TaxTMI 
TaxTMI 
2014 (7) TMI 634
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.... 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....
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....rs 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 Chaper XII of the Bye-laws of the Settlor." 4.2. To support his findings, the AO observed that during the year, the assessee has receive....
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....fault of Member(stock broker) of the stock exchange. The member of the stock exchange and the activities carried out in the stock exchange are of particular and definite character of business and commerce which take place in the stock exchange. The investors through the stock members or otherwise in the on going business of the stock exchange, participate for carrying out business for resulting profit/loss. The stock members (brokers) and investors are all part of the ongoing business in the stock exchange. The role envisaged and acquired by the appellant is for the "defaulting stock member"(broker) in such eventualities of default in relation to transacting party. Thus, in eff3ect and for the purpose of settlement of claims of investors, the appellant acquires the role of defaulting stock member (broker). At the same time it is also on record that during the financial year, NSE and trading members(brokers) have contributed an amount of Rs. 8,45,25,315/- and Rs. 4,25,414/- to the appellant totaling to Rs. 8,49,50,728/-. Thus, it can be seen that it is the liabilities of the stock member (broker) which is paid by the appellant to the investor by way of settlement of their claims. Th....
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.... never made by the assessee in its return of income. Further exemption for total income provided u/s. 10 of the Act is not in reference to income as appearing in Sec. 11 of the Act as both are different under the Income Tax Act. Secondly, since exemption u/s. 10 of the Act is in respect of total income is not specifically provided to be allowed u/s. 11 read with Sec. 12 and 13 of the Act. The Ld. CIT(A) finally concluded that the alternative claim of exemption u/s. 10 of the Act is not allowable to the assessee. In so far as the claim of the assessee that the capital gains have been doubly taxed. The Ld. CIT(A) found that the assessee has filed rectification application u/s. 154 which is pending for disposal. Therefore, the Ld. CIT(A) decline to adjudicate on this matter. 6. Aggrieved by this, the assessee is before us. The Ld. Counsel for the assessee Shri A.V. Sonde strongly submitted that the Revenue authorities have grossly erred in holding that the claim of the trust is hit by the provisions of Sec. 13(1). The Ld. Counsel further stated that the Revenue authorities have not appreciated the terms of the Deed of Trust in line with the directions of the Central Govt. and the SEB....
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.... Counsel concluded by saying that the Ld. CIT(A) has grossly erred in not allowing the exemption u/s. 10(23EA) of the Act. 7. Per contra, the Ld. Departmental Representative strongly supported the findings of the lower authorities. It is the say of the Ld. DR that the activities of the trust are not charitable even if the trust is created as per the directions of the Central Government. The Ld. DR further stated that the Revenue authorities have clearly shown that the assessee has violated the provisions of Sec. 13(1)(c) and therefore the benefit of exemption u/s. 11 of the Act has been rightly denied by the AO. In support, the Ld. DR relied upon the decision of the Hyderabad Bench in the case of Hyderabad Stock Exchange 46 SOT 01,- High Court of Delhi in the case of Delhi Stock Exchange Association Ltd 126 ITR 532, Supreme Court in the case of Delhi Stock Exchange Association Ltd. 225 ITR 235. The Ld. DR concluded by saying that the findings of the lower authorities are based on the facts of the case and therefore deserves to be confirmed. 7.1. In so far as the alternative claim of the assessee that its income is exempt u/s. 10(23EA) of the Act. The Ld. DR relied upon the findin....
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....tion entirely revolves around the allegation that such outflow of compensation has directly or indirectly benefited to the NSE or its members which is hit by the provisions of Sec. 13(1)(c) r.w. Sec. 13(3) of the Act, in the light of the clause of the Deed of Trust mentioned at para 4.1 of this order. 9. On the other hand the assessee strongly stated that none of the claimants/beneficiaries/recipients of compensation whose claims were settled by Trust were trading members of NSEIL. Not only during the year under consideration but right from the inception of the Trust till date. This categorical assertion by the assessee is in stark contradiction to the allegations of the Revenue authorities. In support of its contention, the assessee has filed a demonstrative evidence in the form of certificate from the auditors of the assessee trust. Although the Revenue authorities have alleged that payment of compensation has directed or indirectly benefited to the trading members of NSEIL, however, nothing has been brought on record in support of this allegation. The certificate of the auditors give a different colour to the facts. Therefore, in the interest of justice and fair play we restore....
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....y income (by way of contributions received from recognized stock exchanges and the members thereof) of such Investor Protection Fund set up by recognized stock exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf" 10.1 A perusal of the above stated section shows that for availing the exemption contributions should be received from recognized stock exchanges and the members thereof which means that the source of income should be the contributions received from recognized Stock exchanges and the members thereof. The section nowhere provides for the examination of the source of the source. The Ld. CIT(A) has declined to allow the exemption holding that the contributions received from National Securities Clearing Corpn. Ltd. ( NSCCL) on the ground that was the sum received as auction difference arising out of bad delivery of scrips on accounts of the investors. 10.2. Even though this claim was not made before the AO drawing support from the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs Pruthvi Brokers & Share Holders Pvt. Ltd. 349 ITR 336 (Bom) we direct the AO to ente....