Asst. DIT(Exemp)-II, Hyderabad V. Hyderabad Stock Exchange Limited, Hyderabad

ITA 558/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66145 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 16-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M DAYASAGAR
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Charitable institution; Wholly owned subsidiary
• Section: 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 558/HYD/2012 A.Y. 2003-04 I.T.A. NO. 559/HYD/2012 A.Y. 2004-05 ASST. DIRECTOR OF INCOME - TAX (EXEMPTIONS)-II, HYDERABAD` VS. M/S. HYDERABAD STOCK EXCHANGE LTD., HYDERABAD PAN: AAACT8871H APPELLANT RESPONDENT APPELLANT BY: SRI M. DAYASAGAR RESPONDENT BY: SRI V. SIVA KUMAR DATE OF HEARING: 1 8 .07.2012 DATE OF PRONOUNCEMENT: 10.08.2012 O R D E R PER CHANDRA POOJARI, AM: THE ABOVE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), GUNTUR DATED 28.2.2011 FOR A.YS. 2003-04 AND 2004-0 5. 2. THE REVENUE RAISED COMMON GROUNDS IN BOTH THE APPEA LS AND THE GROUNDS RAISED IN ITA NO. 558/HYD/2012 ARE AS UNDER: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH ON FA CTS AND IN LAW. 2. THE ID. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE EXCHANGE INCURRED HEAVY EXPENDITU RE TOWARDS PROVIDING TERMINALS, NET SCOPE BROWSERS, COMPUTERS, OTHER ACCESSORIES AND INSURANCE COVERAGE FREE OF COST TO ALL MEMBER-BROKERS INCLUDING FOUNDER MEM BERS AND GOVERNING MEMBERS WHICH ATTRACTS THE PROVISIONS OF SECTION 13(2)(A) AND 13(2)(B) OF THE ACT. 3. THE ID. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT ALTHOUGH THE FACILITY BY WAY OF SCREEN BASED T RADING SYSTEM WAS PROVIDED TO THE MEMBERS AS PER MANDATORY I.T.A. NOS. 558 & 559/HYD/2012 M/S. HYDERABAD STOCK EXCHANGE LTD. ============================= 2 REQUIREMENTS FROM SEBI, THERE WAS NO REASON AS TO W HY ADEQUATE COMPENSATION SHOULD NOT BE CHARGED FROM TH E MEMBERS AGAINST THE BENEFITS RECEIVED AND THE ACT O N THE PART OF THE ASSESSEE TO PROVIDE FREE BENEFITS TO TH E MEMBERS ATTRACTS PROVISIONS OF SEC. 13(1)(C). 4. THE ID. CIT(A) DID NOT APPRECIATED THE FACT THAT TH E SITUATION OF HUGE INVESTMENT TO PROVIDE FACILITIES AND BENEFITS BY THE ASSESSEE TO ITS MEMBERS FREE OF COS T WAS NOT PREVALENT AT THE TIME OF PASSING THE JUDGEMENT NO. 78 OF 1971 BY THE HON'BLE HIGH COURT IN THE CASE OF THE A SSESSEE AND HENCE, THE CITED CASE DOES NOT COVER THE PRESEN T ISSUE. 3. AFTER HEARING BOTH THE PARTIES, WE FIND THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE IN ITA NOS. 543 AND 457/HYD/05 DATED 11.2.2011 FOR A.YS. 2001-02 AND 2006-07 WHEREIN THE TRIBUNAL DECIDED TH E ISSUE AGAINST THE ASSESSEE BY HOLDING AS FOLLOWS: '27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HEREIN IS A RECOG NIZED STOCK EXCHANGE UNDER THE SECURITIES, CONTRACTS (REGULATIO N) ACT, 1956 AND HAS BEEN CONSTITUTED FOR THE PURPOSE OF DEVELOPING THE STOCK MARKET. THERE IS NO DISPUTE REGARDING THE PROPOSITION THAT THE BASIC OBJECTIVE OF THE STOCK EXCHANGE BEING DEVELOPMENT OF THE STOC K MARKET IS COVERED UNDER THE DEFINITION OF CHARITABLE PURPOSE AS CONTAINED U/S 2(15) OF THE IT ACT. WITH THE FAST PACE OF INDUSTRI ALIZATION AND THE EMERGING RECENT TREND OF LIBERALIZATION AND GLOBALI ZATION IN THE NATIONAL ECONOMIC, CAPITAL MARKET AND OBVIOUSLY BE A POTENT TOOL FOR GIVING AN IMPETUS TO DEVELOPMENT OF COMMERCE AND IN DUSTRY. STOCK MARKET, WHILE REGULATING AND CONTROLLING THE BUSINE SS OF BUYING AND SELLING OF SHARES, DEBENTURES AND OTHER SECURITIES, CONSIDERABLY FACILITATE RESOURCES MOBILIZATION BY THE INDUSTRIAL SECTOR. THE INFLOW OF PRIVATE SAVINGS INTO THE CORPORATE SECTOR AS WEL L AS THE INFLOW OF FOREIGN CAPITAL INTO THE VARIOUS SECTORS OF INDUSTR Y ARE AIDED AND PROMOTED BY AN EFFICIENT AND DEVELOPED CAPITAL MARK ET. IN VIEW OF THIS MATTER, VARIOUS STOCK EXCHANGES HAVE BEEN RECO GNIZED AS CHARITABLE INSTITUTES ENTITLED TO EXEMPTIONS U/S 11 OF THE IT ACT. THUS, THE DOMINANT OBJECTIVE OF THE ASSESSEE EXCHANGE IS COVERED AS A CHARITABLE OBJECT FOR THE PURPOSE OF EXEMPTION U/S 11 OF THE IT ACT. REGISTRATION U/S 12A HAS BEEN GRANTED TO THE ASSESS EE BY THE DEPARTMENT ON THE REASON THAT THE ASSESSEE IS A CHA RITABLE INSTITUTION AND ITS OBJECTS ARE COVERED AS CHARITABLE AS PER TH E DEFINITION OF CHARITABLE PURPOSE CONTAINED U/S 2(15) OF THE IT ACT. ONCE THE INSTITUTION HAS BEEN REGISTERED U/S 12A, IT IS FOR THE ASSESSING OFFICER TO FIND OUT WHETHER THE INCOME OF THE INSTITUTION H AS BEEN APPLIED FOR THE OBJECTS OF THE INSTITUTION AND THE STATUTORY CO NDITIONS AS CONTAINED U/S 11 TO 13 ARE FULFILLED BY THE ASSESSEE. TO AVAI L BENEFIT U/S 11, THE ACTIVITY CARRIED OUT BY THE ASSESSEE TO BE FOR THE BENEFIT OF GENERAL I.T.A. NOS. 558 & 559/HYD/2012 M/S. HYDERABAD STOCK EXCHANGE LTD. ============================= 3 PUBLIC. THE MAIN OBJECT SHALL AIM AT MAINTAINING HI GH STANDARDS OF COMMERCIAL HONOUR AND INTEGRITY PROVIDING HONOURABL E PRACTICES DISCOURAGING AND SUPPRESSING MALPRACTICES, SETTLING DISPUTES AMONG BROKERS, DEALERS AND JOBBERS, DECIDING ALL QUESTION S OF USAGE, CUSTOM OR COURTESY IN CONDUCTING THE BUSINESS OF BROKERS, DEALERS AND JOBBERS IN STOCKS, SHARES AND LIKE SECURITIES WERE TO LEAD TO THE ADVANCEMENT OR PROMOTION OF TRADE, COMMERCE AND IND USTRY RESULTING IN ECONOMIC PROSPERITY ENDURED FOR THE BENEFIT OF G ENERAL PUBLIC. THE MAIN OBJECT TO BE ATTEND BY THE ASSESSEE ARE TO BE PROMOTE TRADE, COMMERCE AND INDUSTRY LEADING TO THE ECONOMIC PROSP ERITY OF THE PEOPLE AT THE LARGE AND SUCH OBJECT FALL WITHIN THE PURVIEW OF THE EXPRESSION OBJECT OF GENERAL PUBLIC UTILITY . ANY ACT CARRIED ON BY THE ASSESSEE FOR THE BENEFIT OF MEMBERS OF THE ASSE SSEES EXCHANGE ONLY AND NOT FOR THE BENEFIT OF PUBLIC AT LARGE, TH EN THE ASSESSING OFFICER HAS TO EXAMINE THE AVAILABILITY OF EXEMPTIO N U/S 11 OF THE IT ACT. THE ACTIVITIES CARRIED ON BY THE ASSESSEE DIRE CTLY OR INDIRECTLY WHICH HELP ITS INDIVIDUAL MEMBERS , THEN ITS ACTIVI TIES GOES OUT OF THE SPIRIT OF CHARITY AND ARE DETRIMENTAL TO AND DESTRU CTIVE OF THE PRIMARY OR MAIN OBJECTS. IF THE ASSESSEE IS HAVING UNCONTRO LLED POWERS TO CARRY OUT ANY OBJECT WHICH IS TO BENEFIT ITS MEMBER S, EMPLOYEES OR EX-EMPLOYEES, THEN EXEMPTION U/S 11 SHOULD NOT BE A VAILABLE TO THE ASSESSEE THOUGH AT THE SAME TIME PRIMARY DOMINANT P URPOSE OF THE ASSESSEE IS OF THE NATURE OF GENERAL PUBLIC UTILIT Y. THE ASSESSEE CANNOT CARRY ON ANY ACTIVITIES FOR THE EXCLUSIVE BE NEFIT OF THE MEMBERS OR EMPLOYEES OR EX-MEMBERS OR EX-EMPLOYEES OR THEIR DEPENDANTS AT THE COST OF THE ASSESSEES FUND. THE ASSESSEE IS NOT UNDER ANY OBLIGATION TO ESTABLISH FUND OR TRUST FOR THE BENEFIT OF THE MEMBERS OR EMPLOYEES OR EX-MEMBERS OR EX-EMPLOYEES OR THEIR DEPENDANTS. THE ASSESSEE WHEN CARRIED OUT ANY ACTIV ITY FOR THE SOLE BENEFIT OF ITS MEMBERS OR EX-MEMBERS OR EMPLOYEES O R EX-EMPLOYEES OR THEIR DEPENDANTS AND NOT FOR THE BENEFICIAL TO B E GENERAL PUBLIC WHICH IS DISTINGUISHED FROM THE CLASS OR COMMUNITY CONSISTING OF ITS MEMBERS, EX-MEMBERS, EMPLOYEES OR EX-EMPLOYEES OR T HEIR DEPENDANTS AND CONNECTIONS, IT WOULD NOT BE ENTITLE D FOR EXEMPTION U/S 11. THE CARRYING OUT OF THE ACTIVITIES FOR THE BENEFICIAL FOR THE MEMBERS, EX-MEMBERS, EMPLOYEES OR EX-EMPLOYEES OR T HEIR DEPENDANTS AND CONNECTIONS, CANNOT BE CONSTRUED AS ANCILLARY OR INCIDENTAL TO THE PRIMARY OR DOMINANTS OF THE ASSES SEES EXCHANGE. IN THIS BACKGROUND, IF WE EXAMINE THE FACTS OF THE PRE SENT CASE, AS PER ARTICLE 115 (1) OF THE ARTICLES OF ASSOCIATION PROV IDES FOR COLLECTION OF SEPARATE AND ADDITIONAL CHARGES OR FEES OVER AND ABOVE THE DUES AND CHARGES PROVIDED IN THE RULES, BY LAWS AND REGU LATIONS OF THE EXCHANGE, FROM THE MEMBERS FOR THE USE OF EQUIPMEN T OR FACILITIES OR FOR ANY PARTICULAR SERVICES OR PRIVILEGES GRANTED. THE GOVERNING BODY OF THE ASSESSEES EXCHANGE WAS NOT ONLY EMPOWE RED TO COLLECT SUCH FEES/CHARGES BUT ALSO WERE EXPECTED TO COLLECT THE SAME IN ORDER TO PROTECT THE INTEREST OF THE EXCHANGE AS WELL AS THE COMPLIANCE OF THE PROVISIONS OF ACT TO AVAIL THE EXEMPTION U/S 11 . THE MEMBERS OF THE ASSESSEE EXCHANGE CANNOT GET UNDUE ADVANTAGES A T THE COST OF ASSESSEE EXCHANGE. THE MEMBERS OF THE EXCHANGE BEIN G THE INTEGRAL PART OF THE CONSTITUTION OF THE EXCHANGE WHO ARE IN TERESTED PERSONS AS PER THE PROVISIONS OF SECTION 13(1)(C ) OF THE ACT AND THEY ARE PRECLUDED TAKING ANY UNDUE ADVANTAGES FROM THE ASSE SSEE EXCHANGE. AS SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE HA S INCURRED AN I.T.A. NOS. 558 & 559/HYD/2012 M/S. HYDERABAD STOCK EXCHANGE LTD. ============================= 4 ADDITIONAL EXPENDITURE OF RS. 10,64,33,816/- FOR PR OVIDING INFRASTRUCTURE FACILITIES IN THE FORM OF SCREEN BAS ED TRADING SYSTEM, ON LINE CONNECTIVITY, CMS INTER CONNECTIVITY, TRADI NG FACILITY IN NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE A ND ALSO INSURANCE COVER UNDER STOCK BROKERS INSURANCE POLIC Y. THE BENEFITS OF THESE EXPENDITURES HAVE BEEN GONE TO THE INDIVID UAL STOCK MEMBERS OF THE ASSESSEE AND ALSO TO BE MEMBERS OF THE GOVER NING BOARD WHICH CANNOT BE PERMITTED UNDER THE PROVISION OF SE CTION 11. FURTHER, IT IS ALSO FACT THAT THE ASSESSEE INVESTED ITS FUND IN ITS WHOLLY OWNED SUBSIDIARY VIZ., HSE SECURITIES LTD., ADVANCED INTE REST FREE LOAN TO THE SUBSIDIARY AND ALSO MORTGAGED ITS IMMOVABLE PRO PERTY WORTH RS. 81.74 LAKHS AT HYMAYAT NAGAR AND PLEDGED FIXED DEPO SITS WORTH RS. 35.61 LAKHS TO CANARA BANK AGAINST BANK GUARANTEE T O HSE SECURITIES LTD. THESE ARE CONTRARY TO THE PROVISION S OF SECTION 11 R.W.S. 13 OF THE IT ACT. THE ASSESSEE BEING REGISTE RED U/S 12A OF THE IT ACT, THE BENEFIT OF THE ASSESSEE EXCHANGE SHALL BE FOR THE PUBLIC AT LARGE AND NOT FOR THE BENEFIT OF INDIVIDUAL STOCK B ROKERS OR MEMBERS OF GOVERNING BOARD OF THE ASSESSEE EXCHANGE. IN OUR OPINION, PROVISIONS OF SECTION 13 (1) ( C) R.W.S. 13(2)(B) A ND 13 (3) (CC) IS APPLICABLE TO THE FACT OF THE CASE. ACCORDINGLY, TH E ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 11 OF THE IT ACT. ON CON SIDERING ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WE DISMISS ALL THE GROUNDS RAISED BY THE ASSESSEE WITH REGARD TO ALLOWABILITY OF EXEMPTION U/S 11 OF THE IT ACT.' 4. RESPECTFULLY FOLLOWING THE ABOVE RATIO LAID DOWN BY THIS TRIBUNAL, WE ARE INCLINED TO ALLOW THE APPEALS OF T HE REVENUE ON THE SAME REASONS. 5. IN THE RESULT, APPEALS OF THE REVENUE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 10 TH AUGUST, 2012 TPRAO COPY FORWARDED TO: 1. THE ASST. DIRECTOR OF INCOME - TAX (EXEMPTIONS) - II, ROOM NO. 307A, 3 RD FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. HYDERABAD STOCK EXCHANGE LTD., NO. 3 - 6 - 275, HIMAYATHNAGAR, HYDERABAD. 3. THE CIT (A) , GUNTUR 4. THE D IT (EXEMPTIONS) , HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD