TaxTMI 
TaxTMI 
2026 (9) TMI 261
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.... Stock Exchange of India Ltd. pursuant to the directions of the Ministry of Finance and the regulatory framework governing recognized stock exchanges. Its principal objects are to compensate investors/constituents for losses suffered on account of a trading member being declared a defaulter, subject to the limits prescribed by the trustees, and to undertake investor education, awareness and related research. 2.1. The assessee was registered under section 12A under the erstwhile regime and was subsequently granted registration under section 12AB as well as approval under section 80G for the immediately preceding period. For continuation of registration from A.Y. 2027-28 onwards, the assessee filed Form No.10AB on 26/09/2025. 2.1. The Ld. CIT(E) observed that the trust receives contributions from NSE and its trading members and applies the fund towards claims arising on a trading member being declared a defaulter. According to the Ld.CIT(E), the trust thereby takes over the liability of defaulting trading members and indirectly benefits NSE and its members, who fall within the category of specified persons contemplated under section 13(3). It was further held that the trust ben....
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.... principal object of the assessee is to compensate, within the prescribed limits, any person or constituent for loss suffered on account of a Trading Member being declared a defaulter under Chapter XII of the Bye-laws of NSE. The Trust is also required to undertake activities relating to education of investors, creation of awareness amongst the investor community and research connected therewith. It was submitted that the object is therefore not to provide any commercial or private benefit to NSE or its Trading Members, but to protect investors who participate in the securities market and to promote investor awareness and confidence. 3.6. The Ld.Sr.Counsel submitted that investor protection is an integral part of the regulatory framework governing the securities market. SEBI, vide Circular No. SE/10118 dated 12.10.1992, had advised stock exchanges to establish an Investor Services Fund. Subsequently, SEBI issued Circular No. MRD/DoP/SE/Cir-38/2004 dated 28.10.2004 prescribing comprehensive guidelines for Investor Protection Funds to be maintained by Stock Exchanges. These guidelines were modified from time to time based on the experience of the market and the deliberations with ....
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....commerce or business. The Ld.Sr.Counsel submitted that the Trust do not carry any commercial activity with a profit motive. It does not provide any commercial service to NSE, Trading Members or investors for consideration. He submitted that the compensation paid to an investor cannot be characterised as consideration for any service rendered by the Trust. He further submitted that the payment is made pursuant to the investor-protection mechanism and is intended to mitigate the loss suffered by an eligible investor on account of the default of a Trading Member. 4.1. The Ld.Sr.Counsel submitted that even where an object falls under the sixth limb of section 2(15), the proviso thereto is attracted only where the assessee is carrying on an activity in the nature of trade, commerce or business, or rendering any service in relation to trade, commerce or business, for a cess, fee or any other consideration, subject to the statutory conditions. He emphasised that the present case, there is no such commercial activity or rendering of services for consideration. The Trust does not charge investors a fee for providing protection against the default of a Trading Member. The compensation mec....
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....t the activities of the assessee have previously been examined by the Tribunal in the context of the charitable provisions of the Act. 4.8. Accordingly, the Ld. Sr. Counsel submitted that the assessee Trust was established under the regulatory framework for the securities market with the predominant object of protecting the investing public, providing a mechanism for compensating eligible investors in cases of default by Trading Members, promoting investor education and awareness, and undertaking connected research. 4.9. It was therefore contended that the activities of the assessee constitute a charitable purpose within the meaning of section 2(15) of the Act. In the first instance, the activities relating to investor education and awareness fall within the specific limb of "education". Alternatively, and without prejudice, the protection of investors and promotion of confidence and awareness in the securities market constitute advancement of an object of general public utility under the sixth limb of section 2(15). Since the assessee does not carry on any activity in the nature of trade, commerce or business, nor render any service for a cess, fee or other consideration, th....
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....In these circumstances, we are unable to accept the premise underlying the order of the Ld. CIT(E) that the assessee Trust takes over the liability of, or confers a benefit upon, the defaulting Trading Member. The defaulting Trading Member neither receives the compensation from the Trust nor acquires any enforceable right in the funds maintained by the Trust. The liability of the Trading Member towards its client is not discharged by the Trust in the sense of assuming such liability; rather, the Trust operates a separate investor-protection mechanism for meeting the eligible claim of the investor in accordance with the prescribed regulatory framework. 5.4. We also find no merit in treating the contributions received from NSE and its Trading Members as establishing that such contributors are the beneficiaries of the Trust. The contributions are made pursuant to the regulatory mechanism for creation and maintenance of the Investor Protection Fund. The source of the corpus and the ultimate beneficiaries of the Fund are distinct. The fact that NSE and its members are required to contribute to the Fund does not, by itself, establish that the Fund is operated for their benefit. 5.5....
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....ns connected with the securities market cannot, without more, result in its activities being characterised as trade, commerce or business or as rendering services for consideration. 5.8. In view of the above, we find that the material on record does not support the premise adopted by the Ld. CIT(E) that the activities of the assessee result in conferring a benefit upon the defaulting Trading Members. On the contrary, the regulatory framework, Trust Deed and manner of utilisation of the Fund establish that the Fund is operated for the protection of eligible investors. We, therefore, hold that the activities of the assessee are genuine, are being carried out in accordance with its stated objects and do not fall within the mischief of the proviso to section 2(15) of the Act. 5.9. In the above circumstances, we do not consider it necessary, for deciding the present appeal, to record a conclusive finding as to whether the activities of the assessee fall under the specific limb of "education" or under the sixth limb of "advancement of any other object of general public utility" in section 2(15). Since the basis adopted by the Ld. CIT(E) for denying registration is not borne out ....