBUTION IS OUT OF AUCTION DIFFERENCE RECEIVED FROM RECOGNIZED STOCK EXCHANGES AND ITS MEMBERS THEREON. THE SECTION NOW HERE PROVIDES FOR THE EXAMINATION OF THE SOURCE OF THE SOURCE. THE L D. CIT(A) HAS DECLINED TO ALLOW THE EXEMPTION HOLDING THAT THE CONTRIBUTI ONS RECEIVED FROM NATIONAL SECURITIES CLEARING CORPORATION LTD. (NSCC L) WAS THE SUM RECEIVED AS AUCTION DIFFERENCE ARISING OUT OF BAD DELIVERY OF SCRIPS ON ACCOUNTS OF THE INVESTORS. THE FACT OF THE MATTER IS THAT THE LD. CIT(A) HAS OBJECTED TO THE SOURCE OF SOURCE. THE ASSESSE E TRUST HAS RECEIVED CONTRIBUTION IN TERMS OF SEBI GUIDELINES FROM NSCIL THAT SHOULD SUFFICE FOR THE CLAIM OF EXEMPTION. THEREFORE, WE DO NOT F IND ANY MERIT IN THE ITA NO. 1021/MUM/2014 13 FINDINGS OF THE LD. CIT(A) FOR DECLINING THE EXEMPT ION ON THIS GROUND. THE LD. CIT(A) HAS FURTHER DECLINE THE EXEMPTION HO LDING THAT SEC. 10 EXEMPTIONS ARE NOT AVAILABLE TO TRUST WHO CLAIMED T HE BENEFIT OF SEC. 11 TO 13 OF THE ACT. IN OUR UNDERSTANDING OF LAW, WE DO NOT FIND ANY PROHIBITION IN THE ACT DENYING THE CLAIM OF EXEMPTI ON U/S. 10 FOR THE TRUST WHO CLAIMED EXEMPTION U/S. 11 OF THE ACT. THE UNDIS PUTED FACT IS THAT THE ASSESSEE TRUST IS A NOTIFIED TRUST U/S. 10(23)(C)(I V) OF THE ACT VIDE NOTIFICATION DT. 15.12.2003. THE ASSESSEE IS ALSO A NOTIFIED TRUST UNDER CLAUSE 23EA OF SEC. 10 OF THE ACT VIDE NOTIFICATIO N DT. 29.11.05. SEC. 10(23EA) READS AS UNDER: ANY INCOME (BY WAY OF CONTRIBUTIONS RECEIVED FROM RECOGNIZED STOCK EXCHANGES AND THE MEMBERS THEREOF) OF SUCH INVESTOR PROTECTION FUND SET UP BY RECOGNIZED STOCK EXCHANGES IN INDIA, EITHER JOINTLY OR SEPARATELY, AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN THIS BEHALF 10.1 A PERUSAL OF THE ABOVE STATED SECTION SHOWS TH AT FOR AVAILING THE EXEMPTION CONTRIBUTIONS SHOULD BE RECEIVED FROM REC OGNIZED STOCK EXCHANGES AND THE MEMBERS THEREOF WHICH MEANS THAT THE SOURCE OF INCOME SHOULD BE THE CONTRIBUTIONS RECEIVED FROM RE COGNIZED STOCK EXCHANGES AND THE MEMBERS THEREOF. THE SECTION NO WHERE PROVIDES FOR THE EXAMINATION OF THE SOURCE OF THE SOURCE. THE LD . CIT(A) HAS DECLINED TO ALLOW THE EXEMPTION HOLDING THAT THE CONTRIBUTIO NS RECEIVED FROM NATIONAL SECURITIES CLEARING CORPN. LTD. ( NSCCL) O N THE GROUND THAT WAS THE SUM RECEIVED AS AUCTION DIFFERENCE ARISING OUT OF BAD DELIVERY OF SCRIPS ON ACCOUNTS OF THE INVESTORS. ITA NO. 1021/MUM/2014 14 10.2. EVEN THOUGH THIS CLAIM WAS NOT MADE BEFORE TH E AO DRAWING SUPPORT FROM THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS PRUTHVI BROKERS & SHARE HOLDERS PV T. LTD. 349 ITR 336 (BOM) WE DIRECT THE AO TO ENTERTAIN THIS CLAIM OF T HE ASSESSEE IN THE LIGHT OF OUR OBSERVATION MENTIONED HEREINABOVE. GROUND N O. 5 IS ACCORDINGLY ALLOWED. 11. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO T HE DOUBLE ADDITION OF RS. 30 LAKHS BEING CAPITAL GAIN. THE ISSUE NEEDS RE VERIFICATION AS IT IS A QUESTION OF FACT. WE, THEREFORE, RESTORE THIS ISSU E TO THE FILE OF THE AO. THE ASSESSEE IS DIRECTED TO DEMONSTRATE HOW CAPITAL GAIN OF RS.30.00 LACS HAVE BEEN CONSIDERED TWICE BY BRINGING COGENT MATER IAL EVIDENCE ON RECORD. THE AO IS DIRECTED TO VERIFY THE CLAIM IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE LAW. GROUND NO. 4 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 12. NEXT ISSUE IS CHARGING OF INTEREST U/S. 234 B AND 234C WHICH IS MANDATORY BUT CONSEQUENTIAL, IN THE PRESENT CASE. T HE AO IS DIRECTED TO LEVY INTEREST U/S. 234B AND 234C OF THE ACT AS PER THE PROVISIONS OF THE LAW. 13. BEFORE CLOSING, IN SO FAR AS THE GRIEVANCE REL ATING TO THE CLAIM OF EXPENSES AND THE RATE OF CHARGING OF TAX IN RESPECT OF CAPITAL GAIN ARE CONCERNED, THESE ARE CONSEQUENTIAL TO THE CLAIM OF EXEMPTION U/S. 11 OF THE ACT. AS WE HAVE RESTORED THIS ISSUE BACK TO THE FILES OF THE AO TO BE DECIDED AFRESH, THESE GRIEVANCES WILL AUTOMATICALL Y BE TAKEN CARE BY THE AO WHILE DECIDING THE MAIN ISSUE. ITA NO. 1021/MUM/2014 15 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2014 . '4 / 3( ! 5 6'7 23.5.2014 3 / & SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) '# / JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 6' DATED 23.5.2014 . . ./ RJ , SR. PS '4 '4 '4 '4 / // / ,0 ,0 ,0 ,0 8(0 8(0 8(0 8(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :& ,0 , , / DR, ITAT, MUMBAI 6. &; < / GUARD FILE. '4 '4 '4 '4 / BY ORDER, -0 ,0 //TRUE COPY// = == = / > > > > % % % % (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI