TaxTMI 
TaxTMI 
2025 (9) TMI 150
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....oth the years is related to the rejection of claim of contribution to Core Settlement Guarantee Fund (Core SGF) as business expenditure. 3. The assessee is a clearing corporation and is wholly owned subsidiary of National Stock Exchange of India Ltd (NSE). The assessee was earlier known as "National Securities Clearing Corporation Ltd" (NSCCL). It is responsible for clearing and settlement of all trades executed on NSE and also carries on collateral management and risk management functions. The assessee is bound by the rules, regulations, directives, circulars, guidelines etc., issued by the Securities and Exchange Board of India (SEBI), which is the statutory authority formed by the Central Government to protect the interests of investors in the securities and to promote development & regulate the securities market. The SEBI, in exercise of its powers granted u/s.11 of SEBI Act and in terms of Regulation 39 of Securities Contracts (Regulations) (SECC) Regulations, 2012 issued guidelines by way of Circular dated 27-08-2014 for the setting up a "Core Settlement Guarantee Fund" (Core SGF). The above said Circular contains guidelines with regard to - --the objective of Cor....
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.... that too, to the extent of liability borne by the assessee. It was noticed by the AO that there was no default by any of the trading members during these two years under consideration. The AO also took the view that the ownership of funds remains with the assessee and it is similar to Cash Reserve Ratio maintained by the Scheduled banks. Accordingly, he took the view that the contribution made by the assessee to core SGF cannot be considered as business expenditure. He also observed that the assessee has not declared this amount as expenditure in the Profit and Loss account of the respective year. Accordingly, the AO disallowed the above said claim of the assessee in both the years under consideration. The Ld.CIT(A) also confirmed the disallowances made in both the years. Aggrieved, the assessee has filed these appeals. 6. We heard the parties and perused the record. We notice that the assessee herein, besides its own contribution to Core SGF, is also receiving contributions from NSE and trading members towards Core SGF. As noticed earlier, the assessee has shown Core SGF fund as a liability in the Balance Sheet of the assessee. The Ld A.R submitted that the funds so received t....
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....,12 44.70 4 Balance in Bank Accounts 1.84 1.20 2.17 1.30 6.51 Grand Total (1+2+3+4) 121.07 470.13 77.86 4.05 673.11 *Net of applicable corporate tax Rs. 9.38 Crs, on cash basis. Identical disclosure has been made by the assessee in its Annual report for the year ending 31-03-2017 also. 7. The Ld A.R submitted that the funds accumulated for "Core SGF" cannot be considered as the funds belonging to the assessee. He submitted that the above said fund has been recognized as a "separate assessee" by the Income tax department. In this regard he submitted that the Core SGF has been allotted a Permanent Account Number viz., "AAAJN1131F" with the name of "NSCCL Core Settlement Guarantee Fund". Further, the "Core SGF" has been notified by the CBDT u/s 10(23EE) of the Income tax Act. The said notification reads as under:- "Notification No. SO 2184(E)(F No.197/39/2015-ITA-I) dated 23-06-2016 In exercise of the powers conferred by clause (23EE) of section 10 of the Income tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Core Settlement Guarantee Fund set up by National Securities Clearing Corpor....
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....se them for its own purposes. Further, as noticed earlier, the Core CGF has been recognized as a distinct and separate assessee by the Income tax department by allotting a separate Permanent Account Number. Further, a separate notification has been issued by the CBDT in order to exempt the income of Core CGF from AY 2016-17 onwards. Hence, we are of the view that the assessee is actually acting as a trustee of those funds, even though the relevant financial transactions are maintained in its books of accounts. 10. All these facts would show that the contribution made by the assessee to the MRC of Core CGF cannot be considered as an item of mere appropriation of profit by the assessee. Further, it is not a voluntary contribution made by the assessee, i.e., it is contribution made as per the directions given by SEBI and such directions has got statutory force. When a contribution is made to a fund as per the requirement of the direction given by the SEBI, which is regulating the business of the assessee and when the assessee loses its control over that contribution and further when the amount so accumulated could be used only for the stated purposes, in our view, the said contribu....
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....ress test, norms for MRC on Core SGF contributions and utilisation. The purpose of creation of the said fund was to achieve the following objectives: "a). create a core fund (called core settlement guarantee fund). within the SGF against which no exposure is given and which is readily and unconditionally available to meet settlement obligations of clearing corporation in case of clearing member(s) failing to honour settlement obligation. b) align stress testing practices of clearing corporations with FMI principles (norms for stress testing for credit risk, stress testing for liquidity risk and reverse stress testing including frequency and scenarios). c) capture in stress testing, the risk due to possible default in institutional trades, d). harmonise default waterfalls across clearing corporations, e) limit the liability of non-defaulting members in view of the Basel capital adequacy requirements for exposure towards Central Counterparties (CCPs). f) ring-fence each segment of clearing corporation from defaults in other segments, and g) bring in uniformity in the stress testing and the risk management practices of dif....
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....eferred supra wherein the identical issue on similar facts has been adjudicated while deciding the appeal u/s 263 of the Act. The relevant extract of the operating para of the decision is reproduced as under: "12. In view of the above, we noted that the PCIT observed in para 4.1(a) of Show Cause Notice that the contribution is in the nature of deposit/ contingency reserve. According to us, the said issues were already examined by the AO during the course of assessment proceedings. During the course of assessment proceedings, it was explained that contribution by BSE to Core SGF is a mandatory payment and expenditure is neither of capital in nature nor it has any enduring benefit or personal in nature but incurred wholly and exclusively for the purpose of business and therefore allowable under section 37 of the Act. We are of the view that contingency means a future event or circumstances which is possible but cannot be predicted with certainty. In the present case the liability to pay/ contribute is certain and accrued as per the Circular of SEBI. The said amount is transferred to CSGF and has not remained with BSE; therefore, it cannot be said to be in a nature of conting....
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....21(SC), wherein it was held as under: "13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where 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. 14. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter--and if there was no change it was in support of the assessee--we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be a!!owed, and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled ....
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.... legal principles. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualized where the Incometax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts ....
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.... in order to set aside an order under section 263 there must exist two circumstances to enable your honor to exercise the power of revision, viz; the order passed by the AO has to be erroneous and by virtue of the order being erroneous should be prejudicial to the interest of the revenue. From the facts as stated in the earlier paragraphs, it is very well established that the AO has not only applied his mind after proper enquiries but has examined and considered various details submitted during the course of assessment. Hence, the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue i.e. involving any error or it is deviating from law. (as defined in Black's Law Dictionary). Since, the AO has acted in accordance with law and passed the assessment order, the same cannot be considered as erroneous and prejudicial to revenue, simply because AO has not elaborated various things in the body of the assessment order. Hence, we quash the revision order passed by PCIT and allow the appeal of the assessee on this issue. 17. In the result, the appeal of the assessee is allowed." 16. Apart of the above we have gone the through the Finace ....
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....d to be the income and shall be chargeable to income-tax. 18. The sub clauses of provision of section 10(23EE) are as under:- [(23EE):- any specified income of such Core Settlement Guarantee Fund, set up by a recognised clearing corporation in accordance with the regulations, as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided that where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is so shared and shall, accordingly, be chargeable to income-tax. Explanation.--For the purposes of this clause,-- (i) "recognised clearing corporation" shall have the same meaning as assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 201249 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the Securities Contracts (Regulation) Act, 1956 (42 ....
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....older in such recognised clearing corporation, or a contributor to the Core Settlement Guarantee Fund therefore assessee being a Stock Exchange is a specified person. 24. 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. 25. We have also considered the findings of the coordinate bench in the case of BSE Ltd. at para 12 of this order 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 d....