OTC EXCHANGE OF INDIA, MUMBAI V. ASST.DIT(E)-II(1), MUMBAI

ITA 2625/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9779 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL LD
• Assessee Lawyers: V MOHAN LD
• Keywords: Charitable institution; Rule of consistency; Wholly owned subsidiary
• Section: 143(3); 12A; 12; 11

Judgement Text

ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 2625 &2626/MUM/2016 ( / ASSESSMENT YEAR: 2010-11 & 2011-12) OTC EXCHANGE OF INDIA 92/93, MAKER TOWERF CUFFE PARADE MUMBAI 400 005 / VS. ASSISTANT DIRECTOR OF INCOME TAX (EXEMPTION)-II(1) 5 TH FLOOR PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI- 400 012 ./ ./PAN/GIR NO. AAACO-0089-Q ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ASSESSEE BY : V.MOHAN, LD. AR REVENUE BY : RAJAT MITTAL, LD. DR / DATE OF HEARING : 27/06/2017 / DATE OF PRONOUNCEMENT : 28 /07/2017 ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEALS BY ASSESSEE FOR ASSESSMEN T YEARS [AY] 2010-11 & 2011-12 ASSAILS SEPARATE ORDER OF LD. COM MISSIONER OF INCOME TAX (APPEALS)-1 [CIT(A)], MUMBAI ON VARIOUS GROUNDS OF APPEAL. SINCE, THE COMMON ISSUE INVOLVED IN BOTH THE APPEAL S IS RELATED WITH EXEMPTION U/S 11 & 12, WE PROCEED TO DISPOSE-OFF TH E SAME BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND B REVITY. FIRST WE TAKE UP ITA NO. 2625/MUM/2016 FOR AY 2010-11 WHICH CONTE ST THE ORDER OF LD. CIT(A) ORDER DATED 20/01/2016 DENYING EXEMPTION U/S 11 & 12 OF THE INCOME TAX ACT, 1961 TO THE ASSESSEE. THE ASSESSEE HAS FILED CONCISE GROUNDS OF APPEALS AND ASSAILS VARIOUS CONCLUSIONS DRAWN BY LOWER AUTHORITIES TO DENY EXEMPTION U/S 11 & 12 AND WE PR OCEED TO DEAL WITH THE SAME IN SUCCEEDING PARAGRAPHS. 2. BRIEFLY STATED, THE ASSESSEE BEING A CORPORATE ENTITY REGISTERED U/S 25 OF THE COMPANIES ACT, 1956 AND REGISTERED TRUST U/S 12A VIDE REGISTRATION NO. INS/29014 DATED 01/04/1991 , HITHERTO, ENJOYING EXEMPTION AS TRUST U/S 11 & 12 OF THE INCOME TAX AC T, 1961 HAS BEEN DENIED THE SAID EXEMPTION DURING IMPUGNED AYS AND T HE SAME IS THE SUBJECT MATTER OF THESE APPEALS. 2.1 THE ASSESSEE IS A PUBLIC CHARITABLE TRUST AND A RECOGNIZED STOCK EXCHANGE REGISTERED U/S 4 OF THE SECURITIES CONTRACT (REGULATION) ACT, 1956 FORMED TO CREATE A SCRIPT LESS , SCREEN BASED MULTI TIERED FULLY AUTOMATED SECURITIES MARKET TO HELP MEDIUM / SMALL SCALE ENTERPRISES TO ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 3 FINANCE THEIR PROJECTS IN A COST EFFECTIVE MANNER A ND TO PROVIDE INVESTORS WITH A CONVENIENT, EFFICIENT MODE OF TRADING. 2.2 THE RETURN FOR THE IMPUGNED AY WAS FILED AT NIL AFTER CLAIMING EXEMPTION U/S 11 / 12 FOR RS.110.85 LACS. DURING TH E ASSESSMENT PROCEEDINGS, LD. ASSESSING OFFICER [AO] NOTED THAT THE ASSESSEE HELD 42.50 LACS EQUITY SHARES OF RS.10/- EACH IN ITS 100 % SUBSIDIARY CONCERN NAMELY OTCEI SECURITIES LTD. [OSL] SINCE FINANCIAL YEAR 1999-2000. SINCE, OSL WAS NOT PUBLIC SECTOR COMPANY, THE CASE OF THE ASS ESSEE, IN THE OPINION OF LD. AO , WAS HIT BY THE PROVISIONS OF SECTION 11(5) & 13(1)(D)(III) AND THEREFORE THE IMPUGNED EXEMPTION WAS NOT AVAILABLE TO THE ASSESSEE. 2.3 THE LD. AO FURTHER NOTED THAT OSL OBTAINED MEMBERSHIP RIGHTS OF BIGGER STOCK EXCHANGES LIKE NATIONAL STOCK EXCHANGE [NSE] AND BOMBAY STOCK EXCHANGE [BSE] AND THE MEMBERS OF THE ASSESSEE EXCHANGE COULD ONLY BE REGISTERED AS THE SUB-BROKER S OF THE OSL AND NO OTHER CLIENT / SUB BROKER COULD BE ENTERTAINED BY OSL. FURTHER, OSL COULD NOT UNDERTAKE ANY DEALING IN ITS OWN ACCOUNT, WHICH LED THE LD. AO TO BELIEVE THAT TRADING MEMBERS OF THE ASSESSEE TRU ST WERE ABLE TO DEAL IN BIGGER EXCHANGES THROUGH ITS SUBSIDIARY OSL BY USING ASSESSEES SYSTEMS AND PLATFORMS, SOFTWARE HARDWARE AND EXPERT ISE ETC. AND THEREFORE AVAILED CERTAIN BENEFITS FROM THE ASSESSE E, WHICH MAKES ASSESSEE INELIGIBLE TO CLAIM THE SAID EXEMPTION. 2.4 THE LD. AO AFTER PERUSING THE AGREEMENT BETWEEN ASSESSEE COMPANY AND OSL FURTHER NOTED THAT THE ASSESSEE TRUST PROVIDED VAR IOUS SERVICES LIKE INFRASTRUCTURE, MAINTENANCE, DAY-TO-DAY EXPENSES, C APITAL ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 4 EXPENSES MANPOWER SERVICES, CAPITAL & COMMERCIAL EX PERTISE ETC. TO OSL AND THE SAME WAS REIMBURSABLE TO ASSESSEE ON ACTUA L BASIS. HOWEVER, IT WAS NOTED THAT THE COST OF TECHNICAL/CO MMERCIAL EXPERTISE AND OTHER SERVICES LIKE MARKETING / BRANDING / LEGAL SERVICES WERE TO BE CHARGED BY ASSESSEE @0.005% OF THE TURNOVER OF THE SUBSIDIARY AFTER OSL ACHIEVED TURNOVER OF RS.6000 CRORES. SINCE, THE TU RNOVER OF OSL WAS WELL BELOW THIS FIGURE, NO AMOUNT WAS CHARGED B Y THE ASSESSEE AGAINST THE SAME, WHICH RESULTED INTO DIRECT BENEFI T, BY ASSESSEE TO OSL . IT WAS FURTHER NOTED THAT THE AMOUNT REIMBURSABLE TO ASSESSEE REMAINED OUTSTANDING AT YEAR-END AND NO INTEREST WA S CHARGED THEREUPON AND HENCE, THE ASSESSEE EXTENDED FURTHER BENEFIT TO OSL . 2.5 LD. AO FURTHER OPINED THAT THE ASSESSEE TRUST C ARRIED ON THE BUSINESS OF STOCK BROKING THROUGH OSL AND THE ACTIVITY OF SUB-BROKING WAS NOWHERE MENTIONED IN THE MEMORANDUM OF THE ASSE SSEE TRUST AND THEREFORE, THE SAME WAS NOT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST AND SINCE ASSESSEE ENGAGED IN COMMERCIAL PROFIT MAK ING ACTIVITY THROUGH ITS SUBSIDIARY, THE MEMBERSHIP OF WHICH WAS RESTRICTED TO PARTICULAR CLASS OF BROKERS AND NOT TO INVESTORS AT LARGE AND HENCE THE IMPUGNED EXEMPTION WAS NOT AVAILABLE TO THE ASSESSE E. 2.6 ALL THESE FACTORS LED THE LD. AO TO CONCLUDE TH AT THE CASE OF THE ASSESSEE WAS HIT BY THE PROVISIONS OF SECTION 11(5) READ WITH SECTION 13(1)(D)(III) & ALSO HIT BY THE PROVISIONS OF 13(2) (A),(B),(D) AND (G) AND THEREFORE, THE EXEMPTION U/S 11 & 12 WAS NOT AVAILA BLE TO THE ASSESSEE TRUST. ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 5 2.7 FINALLY, PLACING RELIANCE ON THE JUDGMENT OF HY DERABAD TRIBUNAL IN HYDERABAD STOCK EXCHANGE VS ADIT [10 TAXMANN.COM 13 2], LD. AO DENIED THE SAID EXEMPTION TO THE ASSESSEE AND COMPU TED TOTAL TAXABLE INCOME AT RS.290.72 LACS BEING AMOUNT RECEIVED / EA RNED BY THE ASSESSEE DURING IMPUGNED AY. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITHO UT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 20/01/2 016 AND INTER-ALIA CONTENDED THAT THE INVESTMENT IN SUBSIDIARY WERE I N CONFORMITY WITH SECTION 11(5) READ WITH RULE 17C OF INCOME TAX RULES AND THEREFORE, THE ASSESSEE WAS ELIGIBLE TO CLAIM THE SAID EXEMPTI ON. HOWEVER, NOT CONVINCED, THE LD. CIT(A) CONFIRMED THE STAND OF LD . AO AGAINST WHICH THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE [AR], WHILE DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER BOOK CONTENDED TH AT THE INVESTMENTS IN SUBSIDIARY WAS IN CONFORMITY WITH THE DIRECTIONS OF SECURITIES & EXCHANGE BOARD OF INDIA [SEBI] AND THE SAME WAS ONE OF THE PRESCRIBED MODE OF INVESTMENT AS PER SECTION 11(5) READ WITH RULE RULE-17C OF INCOME TAX RULES AND THEREFORE, THE CASE OF THE ASS ESSEE WAS NOT AT ALL HIT BY THE PROVISIONS OF SECTION 11(5) AND 13(1)(D) (III). 4.1 THE LD. AR FURTHER DREW OUR ATTENTION TO THE FA CT THAT THE SHAREHOLDERS OF THE ASSESSEE TRUST WERE PUBLIC SECTOR / GOVERNMENT ENTITIES AND THE BOARD OF DIRECTORS OF ASSESSEE COMPANY WAS CONSTITUTED MAINLY BY NOMINEE DIRECTORS AND THE ASSESSEE DID NO T EXTENDED ANY BENEFIT EITHER TO ITS SHAREHOLDERS OR TO ITS DIRECT ORS AND THEREFORE, LOWER AUTHORITIES SERIOUSLY ERRED IN CONCLUDING THAT THE ASSESSEE EXTENDED ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 6 BENEFITS IN VIOLATION OF THE STATUTORY PROVISIONS A S CONTAINED IN SECTION 13(2) & 13(3). THE LD. AR ASSERTED THAT THE ASSESSE E CREATED THE SUBSIDIARY COMPANY IN ACCORDANCE WITH THE GUIDELINE S ISSUED BY SEBI AND THE CONDUCT OF THE ASSESSEE AS WELL SUBSIDIARY WAS SUBJECT TO STRICT GOVERNMENT RULES / REGULATIONS AND CONTROL AND ADEQ UATE MECHANISM WAS PROVIDED NOT TO ADVANCE ANY BENEFIT TO THE SHAR EHOLDERS / DIRECTORS ETC. THE ASSESSEE, THROUGH THE INSTRUMENTALITY OF S UBSIDIARY PROVIDED ONLY ADDITIONAL FACILITY / BENEFIT TO ITS MEMBERS T O AVAIL THE TRADING FACILITY OF THE BIGGER STOCK EXCHANGES WHICH WAS IN TUNE WIT H SEBI GUIDELINES FOR REVIVAL OF SMALL EXCHANGES. THE MEMBERSHIP OF T HE ASSESSEE TRUST COULD BE OBTAINED BY PUBLIC AT LARGE AFTER FULFILLI NG THE STIPULATED CONDITIONS AND THE MEMBERS OF THE ASSESSEE TRUST, I N TURN, COULD BECOME MEMBER OF OSL SUBJECT TO FULFILLMENT OF COMPLYING WITH FURTHER INDEPENDENT STIPULATIONS AS TO SECURITIES / MARGINS ETC. AND THEREFORE, IT WAS WRONG TO INFER THAT THE MEMBERSHIP OF OSL WAS AVAILABLE TO SELECT FEW ONLY AND LD. AO BY WRONG ASSUMPTION OF FACTS AN D CONCLUSION, ERRED IN DENYING THE IMPUGNED EXEMPTION TO THE ASSESSEE. 4.2 THE LD. AR FURTHER CONTENDED THAT CREATION OF S UBSIDIARY WAS TOTALLY IN TUNE WITH THE DIRECTIONS OF SEBI AND IT WAS SETTLED POSITION OF LAW THAT THE ACTIVITY OF STOCK EXCHANGE PER SE WAS CHARITABLE IN NATURE AND THE OBJECT CLAUSE OF THE ASSESSEE WAS WIDE ENOUGH TO EN COMPASS IN ITS AMBIT THE CREATION OF SUBSIDIARY FOR THE PROMOTION OF INTEREST OF ITS MEMBERS. THE SAID POSITION HAS BEEN ACCEPTED BY THE REVENUE IN ALL THE EARLIER YEARS AND THEREFORE, NOW DEBARRED FROM TAKI NG A DIFFERENT STAND ON IDENTICAL SET OF FACTS. ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 7 4.3 THE LD. AR ALSO ASSAILED THE STAND OF THE REVEN UE ON RULE OF CONSISTENCY BY CONTENDING THAT THE WHOLLY OWNED SUB SIDIARY COMPANY WAS FLOATED BY THE ASSESSEE IN FINANCIAL YEAR 1999- 2000 WITH NO FURTHER CHANGE IN THE SAME WHATSOEVER AND THE REVENUE ACCE PTED THE EXEMPTION CLAIM OF THE ASSESSEE OVER PRECEDING SEVE RAL YEARS IN SEVERAL ASSESSMENTS U/S 143(3) / 143(1) AND THEREFORE, WAS NOT JUSTIFIED IN DENYING THE SAME IN IMPUGNED AY, THERE BEING NO CHA NGE IN FACTS OR CIRCUMSTANCES OF THE CASE. 4.4 PROCEEDING FURTHER, THE LD. AR DREW OUR ATTENTI ON TO THE LEDGER ACCOUNT OF OSL TO ASSERT THAT THE AMOUNT OUTSTANDING AT YEAR END TOWARDS REIMBURSEMENT OF EXPENSES REPRESENTED ONLY THE OUTSTANDING OF THE LAST MONTH OF THE RELEVANT FINANCIAL YEAR AND T HE SAME WAS SETTLED IN A SHORT SPAN OF TIME IN THE VERY NEXT FINANCIAL YEA R AND THEREFORE, NO FINANCE FACILITY WAS PROVIDED BY THE ASSESSEE TO OSL AND THERE WAS NO JUSTIFICATION TO CHARGE THE INTEREST AGAINST THE SA ME AND THEREFORE, LD. AO ERRED IN CONCLUDING THAT THE ASSESSEE WAS REQUIR ED TO CHARGE INTEREST AGAINST THE SAME. 4.5 THE CASE LAWS OF THE HYDERABAD STOCK EXCHANGE RELIED UPON BY THE REVENUE WAS DISTINGUISHED BY POINTING OUT THAT IN THAT CASE THERE WAS CLEAR CUT FINDING THAT HUGE AMOUNT WAS SPENT BY THE ASSESSEE TOWARDS THE BENEFIT OF ITS MEMBERS WHICH LED TO DENIAL OF I MPUGNED EXEMPTION AND THEREFORE, THE RATIO OF THE SAME DO NOT APPLY T O ASSESSEES CASE. 4.6 PER CONTRA LD. DR SUPPORTED THE STAND TAKEN BY LOWER AUTHORITIES AND CONTENDED THAT BENEFIT WAS EXTENDED TO SELECT F EW BY FLOATING THE SUBSIDIARY AND NO INTEREST WAS CHARGED ON OUTSTANDI NG AMOUNT ACTIVITY. ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 8 FURTHER, THE CREATION OF SUBSIDIARY TO CARRY OUT TH E TRUST OBJECT WAS NOT IN ACCORDANCE WITH MEMORANDUM OF THE ASSESSEE TRUST. L D. DR FURTHER CONTENDED THAT THE PRINCIPLES OF RES JUDICATA COULD NOT BE APPLIED TO INCOME TAX PROCEEDINGS AND THEREFORE, THE LD. AO AS WELL AS LD. CIT(A) AFTER ELABORATE DISCUSSION REACHED THE CORRECT CONC LUSION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE BASIC FACTS ARE NOT IN DISPUTE. AS F AR AS THE VIOLATION OF SECTION 11(5) IS CONCERNED, WE FIND THAT THIS SECTI ON PRESCRIBES MODES OF INVESTMENT / DEPOSITING OF TRUST MONEY. AS PER CLAU SE (XII) OF THE SAID SECTION 11(5), THE INVESTMENT COULD BE MADE IN ANY OTHER FORM OR MODE OF INVESTMENT OR DEPOSIT AS MAY BE PRESCRIBED. THIS OTHER FORM OF INVESTMENT OR DEPOSIT HAS BEEN PRESCRIBED IN RULE 1 7C OF THE INCOME TAX RULES AND CLAUSE (V) OF THE SAID RULE AS INSERT ED BY INCOME TAX (TENTH AMENDMENT) RULES, 2006 WITH RETROSPECTIVE EF FECT FROM 26/11/1999 READS AS FOLLOWS:- (V) INVESTMENT MADE BY A RECOGNISED STOCK EXCHANGE REFERRED TO IN CLAUSE (F) OF SECTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 195 6 (42 OF 1956) (HEREAFTER REFERRED TO AS INVESTOR) IN THE EQUITY SHARE CAPITAL OF A CO MPANY (HEREAFTER REFERRED TO AS INVESTEE) (A) WHICH IS ENGAGED IN DEALING WITH SECURITIES OR MAINLY ASSOCIATED WITH THE SECURITIES MARKET; (B) WHOSE MAIN OBJECT IS TO ACQUIRE THE MEMBERSHIP OF ANOTHER RECOGNISED STOCK EXCHANGE FOR THE SOLE PURPOSE OF FACILITATING THE M EMBERS OF THE INVESTOR TO TRADE ON THE SAID STOCK EXCHANGE THROUGH THE INVESTEE IN ACCORDANCE WITH THE DIRECTIONS OR GUIDELINES ISSUED UNDER THE SECURITIE S AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) BY THE SECURITIES AND EXCHAN GE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THAT ACT; AND (C) IN WHICH AT LEAST FIFTY-ONE PER CENT OF EQUITY SHARES ARE HELD BY THE INVESTOR AND THE BALANCE EQUITY SHARES ARE HELD BY MEMBERS O F SUCH INVESTOR;] ADMITTEDLY, THE FACTS REVEAL THAT THE ASSESSEE HAS MADE INVESTMENT IN ITS WHOLLY OWNED SUBSIDIARY COMPANY IN ACCORDANCE W ITH THE DIRECTIONS ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 9 OF SEBI . THE MAIN OBJECT OF SUBSIDIARY WAS TO ACQUIRE THE MEMBERSHIP RIGHTS OF THE BSE / NSE SO AS TO FACILITATE THE MEMBERS OF THE INVESTOR. THE ASSESSEE IS A RECOGNIZED STOCK EXCHANGE BY CENT RAL GOVERNMENT IN TERMS OF SECTION 4 OF THE SECURITIES CONTRACT REGUL ATION ACT. THEREFORE, ON THESE FACTS WE FIND THAT THE INVESTMENT IN SUBSI DIARY WAS IN TUNE WITH THE REQUIREMENT OF SECTION 11(5) READ WITH RULE 17C AND THERE WAS NO VIOLATION OF THE SAME AND THEREFORE, THE ASSESSEE C OULD NOT BE VISITED WITH CONSEQUENTIAL DISALLOWANCE U/S 13(1)(D)(III). 5.2 PROCEEDINGS FURTHER, WE FIND THAT THE SHAREHOLD ERS OF THE ASSESSEE CONSIST ONLY OF PUBLIC SECTOR UNDERTAKING / GOVERNMENT UNDERTAKING AS EVIDENT FROM PAGE NOS. 65 OF THE PAPER BOOK AND THE DIRECTORS OF ASSESSEE COMPANY WERE LARGELY NOMINEE DIRECTORS AS PER ANNUAL RETURN OF THE COMPANY AS PLACED ON PAGE NOS. 66 TO 84 OF T HE PAPER BOOK. AS PER CLAUSE IIIA OF MEMORANDUM & ARTICLES OF ASSOCIATION OF THE ASSESSEE AS PLACED IN PAGE NOS. 3 TO 56 OF THE PAPE R BOOK, THE MAIN OBJECT OF THE ASSESSEE WAS TO PROMOTE AND ASSIST DEALINGS IN SECURITIES OF ANY NATURE ISSUED BY LIMITED COMPANIES IN INDIA. FURTHER, CLAUSE V OF THE SAID MEMORANDUM CONTAINED RESTRICTIVE CONDITION S AS TO DISTRIBUTION OF DIVIDEND / BONUS/ PROFITS / REMUNERATION / FEES WHATSOEVER TO ITS MEMBERS AND THE INCOME / PROPERTY OF THE ASSESSEE W AS TO BE APPLIED SOLELY FOR THE PROMOTION OF ITS OBJECTS. FURTHER, T HE ASSESSEE COMPANY WAS GOVERNED BY ITS BY-LAWS AND CHAPTER XV-A OF THE SAID BY-LAWS DEALT WITH CODE OF ETHICS FOR DIRECTORS AND FUNCTIONARIES OF EXCHANGES AND PUT SEVERAL RESTRICTIVE CONDITIONS UPON DIRECTORS TO OB TAIN ANY SORT OF BENEFITS / PECUNIARY ADVANTAGES BY USING THEIR POSITION AS D IRECTORS. ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 10 5.3 THE CASE OF THE REVENUE IS THAT THE ASSESSEE WA S HIT BY THE PROVISIONS OF SECTION 13(2) & 13(3) SINCE IT EXTEND ED BENEFIT TO SELECT FEW MEMBERS OF THE EXCHANGE AND FURTHER NO INTEREST HAS BEEN CHARGED ON THE OUTSTANDING AMOUNT. HOWEVER, WE FIND THAT TH AT THE ASSESSEE WAS REGISTERED STOCK EXCHANGE GOVERNED BY STRICT GOVERN MENT / SEBI RULES & REGULATIONS AND THE MEMBERSHIP OF THE ASSESSEE EXCH ANGE COULD BE OBTAINED BY THE PUBLIC AT LARGE SUBJECT TO FULFILLM ENT OF CERTAIN ENTRY CONDITIONS AS TO MARGINS / SAFETY / SECURITIES ETC. THE MEMBERS OF THE ASSESSEE, IN TURN, COULD BECOME SUB-BROKER OF THE S UBSIDIARY COMPANY SUBJECT TO FULFILLMENT OF FURTHER CONDITIONS WHICH WAS IN TUNE WITH THE SCHEME FRAMED BY SEBI AS EVIDENT FROM ITS LETTER DA TED 26/11/1999 TITLED AS FLOATING OF A SUBSIDIARY / COMPANY BY A STOCK EXCHA NGE TO ACQUIRE THE MEMBERSHIP OF OTHER STOCK EXCHANGE WHICH IS PLACED ON PAGE NOS. 210 TO 211 OF THE PAPER BOOK, A PORTION OF WHICH IS EXTRACTED BELOW:- DIVISION CHIEF SECONDARY MARKET DEPARTMENT SMD-LL/POLICY/CIR-37/99 NOVEMBER 26. 1999 TO. THE EXECUTIVE DIRECTORS/MANAGING DIRECTORS OF ALL( THE STOCK EXCHANGES DEAR SIR/MADAM. SUBJECT: GLOATING OF A SUBSIDIARY/COMPANY BY A STOC K EXCHANGE TO ACQUIRE THE MEMBERSHIPOF OTHER STOCK EXCHANGE . A MEETING AT A GROUP ON REVIVAL OF SMALL STOCK EXCH ANGES WAS HELD ON SEPTEMBER 8. 1999,TO DISCUSS THE SUGGESTIONS/REVIVAL PLANS FO RWARDED BY THE SMALL EXCHANGES BY THEIR REVIVAL. THE GROUP CONSIDERED THE SUGGESTI ONS/REVIVAL PLANS SUBMITTED BY THE SMALL STOCK EXCHANGES AND RECOMMENDED THAT SMAL L STOCK EXCHANGES MAY BE ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 11 PERMITTED TO PROMOTE A SUBSIDIARY WHICH CAN ACQUIRE MEMBERSHIP RIGHTS OF LARGER STOCK EXCHANGES VIZ. NSE/BSE/CSE/OSE OR ANY OTHER E XCHANGE SUBJECT TO USUAL CONDITIONS APPLICABLE TO THE OTHER' MEMBERS. IN THIS CONNECTION, IT HAS BEEN DECIDED THAT SMALL STOCK EXCHANGES MAY PROMOTE/FLOAT A SUBSIDIARY/COMPANY TO ACQUIRE MEMBE RSHIP RIGHTS OF OTHER STOCK EXCHANGE SUBJECT TO THE UNDER NOTED CONDITIONS: 1. THE SUBSIDIARY/COMPANY SHALL BE 100% OWNED BY TH E STOCK EXCHANGE PROMOTING/FLOATING SUCH A SUBSIDIARY/COMPANY. THE N AME OF THE SUBSIDIARY COMPANY SHALL NOT CONTAIN THE WORDS 'STOCK EXCHANGE'. 2. THE MEMBERS OF THE STOCK EXCHANGE SHALL REGISTER THEMSELVES AS SUB-BROKERS OF THE SUBSIDIARY/COMPANY TO ENABLE THEM TRADE THROUGH THE SUBSIDIARY/COMPANY 3. THE SUBSIDIARY/COMPANY SHALL NOT UNDERTAKE ANY D EALING IN SECURITIES ON ITS OWN ACCOUNT. 4. THE SUBSIDIARY/COMPANY SHALL REGISTER ONLY THE M EMBERS OF THE STOCK EXCHANGE, WHICH IS PROMOTING THE SUBSIDIARY/COMPANY AS ITS SU B-BROKER AND NO OTHER CLIENT/SUB-BROKER SHALL BE ENTERTAINED BY THE SUBSI DIARY/COMPANY 5. THE SUB-BROKERS OF THE SUBSIDIARY/COMPANY SHALL MAINTAIN SEPARATE DEPOSIT WITH THE SUBSIDIARY/COMPANY. THE BOSE MINIMUM COPILOT DE POSITED BY THE SUB-BROKER WITH THE PROMOTING STACK EXCHANGE SHALL NOT BE TRAN SFERRED TO THE SUBSIDIARY/COMPANY. THIS DEPOSIT TO BE MAINTAINED W ITH THE SUBSIDIARY/COMPANY SHALL BE IN THE FORM OF CASH 6. THE TRADING /EXPOSURE LIMIT OF THE .SUB-BROKERS; SHALL BE BASED ON THE DEPOSIT RECEIVED BY THE SUBSIDIARY/COMPANY FROM THE SUB-BRO KERS AND THESE LIMITS SHALL NOT EXCEED THE LIMITS AS PRESCRIBED BY THE STOCK EXCHAN GE OF WHICH THE SUBSIDIARY/COMPANY IS A MEMBER. 7. THE SUBSIDIARY/COMPANY SHALL COLLECT MARGINS FRO M THE SUB-BROKERS FOR THE PAYMENT OF MARGINS TO THE RESPECTIVE SLACK EXCHANGE S OF WHICH THE SUBSIDIARY/ COMPANY IS A MEMBER. THE MARGIN IMPOSED BY THE SUBS IDIARY/COMPANY ON ITS SUB- BROKERS SHALL NOT BE LESS THAN THE MARGIN PAYABLE T O THE STOCK EXCHANGES OF WHICH THE SUBSIDIARY/COMPANY IS THE MEMBER. 8. THE STOCK EXCHANGE SHALL INCORPORATE THE ABOVE M ENTIONED CONDITIONS IN THE MEMORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION O F THE SUBSIDIARY/COMPANY. IT IS QUITE EVIDENT THAT THE FLOATING OF SUBSIDIARY COMPANY WAS IN TUNE WITH SEBI DIRECTIONS AND CONTRADICTS THE STAND OF T HE REVENUE THAT THE SUB-BROKER MEMBERSHIP OF THE SUBSIDIARY WAS OPEN TO SELECT FEW AND NOT TO PUBLIC AT LARGE AND THE BENEFIT TO SELECT FEW WA S EXTENDED BY THE ASSESSEE. IT IS AN ADMITTED POSITION THAT THE ASSES SEE WAS BEING REIMBURSED ON ACTUAL BASIS BY THE SUBSIDIARY FOR VA RIOUS SERVICES AND ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 12 THEREFORE, IT WAS WRONG TO INFER THAT THE ASSESSEE EXTENDED BENEFITS AS MENTIONED IN SECTION 13(2) TO CLASS OF PERSONS ENUM ERATED IN SECTION 13(3) WHICH PRIMA-FACIE WEAKENS THE CONCLUSION OF THE REVENUE THAT THE CASE OF THE ASSESSEE WAS HIT BY THE PROVISIONS OF S ECTION 13(2) & 13(3). 5.4 IT IS FURTHER NOTED THAT THE ASSESSEE STOOD GAI N BY THE RULE OF CONSISTENCY ALSO SINCE THE SAID INVESTMENT IN SUBSI DIARY WAS MADE BY THE ASSESSEE WAY BACK IN FY 1999-2000 AND THERE WAS NO CHANGE EITHER IN SHAREHOLDING PATTERN OR ACTIVITIES OF THE ASSESSEE OR ITS SUBSIDIARY SINCE THEN. THE SCRUTINY ASSESSMENT ORDE RS FOR AY 2004-05 & 2005-06 AS PLACED ON PAGE NOS. 187 TO 193 REVEALS T HAT THE REVENUE HAS ACCEPTED THE EXEMPTION CLAIM OF THE ASSESSEE IN QUANTUM ASSESSMENT. ALTHOUGH, WE ARE CONSCIOUS OF THE FACT THAT THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS YET THERE BE ING NO CHANGE IN FACTS OR CIRCUMSTANCES, THE REVENUE IS DE BARRED FROM SHIFTING STANDS WITHOUT ANY COGENT REASONS IN VIEW OF RULE O F CONSISTENCY. THIS IS WELL SUPPORTED BY THE OBSERVATION OF HONBLE APEX C OURT RENDERED IN RADHASOAMI SATSANG VS. CIT [193 ITR 321] WHICH READS AS UNDER:- STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND P ARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE C HANGED IN A SUBSEQUENT YEAR. THUS, IT CAN BE STATED THAT ALTHOUGH THE PRINCIPLE OF RES JUDICATA IS NOT GENERALLY APPLICABLE TO INCOME TAX PROCEEDINGS SINC E AN ASSESSMENT ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 13 FOR A PARTICULAR YEAR IS FINAL AND CONCLUSIVE BETWE EN THE PARTIES ONLY IN RELATION TO THE ASSESSMENT FOR THAT YEAR AND IT IS NOT BINDING EITHER ON THE ASSESSEE OR THE DEPARTMENT IN A SUBSEQUENT YEAR. HO WEVER, IF THE EARLIER DECISION IS NOT ARBITRARY OR PERVERSE OR IF IT HAD BEEN ARRIVED AT AFTER DUE INQUIRY THEN THE REVENUE IS NOT PERMITTED TO DEVIATE FROM ITS EARLIER STAND. 5.5 LASTLY, THE REVENUE HAS ALLEGED THAT THE ASSESS EE FAILED TO CHARGE INTEREST ON THE AMOUNT REMAINING OUTSTANDING AT YEA R-END. HOWEVER, A PERUSAL OF LEDGER EXTRACT AS PRODUCED IN THE PAPER BOOK REVEALS THAT THE SAME REPRESENT REIMBURSEMENT OF THE LAST MONTH OF T HE RELEVANT FINANCIAL YEAR WHICH HAS BEEN SETTLED SUBSEQUENTLY WITHIN A S HORT SPAN OF TIME THEREAFTER AND HENCE, THERE WAS NO OCCASION / JUSTI FICATION TO CHARGE THE INTEREST AGAINST THE SAME WHICH FURTHER NEGATES THI S STAND OF THE REVENUE THAT THE ASSESSEE EXTENDED PECUNIARY BENEFI TS TO ITS SUBSIDIARIES IN CONTRAVENTION OF LAW. 5.6 THE REVENUE HAS PLACED RELIANCE ON THE DECISION OF HYDERABAD STOCK EXCHANGE VS ADIT [SUPRA]. HOWEVER, AS RIGHTLY POINTED OUT BY LD. AR, THE SAME IS DISTINGUISHABLE ON FACTS SINCE IN T HAT CASE, THERE WAS CLEAR CUT FINDING THAT THE ASSESSEE SPENT HUGE AMOU NT OF RS.10.41 CRORES FOR PROVIDING ADDITIONAL INFRASTRUCTURAL FAC ILITIES TO ITS MEMBER BROKERS. THE SAID INFRASTRUCTURAL FACILITIES INCLUD ED DEVELOPMENT OF SCREEN BASED TRADING SYSTEM, TERMINALS, NETSCAPE, B ROWSERS, COMPUTERS AND OTHER ACCESSORIES FOR PARTICIPATING IN THE SCRE EN BASED TRADING SYSTEM. THE ASSESSEE SPENT FURTHER AMOUNT TOWARDS I NSURANCE OF THE MEMBERS AND SETTING UP OF INTERCONNECTED STOCK EXCH ANGE INDIA LTD. ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 14 HOWEVER, THE SAME IS NOT THE CASE HERE RATHER THE P RESENT ASSESSEE, IN TUNE WITH THE AGREEMENT WITH ITS SUBSIDIARY, IS BEI NG REIMBURSED ON ACTUAL BASIS FOR VARIOUS SERVICES RENDERED BY HIM A ND THEREFORE, DISTINGUISHABLE. 5.7 THE TOTALITY OF ABOVE DISCUSSION LEADS US TO AN INEVITABLE CONCLUSION THAT THE REVENUE WAS NOT JUSTIFIED IN DE NYING THE SAID EXEMPTION TO THE ASSESSEE. THEREFORE, WE ARE INCLIN ED TO HOLD THAT THE ASSESSEE WAS ENTITLED FOR THE SAID EXEMPTION U/S 11 / 12 AND THE APPEAL OF THE ASSESSEE STANDS ALLOWED. 6. NOW, WE TAKE UP ASSESSEES APPEAL ITA NO. 2626 F OR AY 2011-12 WHERE THE LD. AO, WHILE DENYING THE IMPUGNED EXEMPT ION HAS DETERMINED THE TOTAL INCOME AT RS.341.62 LACS WHICH UPON, CONFIRMATION BY LD. CIT(A) VIDE IMPUGNED ORDER DATED 21/01/2016 HAS BEEN FURTHER CONTESTED BEFORE US. SINCE, WE HAVE ALREADY ALLOWED ASSESSEES APPEAL FOR AY 2010-2011 AS ABOVE ON THE FACTS OF THE CASE, THE ISSUE BEING IDENTICAL IN ALL RESPECT EXCEPT FOR FIGURES AND MIN OR VARIATIONS, OUR OBSERVATIONS / CONCLUSIONS MUTATIS MUTANDIS APPLY TO THE SAME WHICH RESULTS INTO ASSESSEES APPEAL BEING ALLOWED BY US. 7. RESULTANTLY, BOTH THE APPEALS FILED BY THE ASSES SEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 28.07.2017 SR.PS:- THIRUMALESH ITA NO.2625 & 2626/MUM/2016 OTC EXCHANGE OF INDIA ASSESSMENT YEAR 2010-11 & 2011-12 15 / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. #&. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI