2014 (7) TMI 634 - AT - Income Tax

Appeal partially allowed, AO to reexamine exemptions under Sec. 11 & 13(1)(c), fresh verification ordered

The Tribunal partly allowed the appeal, directing the AO to reexamine the denial of Sec. 11 exemption under Sec. 13(1)(c) and Sec. 10(23EA) exemption ... Benefit of Sec.11 of the Act – Invocation of Sec. 13(1)(c) of the Act - Held that:- The income of the trust/property of the trust is to be applied for 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 and to apply the income of the trust on such other purpose of public utility as it may deem fit - the assessee strongly stated that none of the claimants/beneficiaries/recipients of compensation whose claims were settled by Trust were trading members of NSEIL - the assessee has filed a demonstrative evidence in the form of certificate from the auditors of the assessee trust - the Revenue authorities have alleged that payment of compensation has directed or indirectly benefited to the trading members of NSEIL, nothing has been brought on record in support of the allegation – thus, the matter is remitted back to the AO for verification of correctness or otherwise of the facts – Decided in favour of Assessee. Exemption u/s. 10(23EA) of the Act - Held that:- The assessee trust has received contribution in terms of SEBI guidelines from NSCIL that should suffice for the claim of exemption – there was no merit in the findings of the CIT(A) for declining the exemption – there was no prohibition in the act denying the claim of exemption u/s 10 for the Trust who claimed exemption u/s. 11 of the Act - the assessee trust is a notified trust u/s. 10(23)(c)(iv) of the Act vide Notification dt. 15.12.2003 - though this claim was not made before the AO, relying upon CIT Vs Pruthvi Brokers & Share Holders Pvt. Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] – the AO is directed to entertain the claim of the assessee – Decided in favour of Assessee. Double addition - Capital gain already added and considered – Held that:- The issue needs re-verification as it is a question of fact – thus, the matter is remitted back to the AO - The assessee is directed to demonstrate how capital gain have been considered twice by bringing cogent material evidence on record – Decided in favour of Assessee. Issues Involved:1. Denial of the benefit of Sec. 11 of the Act by invoking provisions of Sec. 13(1)(c) of the Act.2. Denial of the exemption u/s 10(23EA) of the Act.3. Double addition of Rs. 30 lakhs being capital gain already added and considered in arriving at the assessee's income.4. Levy of interest u/s 234B and 234D of the Act.Issue-Wise Detailed Analysis:1. Denial of the benefit of Sec. 11 of the Act by invoking provisions of Sec. 13(1)(c) of the Act:The assessee's appeal was directed against the denial of exemption under Sec. 11 due to alleged violations of Sec. 13(1)(c). The AO believed that the trust's income indirectly benefited the trading members of the National Stock Exchange (NSE) and thus invoked Sec. 13(1)(c)(i). The AO observed that contributions from NSE and its members exceeded Rs. 50,000, triggering Sec. 13(3)(b). The AO concluded that the income of the trust ensured benefits to NSE and its members, denying the exemption under Sec. 11 & 12 for Rs. 69,80,35,769/-. The CIT(A) upheld this view, stating that the payments made by the trust to investors were essentially liabilities of the defaulting members, benefiting them indirectly. The Tribunal found that the Revenue's allegations lacked concrete evidence and restored the issue to the AO for fresh verification, directing the assessee to provide a certificate from its auditors to support its claim.2. Denial of the exemption u/s 10(23EA) of the Act:The CIT(A) rejected the assessee's claim for exemption under Sec. 10(23EA), stating it was not claimed in the original return and that exemptions under Sec. 10 are not available to trusts claiming benefits under Sec. 11 to 13. The CIT(A) also objected to the source of contributions. The Tribunal disagreed, noting that the assessee trust is a notified trust under Sec. 10(23)(c)(iv) and Sec. 10(23EA). The Tribunal emphasized that the section does not require examination of the source of contributions and directed the AO to entertain the claim, citing the jurisdictional High Court's decision in CIT Vs Pruthvi Brokers & Share Holders Pvt. Ltd.3. Double addition of Rs. 30 lakhs being capital gain already added and considered in arriving at the assessee's income:The assessee contended that Rs. 30 lakhs of capital gain was added twice. The CIT(A) did not adjudicate this issue, as a rectification application was pending. The Tribunal restored the issue to the AO for verification, directing the assessee to provide evidence of the double addition.4. Levy of interest u/s 234B and 234D of the Act:The Tribunal noted that the levy of interest under Sec. 234B and 234D is mandatory but consequential. The AO was directed to levy interest as per the provisions of the law.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, restoring key issues to the AO for fresh consideration and verification, ensuring that the assessee is given a fair opportunity to present evidence. The order was pronounced in the open court on 23rd May, 2014.