2024 (6) TMI 456 - AT - Income Tax

Stock exchange contributions to Core Settlement Guarantee Fund under SEBI regulations allowed as business expenditure under section 37(1)

National Stock Exchange of India Limited Versus DCIT, Circle 7 (1) (1), Churchgate

The ITAT Mumbai allowed the assessee's appeal regarding contribution to Core Settlement Guarantee Fund (Core SGF), holding that statutory contributions ... Disallowance of contribution to Core Settlement Guarantee Fund (Core SGI) - Addition made as no default was made during the year by the clearing members - AO was of the view that once assessee has made contribution to a fund and parted away from the said amount, it does not necessarily mean that the said contribution become an expense. The core SGF is in the nature of reserve that has been created with the NSE clearing corporation - HELD THAT:- Section 10(23EE) exempt specify income and the specify income also include any income by way of contribution received from specified person. The specify person in the section under clause 10(23EE)(iv)(b)also include any recognised stock exchange, being a shareholder in such recognised clearing corporation, or a contributor to the Core Settlement Guarantee Fund therefore assessee being a Stock Exchange is a specified person. The provision of the section 10 as referred above clearly put the contribution made by the specified person to the Core Settlement Guarantee Fund in the category of income therefore corresponding claim of treating such contribution as expenditure in the hands of specified person cannot be simply brushed aside without any relevant reason. As considered the findings of the coordinate bench in the case of BSE Ltd. [2019 (11) TMI 1354 - ITAT MUMBAI] on the issue of similar statutory contributions made by the Bombay Stock Exchange to the Core Settlement Guarantee Fund in accordance with the circular of the SEBI holding that assessee is able to prove beyond doubt that the contribution to Core SGF is not in the nature of any deposit/contingency/reserve. In that decision it is further held that the contribution to the Investor Service Fund was made by the BSE from 1992 onwards claimed as deduction u/s 37 of the Act which had been allowed by the department till date. Further in terms of the circular dated 27th August, 2014 issued by SEBI as reproduced supra in this order it is beyond any doubt that the assessee is governed by the rules and regulations framed by the SEBI for carrying on its business of stock exchange in India. The assessee is bound by the mandatory Rules and Regulations issued by the SEBI. Therefore, following the findings of the coordinate bench, rules/regulations of the SEBI and the provisions of section 10 we consider that statutory contributions made by the assessee to the Core SGF on which it had no control is allowable u/s 37(1) of the Act as the same has been incurred exclusively in the course of carrying on its business. Therefore, this ground of appeal of the assessee is allowed. Amortization of Leasehold Land - assessee claimed deduction towards lease premium amortized on lease hold land being revenue expenditure - assessee Company had obtained lease for the term of 80 years from the MMRDA and had paid lease premium - HELD THAT:- This is undisputed facts that assessee had capitalised the lease hold land and shown as asset in the form of land in its balance sheet and also claimed depreciation on the amount capitalised as leasehold land. During the course of appellate proceedings before us the ld. Counsel filed copy of ITAT order in the case of the assessee itself [2019 (12) TMI 213 - ITAT MUMBAI] vide which the issue was restored to the file of the AO for deciding a fresh in the light of the decision of Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals Ltd. [2009 (3) TMI 587 - GUJARAT HIGH COURT] - Following the decision of the ITAT as discussed supra this issue is also restored to the file of the AO for deciding a fresh as directed above in the findings of the ITAT. Therefore, this ground of appeal of the assessee is allowed for statistical purpose. Correct head of income - maintenance and other charges received from the Licensees treating as income from house property - HELD THAT:- As decided in own case [2011 (12) TMI 376 - ITAT, MUMBAI] we find that the CIT(A) has indeed been very superficial in his approach and has simply brushed aside contentions of the assessee. The issue in appeal does not have much to do with the decision of Hon'ble Supreme Court in the case of Shambhu Investments [2003 (1) TMI 99 - SC ORDER] It is a case where separate payment is being made and there is no dispute that the rent is to be treated as income from house property. The question really is whether a separate payment is being made for other services whether the same could be treated as income from house property It is also to be examined whether such a payment is to be excluded for determination of annual value. There are decisions on the coordinate benches as also Hon'ble Courts above dealing with fine points regarding these aspects. Learned counsel has, even before us, made these legal submissions which the CIT(A) had no occasion to deal with by way of a speaking order. In this view of the matter, we deem it fit and proper to remit the matter to the file of the CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order and in accordance with the law. Disallowance u/s 14A r.w.r. 8D - assessee has suo moto disallowed the expenses towards earning exempt income - HELD THAT:- We consider that basis for the correctness of self -devised method of the assessee for estimating the disallowance u/s 14A is required to be examined at the level of the assessing officer. Therefore in order to decide the issue on merit we restore this issue to the file of the assessing officer for deciding de novo after verification of the basis of allocation of expenses under the different heads from the relevant material to be furnished by the assessee. It is needless to say that observation made by us will not injure or impair the case of the AO and will not cause any prejudice to the defence explanation of the assessee. Therefore, this ground of appeal of the assessee is allowed for statistical purpose. Issues Involved:1. Disallowance of statutory contribution to Core Settlement Guarantee Fund (Core SGF).2. Disallowance of proportionate amortized amount of lease premium.3. Treatment of maintenance and other charges recovered from licensees as 'Income from House Property'.4. Disallowance u/s 14A towards earning exempt income.Summary:Issue 1: Disallowance of statutory contribution to Core Settlement Guarantee Fund (Core SGF)The assessee challenged the disallowance of Rs. 7,61,52,00,000/- made by the AO, upheld by the CIT(A), for statutory contribution to Core SGF. The AO viewed Core SGF as a contingent reserve, not an allowable expense. The CIT(A) agreed, stating the contribution was not specified u/s 36 or u/s 37 of the Income Tax Act. However, the Tribunal found that the contributions to Core SGF, mandated by SEBI, were statutory and beyond the control of the assessee, thus allowable u/s 37(1). The Tribunal relied on the ITAT Mumbai decision in BSE Ltd. vs. The Pr.CIT-2, which held similar contributions as allowable expenses.Issue 2: Disallowance of proportionate amortized amount of lease premiumThe assessee claimed deduction of Rs. 1,29,52,158/- towards lease premium amortized on leasehold land. The AO disallowed the claim, treating the premium as capital expenditure. The Tribunal restored the issue to the AO for fresh adjudication, following the ITAT's decision in the assessee's own case for A.Y. 2008-09, directing the AO to decide in light of the Gujarat High Court decision in Sun Pharmaceuticals Ltd.Issue 3: Treatment of maintenance and other charges recovered from licensees as 'Income from House Property'The assessee contended that Rs. 1,05,72,994/- recovered as maintenance charges should not be treated as income from house property. The AO included it under house property income, and the CIT(A) upheld this view. The Tribunal restored the issue to the CIT(A) for fresh adjudication, directing a detailed examination of the assessee's claim that these charges were reimbursements for specific services.Issue 4: Disallowance u/s 14A towards earning exempt incomeThe AO disallowed Rs. 19,49,00,000/- u/s 14A, rejecting the assessee's suo moto disallowance of Rs. 2,08,72,452/-. The Tribunal noted the AO's dissatisfaction with the assessee's estimation method and restored the issue to the AO for fresh examination of the basis for the assessee's allocation of expenses towards earning exempt income.Conclusion:The Tribunal allowed the assessee's appeal on the disallowance of Core SGF contributions and restored the other issues to the respective authorities for fresh adjudication, emphasizing the need for detailed examination and adherence to judicial precedents.