The DDIT (Exeption), Ahmedabad V. The Stock Exchange of Ahmedabad, Ahmedabad

ITA 1195/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0225 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 04-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUDHANSHU S JHA
• Assessee Lawyers: M G PATEL
• Keywords: Business income; Charitable institution
• Section: 43B; 143(3); 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1195/AHD/2008 ASSESSMENT YEAR:2004-05 DATE OF HEARING:27.7.10 DRAFTED:27.7.10 DEPUTY DIRECTOR OF INCOME- TAX(EXEMPTIONS), AHMEDABAD V/S . THE STOCK EXCHANGE AHMEDABAD, KAMDHENU COMPLEX, AMBAWADI, AHMEDABAD PAN NO.AAAAT4934B (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SUDHANSHU S JHA, DR RESPONDENT BY:- SHRI M.G. PATEL, AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XXI, AHMEDABAD IN APPEAL NO.CI T(A)-XXI/ABD/152/06-07 DATED 09-02-2007. THE ASSESSMENT WAS FRAMED BY DCIT (EXEMPTIONS),AHMEDABAD U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTE R REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 21-12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AG AINST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF RS.19,27,661/- TOWARDS CONTRIBUTION TRANSFERRED TO INVESTORS SERVICE CELL. FOR THIS, REVENUE HAS RAISED THE GROUND NO. :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS SI N DELETING THE ADDITION MADE, ON ACCOUNT OF :- (I) DISALLOWANCE OF RS.19,27,661/- MADE BY THE ASSE SSING OFFICER BEING CONTRIBUTION TRANSFERRED TO INVESTORS SERVICE CELL AMOUNTING TO RS.19,27,661/- ITA NO.1195/AHD/2008 A.Y.2004-05 DDI (EXEMPTIONS) ABD V. THE STOCK EXCHANGE AHMEDABAD PAGE 2 (II) U/S.43-B BEING LISTING FEE PAYABLE TO SEBI, TR EATED BY ASSESSING OFFICER AS BUSINESS INCOME, AMOUNTING TO RS.19,35 6/- 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. DR RELIED ON THE ORD ER OF THE LOWER AUTHORITIES ON THIS ISSUE. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSES SEE STATED THAT THE ASSESSEE- TRUST IS STOCK EXCHANGE OF AHMEDABAD REGISTERED U/S .12A OF THE ACT. HE STATED THAT THE INCOME WAS OFFERED TO TAX AS THE ASSESSEE HAS N OT MADE INVESTMENTS AS PER SECTION 11(5) AND PROVISIONS OF SECTION 13(1)(D) AR E ATTRACTED AND HE ARGUED THAT THE ASSESSEE-TRUST IS ELIGIBLE FOR EXEMPTION U/S.11 OF THE ACT. FOR THIS, HE RELIED ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN STOCK EXCHANGE OF AHMEDABAD V. ACIT (2000) 68 TTJ 596 (AHD), WHEREIN THE TRIBUNAL ALLO WED THE CLAIM OF EXEMPTION OF THE ASSESSEE U/S.11 BY OBSERVING IN PARA-26 & 27 AS UNDER:- 26. RULE 4(X), IN OUR OPINION, DOES NOT MILITATE A GAINST THE ASSESSEE- ASSOCIATION BEING A CHARITABLE INSTITUTION. WE FIND THAT IN THE CASE OF JAIPUR STOCK EXCHANGE VS. ITO (1995) 53 TTJ (JP) 667 : (19 95) 54 ITD 589 (JP) A SIMILAR ISSUE WAS RAISED ON BEHALF OF THE REVENUE A ND THE JAIPUR BENCH OF THE TRIBUNAL OBSERVED THAT THE ESTABLISHMENT OF A FUND OR TRUST FOR THE EXCLUSIVE BENEFIT OF THE MEMBERS OR EMPLOYEES OR EX-MEMBERS O R EX-EMPLOYEES OR THEIR DEPENDENTS AND CONNECTIONS IS A POSSIBLE EVEN T THAT MAY OR MAY NOT HAPPEN IN FUTURE AND FURTHER THAT THE STOCK EXCHANG E IS NOT UNDER ANY OBLIGATION TO ESTABLISH SUCH FUND OR TRUST FOR THE MEMBERS OR EMPLOYEES, ETC. ACCORDING TO THE TRIBUNAL, SUCH CLAUSE WOULD NOT BE FATAL TO THE CLAIM OF EXEMPTION UNDER S. 11 OF THE TRUST. IN THE INSTANT CASE BEFORE US THE CLAUSE UNDER QUESTION IS SIMILARLY WORDED AND WE THINK THA T SUCH AN ANCILLARY CLAUSE WHICH CONFERS A POWER ON THE ASSESSEE-ASSOCIATION T O CREATE A FUND OR TRUST FOR THE BENEFIT OF MEMBERS, EX-MEMBERS OR EMPLOYEES ETC. MAY BE CONSTRUED AS AN ANCILLARY OR SUBSIDIARY CLAUSE WHICH IS INTE NDED TO FURTHER AND ADVANCE THE DOMINANT OBJECTIVE OF THE ASSOCIATION VIZ. PROM OTION OF THE INTEREST OF BROKERS AND DEALERS SIN THE STOCK MARKET SO AS TO D EVELOP THE CAPITAL MARKET IN THE GENERAL PUBLIC INTEREST. WE ARE FORTIFIED IN OUR VIEW BY THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS. DHARMODAYAM CO . 1977 CTR (SC) 341 : 1(1977) 100 ITR 527 (SC) WHEREIN IT WAS HELD THAT THE MERE EXISTENCE IN ART. 39 OF THE ARTICLES OF ASSOCIATION OF THE ASSESSEE- COMPANY OF THE POWERS OF THE GENERAL MEETING OF THE COMPANY-TO-SET APART THE ENTIRE PROFITS OR A SUBSTANTIAL PART THEREOF FOR RESERVES WOULD NOT, WI THOUT MORE, VITIATE THE CHARITABLE NATURE OF THE INSTITUTION. IT IS, WELL E STABLISHED THAT WHERE THERE ARE OBLIGATORY FUNCTIONS AS WELL AS OPTIONAL OR DISCRET IONARY FUNCTIONS THAT COULD BE UNDERTAKEN BY THE TRUSTEES, IT WOULD BE, WRONG TO P ICK OUT ONE AND TO SAY THAT, THAT IS THE PRIMARY, OR DOMINANT OBJECT OR PURPOSE. ALL THE CLAUSES OF THE RELEVANT DOCUMENT WILL HAVE TO BE CONSIDERED IN THE LIGHT OF THE MAIN OBJECTS SOUGHT TO BE ACHIEVED. REFERENCE MAY BE MADE TO THE FOLLOWING JUDGMENTS IN SUPPORT OF THIS PROPOSITION : (I) CIT V. BAR COUNCI L OF MAHARASHTRA (1981) 22 CTR (SC) 106 : (1981) 130 ITGR 184 (SC); (III) (1981) 130 ITR 134 (SC) (SUPRA); AND; ITA NO.1195/AHD/2008 A.Y.2004-05 DDI (EXEMPTIONS) ABD V. THE STOCK EXCHANGE AHMEDABAD PAGE 3 (IV) ADDL CIT VS. DELHI BRICK KILN OWNERS ASSOCIATI ON (1981) 130 ITR 55 (DEL) THE PRIMARY OR DOMINANT OBJECTS OF THE ASSESSEE EXC HANGE AS CLEARLY STATED IN R. 4(I) IS TO CONDUCT A STOCK EXCHANGE AND DEVEL OP AN EFFICIENT CAPITAL MARKET IN THE GENERAL PUBLIC INTEREST. CLAUSE (I) I S THUS THE KEY OBJECT AND OTHER CLAUSES OF 4 ARE ANCILLARY OR INCIDENTAL TO T HIS PRIMARY OR DOMINANT PURPOSE OF THE ASSESSEE STOCK EXCHANGE. THE CL.(X) OF R.(4) WOULD NOT, IN OUR OPINION, FRUSTRATE THE CHARITABLE OBJECT OF THE ASS ESSEE INSTITUTION. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE BASED ON R.4(X) IS, THEREFORE, REJECTED. 27. FOR THE REASONS DISCUSSED ABOVE AND PARTICULARL Y KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENT ON THE ISSUE CONSIDE RED BY US AS ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF EXEMPTION UNDER S. 11 OF THE IT ACT. VARIOUS OTHER GROUNDS CONTAINED IN THE GROU NDS OF APPEAL FOR THE ASSESSMENT YEARS UNDER REFERENCE HAVE NOT BEEN ARGU ED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND THESE GROUNDS WERE NOT PRESSED FOR OUR ADJUDICATION. WE WOULD ACCORDINGLY, HOLD THAT THE A SSESSEE-ASSOCIATION IS A CHARITABLE INSTITUTION UNDER S. 11(I) OF THE IT ACT WOULD BE ENTITLED TO EXEMPTION IF THE OTHER CONDITIONS REGARDING APPLICATION OF IN COME AS PER THE PROVISIONS OF SS. 11 TO 13 ARE SATISFIED IN THE INSTANT CASE. WIT H THESE OBSERVATIONS, ALL THE APPEALS ARE ALLOWED PROTAN TO. IN VIEW OF THIS, LD COUNSEL FOR THE ASSESSEE FURTHE R ARGUED THAT THE CONSEQUENTIAL CONTINGENT LIABILITY CONTRIBUTION IN INVESTOR SERVI CE CELL WILL FALL UNDER THE EXEMPTED PROVISION AND FOR THIS, HE TOOK US THROUGH THE ASSE SSEES PAPER BOOK WHEREIN HE HAS FILED A COPY OF THE ORDER OF THE ASSESSING OFFICER GIVING EFFECT TO THE CIT(A)S ORDER WHEREIN IN PARAGRAPH-8, THE ASSESSING OFFICER HAS A LLOWED THE CLAIM OF THE ASSESSEE AND THE RELEVANT PARA-8 OF THE AO'S ORDER READS AS UNDER:- 8. STOCK EXCHANGES ALL OVER THE COUNTRY ARE CARRYI NG OUT THROUGH THE SIMILAR ACTIVITY OF PROVIDING ITS MEMBERS THE NECESSARY INF RASTRUCTURE IN ORDER TO TRANSACT IN SHARES AND SECURITIES BY ITS MEMBERS SO N THEIR OWN AND ON BEHALF OF THEIR CUSTOMERS. IT IS AN OPEN FACT THAT STOCK E XCHANGE PRIMARILY FUNCTIONS FOR THE BENEFIT OF ITS MEMBERS AND FAILED TO PROTEC T THE INTEREST OF GENERAL PUBLIC. NO DIRECT BENEFIT IS EXTENDED TO PUBLIC AT LARGE IN ORDER TO TREAT STOCK EXCHANGE AS AN INSTRUCTION OF GENERAL PUBLIC UTILIT Y. EVEN THE BIGGEST STOCK EXCHANGE IN THE COUNTRY-NATIONAL STOCK EXCHANGE, IS PAYING ITS TAXES AND NO SUCH CLAIM OF CHARITY OR INSTITUTION OF GENERAL PUB LIC IS MADE. IF BUSINESS OF RUNNING A STOCK EXCHANGE IS TO BE CONSIDERED AS A C HARITABLE PURPOSE UNDER THE DEFINITION OF SECTION 2(15) OF THE I.T. ACT, TH EN BY THIS COROLLARY ALL OTHER FINANCIAL INSTITUTIONS/BANKS OR OTHER INFRASTRUCTUR E COMPANIES WOULD ALSO BECOME CLAUSE 4(X) WHICH CONTEMPLATES BENEFITS ONLY TO THE MEMBERS, EX- MEMBERS, EMPLOYEES OR EX-EMPLOYEES IS ALSO NOT AN O BJECT OF GENERAL PUBLIC UTILITY. THEREFORE, ACTIVITIES AND OBJECTS OF STOCK EXCHANGE DO NOT MAKE IT AN INSTITUTION OF GENERAL PUBLIC UTILITY. ITS PURPOSES ARE NOT COVERED U/S.2(15) OF THE I.T. ACT, AND THEREFORE, THE ASSESSEE IS NOT EL IGIBLE FOR EXEMPTION U/S.11 TO 13 OF THE I.T. ACT. ITA NO.1195/AHD/2008 A.Y.2004-05 DDI (EXEMPTIONS) ABD V. THE STOCK EXCHANGE AHMEDABAD PAGE 4 4. FURTHER, IN REGARD TO THE APPLICATION OF THE PRO VISIONS OF SECTION 43B OF THE ACT, THE LD. COUNSEL OF THE ASSESSEE ARGUED THAT THE REL EVANT PROVISIONS ARE NOT APPLICABLE AS THE INCOME OF THE ASSESSEE IS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. 5. AFTER HEARING RIVAL CONTENTIONS AND GOING THROUG H THE TRIBUNALS ORDER IN THE ASSESSEES OWN CASE CITED (SUPRA), WHEREIN THE TRIB UNAL HAS ALLOWED THE ASSESSEES EXEMPTION U/S 11, WE FEEL THAT THE ADDITION OF CONT INGENT LIABILITY OF RS.19,27,661/- BEING CONTRIBUTIONS TRANSFERRED TO INVESTORS SERVIC E CELL IS MERELY A CONSEQUENTIAL AND IT WILL FALL IN THE EXEMPTIONS U/S 11 OF THE AC T. AS REGARDS TO THE SECOND ADDITION OF RS.19,356/- WHICH WAS ADDED BY THE ASSESSING OFF ICER BY APPLYING THE PROVISIONS OF SECTION 43B, THE ISSUE HAS ALREADY BEEN DEALT WI TH BY THE TRIBUNAL IN ITS EARLIER ORDER CITED (SUPRA). ONCE EXEMPTION U/S.11 IS ALLOW ED TO THE ASSESSEE-TRUST, OTHER ADDITIONS ARE MERELY CONSEQUENTIAL AND HENCE THE CI T(A) HAS RIGHTLY DELETED THE SAME RELYING ON THE EARLIER ORDER OF THE TRIBUNAL I N ASSESSEES OWN CASE. ACCORDINGLY, WE CONFIRM THE SAME. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE CIT(A) TO DELETE THE PENALTY PROCEEDINGS U/S.271B OF THE ACT. WE FIND TH AT REGARDING THE ISSUE OF CIT(A)S DIRECTIONS TO ASSESSING OFFICER TO DROP THE PENALTY PROCEEDINGS U/S 271B OF THE ACT WAS PREMATURE BEFORE CIT(A) AND CIT(A) SHOULD NOT H AVE DECIDED THIS ISSUE IN QUANTUM APPEAL. IN VIEWS OF THIS, WE REVERSE THE FI NDINGS OF THE CIT(A) AND ACCORDINGLY ALLOW THIS ISSUE RAISED BY REVENUE. THE ASSESSING OFFICER IS AT LIBERTY TO LEVY THE PENALTY U/S.271B IN ACCORDANCE WITH LAW IF HE SO DESIRES AND THIS ISSUE OF REVENUES APPEAL IS ALLOWED. 7. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 06/08/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 06/08/2010 ITA NO.1195/AHD/2008 A.Y.2004-05 DDI (EXEMPTIONS) ABD V. THE STOCK EXCHANGE AHMEDABAD PAGE 5 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XXI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD