SANJAY GARG,JM. -
(1.) THIS appeal by the assessee is directed against the order of the Ld. CIT(A) -1, Mumbai dt. 1.11.2013 pertaining to A.Y. 2010 -11.
(2.) THE grievance of the assessee can be summarized in following categories:
i) Denial of the benefit of Sec.11 of the Act by invoking 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 assessee's income.
iv) Levy of interest u/s. 234B and 234D of the Act.
(3.) BRIEFLY stated the facts of the case are that Central Government vide Notification No. F.No. 14/4/SE/85 dt. 22nd August, 1985 stipulated setting up of the Investor Protection Fund (IPF)/Customer Protection
Fund (CPF) by the Stock Exchange. The said notification stipulates as under:
"Under the existing provision in the Rules, Bye -laws and regulations of the Stock Exchanges, there is no provision 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 Stock Exchange and last to the member of stock exchange having claims against the defaulting member on prorata basis. As a result, there is no protection for any client of a member, who is declared a defaulter.
In the light of the existing position, which is not conductive to instilling confidence in the minds of the investing public of the Stock Exchanges, there is also an imperative need for the creation of a compensation fund to take care of the legitimate investment claims which are not of a speculative nature of the clients of defaulting members. The fund will have to be initially financed by way of levy on the turnover of members as was done by the Securities Investor Protection Corporation of the Indian States. Similarly, the Stock Exchanges should also contribute to such a fund, every year, 1% of the listing fees received by the Exchange" [Emphasis Supplied]
Further, as per the terms of the said directives, no part of the income or property of the trust fund are to be utilized for the members of the Stock Exchange.
SEBI has with a view to bring uniformity in the practices followed by Stock Exchanges with respect to constitution, management and the utilization of the TPF/CPF at the Stock Exchange issued a comprehensive guidelines alongwith Annexure vide letter no. MRD/DoPISE/Cir -8/2004 dated October 28,2004. In terms of the said guidelines the Investor Protection 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 Protection 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 and Bye -laws are SEBI approved) and Guidelines issued by SEBI to all Stock Exchange vide letter no. SMD/RCG/PJ/268/96 dated January 19, 1996 with an object for safeguarding the interest of the small investors and promotion of the healthier and transparent stock market. The main object and purpose of the appellant trust have been described in Clause 10 and 1OA of the Trust Deed dated 11.07.1995 which reads as under:
a. To compensate for any loss which may be suffered 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 protection und for investor education, awareness and research."
The assessee filed its return of income on 6.10.2010 alongwith the Income and Expenditure account, Balance sheet and Audit report in Form No. 10B declaring total income at Rs. Nil. The return was selected
for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. The
Assessing Officer noticed 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.30 crores. The AO further observed that
Rs.8,45,25,315/ - and Rs. 4,25,414/ - have been received from NSEIL and NSEIL's members and the same
have been claimed as exempt u/s. 10(23EA) of the Act specifically 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 assessee 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 by provisions of Sec. 13(1)(c) (i) The AO further observed that the assessee 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 Trust for the purpose of providing an appropriate avenue for payment of compensation under Chapter XIII of the Byelaws of the Settlor to persons acting as a Trading Member of the Settlor or as a Constituent of the Trading Member for any loss subject to certain terms and conditions arising from a trading member of the Settlor being declared as Defaulter by the Settlor under Chapter XII of the Bye -laws of the Settlor."
4.2. To support his findings, the AO observed that during the year, the assessee has received contributions from National Stock Exchange of India Ltd. at Rs.7,74,87,145 and from trading members of NSEIL at Rs.4,25,414/ - is more than Rs.50,000/ -. Therefore, provisions of clause (b) of Sec. 13(3) of the Act squarely apply on the facts of the case read with clause of Deed of Trust mentioned hereinabove.
4.3. Considering these facts in the light of the Deed of Trust, the AO was of the strong belief that under the terms of the Trust or the Rules governing the institution, income of trust ensures directly or indirectly for the benefit of trading members of NSE. Thus, assessee's case is hit by provisions of Sec. 13(1)(c)(i) of the Act. The assessee was show caused to justify its claim. The assessee filed a detailed reply stating that the trust was formed as per the directions of the Central Govt. and SEBI. The directions and the guidelines of the SEBI clearly says that no part of the income will be utilized for members of Stock Exchange. It was further pointed out that the objects of the Trust clearly states that income of trust cannot be utilized for trading members. It was explained that the income of the trust is utilized for payment of investors only 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 National Stock Exchange. The compensation paid is to the general public at large and therefore assessee's claim of exemption u/s. 11 is not hit by Sec 13(1)(c)(i) read with Sec. 13(3) of the Act.
4.4. Referring to the clause of the Trust Deed mentioned elsewhere, the AO reiterated that the arrangement in the Trust Deed make sure that income of Trust ensures benefit to National Stock Exchange and its members directly or indirectly. The AO went on to deny the benefit of Sec. 11 and 12 in respect of the remaining income of Rs.69,80,35,769/ -which includes capital gain of Rs.30 crores. Further, the AO decline to allow expenditure claimed and further decline to allow 15% of income claimed as exempt. The assessment was completed at Rs.75,82,80,500/ -