2017 (9) TMI 807

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....proceed to deal with the same in succeeding paragraphs. 2. Briefly stated, the assessee being a corporate entity registered u/s 25 of the Companies Act, 1956 and registered Trust u/s 12A vide Registration No. INS/29014 dated 01/04/1991, hitherto, enjoying exemption as Trust u/s 11 & 12 of the Income Tax Act, 1961 has been denied the said exemption during impugned AYs and the same is the subject matter of these appeals. 2.1 The assessee is a public charitable trust and a recognized stock exchange registered u/s 4 of the Securities Contract (Regulation) Act, 1956 formed to create a script less, screen based multi tiered fully automated securities market to help medium / small scale enterprises to finance their projects in a cost effective manner and to provide investors with a convenient, efficient mode of trading. 2.2 The return for the impugned AY was filed at 'Nil' after claiming exemption u/s 11 / 12 for Rs. 110.85 Lacs. During the assessment proceedings, Ld. Assessing Officer [AO] noted that the assessee held 42.50 Lacs equity shares of Rs. 10/- each in its 100% subsidiary concern namely OTCEI Securities Ltd. [OSL] since financial year 1999-2000. Since, OSL was not publ....

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....ee. 2.6 All these factors led the Ld. AO to conclude that the case of the assessee was hit by the provisions of Section 11(5) read with Section 13(1)(d)(iii) & also hit by the provisions of 13(2)(a),(b),(d) and (g) and therefore, the exemption u/s 11 & 12 was not available to the assessee trust. 2.7 Finally, placing reliance on the judgment of Hyderabad Tribunal in Hyderabad Stock Exchange Vs ADIT [10 taxmann.com 132], Ld. AO denied the said exemption to the assessee and computed total taxable income at Rs. 290.72 Lacs being amount received / earned by the assessee during impugned AY. 3. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 20/01/2016 and inter-alia contended that the investment in subsidiary were in conformity with Section 11(5) read with Rule 17C of Income Tax Rules and therefore, the assessee was eligible to claim the said exemption. However, not convinced, the Ld. CIT(A) confirmed the stand of Ld. AO against which the assessee is in second appeal before us. 4. The Ld. Counsel for Assessee [AR], while drawing our attention to the documents placed in the paper book contended that the investments in ....

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....m taking a different stand on identical set of facts. 4.3 The Ld. AR also assailed the stand of the revenue on rule of consistency by contending that the wholly owned subsidiary company was floated by the assessee in financial year 1999-2000 with no further change in the same whatsoever and the revenue accepted the exemption claim of the assessee over preceding several years in several assessments u/s 143(3) / 143(1) and therefore, was not justified in denying the same in impugned AY, there being no change in facts or circumstances of the case. 4.4 Proceeding further, the Ld. AR drew our attention to the ledger account of OSL to assert that the amount outstanding at year end towards reimbursement of expenses represented only the outstanding of the last month of the relevant financial year and the same was settled in a short span of time in the very next financial year and therefore, no finance facility was provided by the assessee to OSL and there was no justification to charge the interest against the same and therefore, Ld. AO erred in concluding that the assessee was required to charge interest against the same. 4.5 The case laws of the Hyderabad Stock exchange relied u....

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....investor and the balance equity shares are held by members of such investor;] Admittedly, the facts reveal that the assessee has made investment in its wholly owned subsidiary company in accordance with the directions of SEBI. The main object of subsidiary was to acquire the membership rights of the BSE / NSE so as to facilitate the members of the investor. The assessee is a recognized stock exchange by Central Government in terms of Section 4 of the Securities Contract Regulation Act. Therefore, on these facts we find that the investment in subsidiary was in tune with the requirement of Section 11(5) read with Rule 17C and there was no violation of the same and therefore, the assessee could not be visited with consequential disallowance u/s 13(1)(d)(iii). 5.2 Proceedings further, we find that the shareholders of the assessee consist only of public sector undertaking / government undertaking as evident from Page Nos. 65 of the paper book and the directors of assessee company were largely nominee directors as per Annual Return of the company as placed on Page Nos. 66 to 84 of the paper book. As per Clause IIIA of Memorandum & Articles of Association of the assessee as placed i....

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....at small stock exchanges may be permitted to promote a subsidiary which can acquire membership rights of larger stock exchanges viz. NSE/BSE/CSE/OSE or any other exchange subject to usual conditions applicable to the other' members. In this connection, it has been decided that small stock exchanges may promote/float a subsidiary/company to acquire membership rights of other stock exchange subject to the under noted conditions: 1. The subsidiary/company shall be 100% owned by the stock exchange promoting/floating such a subsidiary/company. The name of the subsidiary company shall not contain the words 'Stock Exchange". 2. The members of the Stock Exchange shall register themselves as sub-brokers of the subsidiary/company to enable them trade through the subsidiary/company 3. The subsidiary/company shall not undertake any dealing in securities on its Own account. 4. The subsidiary/company shall register only the members of the stock exchange, which is promoting the subsidiary/Company as its sub-broker and no other client/sub-broker shall be entertained by the subsidiary/company 5. the sub-brokers of the subsidiary/company ....

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....hange in facts or circumstances, the revenue is debarred from shifting stands without any cogent reasons in view of rule of consistency. This is well supported by the observation of Hon'ble Apex Court rendered in Radhasoami Satsang vs. CIT [193 ITR 321] which reads as under:- "Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." Thus, it can be stated that although the principle of res judicata is not generally applicable to Income Tax Proceedings since an assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year and it is not binding either on the assessee or the Department in a subsequent year. However, if the earlier decision is not arbitrary or perverse or if it had been ar....