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TMI Blog2006 (6) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is aggrieved that the learned CIT(A} has erred in holding that assessee company is eligible for grant of exemption under s. 11 of the IT Act and directing the AO to allow the benefit of accumulation of income to the extent of 25 per cent of such income. 5. We have heard the parties. Briefly stated, the facts of the case are that the assessee has claimed exemption under s. 11(2) and under s. 11(1)(a) and has declared taxable income at nil. In response to the objection of the AO to allow exemption as claimed by the assessee, the assessee's reply was that the main objects of the company are generally for the promotion and protection of the interest of those acting as brokers, dealers and jobbers in stocks, shares and like securities, and to protect the interest of general public as a whole in the matter of stocks, shares, securities. The income and property of the exchange would be applied solely towards the promotion of the objects of the company. The income or surplus leftover with the company on winding up or dissolution was not to be distributed among his members. The assessee also stated that the objects as set out in memorandum and articles of association (MOA) of Jaipur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head 'Income from other sources'. 8. Before the learned CIT(A), the learned counsel for the assessee made the explanation for each and every observation of the AO which appears at pp. 3 to 7 of learned CIT(A)'s order as under: S. No. Observation of AO Explanation of Assessee (i) The assessee does not fulfil the conditions mentioned in section 11(5) that is deposit of money and funds in specified modes. The assessee has not made any investment or deposit which is in contravention of the provisions of section 11(5) of Income-tax Act as is evident from the published balance sheet of the assessee. The learned Assessing Officer has not pointed out any specific instance. Even in assessment year 1996-97, there has been no such violation of section 11(5) as per order of CIT(A). On the contrary, exemption, under section 11 stands duly allowed by CIT(A) in assessment year 1996-97. (ii) That reference under section 256(2) of Income-tax Act is pending adjudication before Hon'ble Rajasthan High Court for assessment year 1988-89 which has arisen out of IT A No. 1387/Jp/1994 The Tribunal, Jaipur Bench, Jaipur, vide its order dated 28-2-1995 has already held that the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi Stock Exchange had amended its memorandumand articles of association prohibiting distribution of profit by way of interest and dividend and therefore Delhi High Court held that it was entitled to exemption under section 11#CIT v. Delhi Stock Exchange Association Ltd. [2001] 248 ITR 258 (Delhi). (c) Madras Stock Exchange In fact, exemption under section 11 was duly granted to Madras Stock Exchange as in CIT v. Madras Stock Exchange [1981] 130 ITR 184 (SC). (d) Ahmedabad Stock Exchange Exemption under section 11 was granted by Tribunal, Ahmedabad Bench, as in Stock Exchange Ahmedabad v. Asstt. CIT [2000] 74 ITD 1 (Ahd). The pendency of the matter before High Court does not affect the grant of exemption. (e) Bombay Stock Exchange The learned AO has not provided a copy of the decision, refusing to grant benefit under section 11 and therefore this case cannot be relied unless judgment is provided for rebuttal. In the case of CIT vs. Madras Stock Exchange (1981) 130 ITR 184 (SC), the Hon'ble Supreme Court in its decision affirmed the decision of Madras High Court granting the exemption and the observations of the apex Court were as under: "Held, that profit making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Aishi Ram Batra Charitable Trust [1999] 70 ITD 487 (Asr). If the primary objects are charitable, exemption cannot be denied if a subsidiary object is found to be non- charitable. Yogiraj Charitable Trust v. CIT [1976] 103 ITR 777 (SC), Addl. CIT v. Etawah District Exhibition & Cattle Fair Association [1981] 131 ITR 461 (All). (B) As per decision of the Hon'ble Rajasthan High Court in the case of Umaid Charitable Trust v. CIT [1980] 125 ITR 55 (Raj), it is held by the jurisdictional High Court that a business undertaking can be held to be for charitable purpose but the object of the trust must not be the carrying on of any activity for profit. In the light of the above decision of the jurisdictional High Court, the declaration given in the memorandum and articles of association at below para C is very significant. The decision of Umaid Charitable Trust (supra) supports the case of the assessee. The declaration merely confers power to carry on such activities which support the promotion of the objects of the institution. Amendment made in section 2(15) w.e.f. 1st April, 1984 omitted the words "not involving the carrying on of any activity for profit". The Tribunal, Jaipur B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, we also place reliance on the following decisions : CIT v. Madras Stock Exchange Ltd. [1976] 105 ITR 546(Mad). CIT v. Andhra Chamber of Commerce [1981] 130 ITR 184 (SC). CIT v. Bangalore Stock Exchange Ltd. [1978] 115 ITR 493(Kar). Delhi Stock Exchange Association Ltd. (supra) xi The membership of the assessee company or exchange is an asset because of dealing with stock, shares and securities. The intention of the membership is not for common charitable purpose but for trade and profit and thus the object is not of general public utility. Jaipur Stock Exchange Ltd. has been incorporated as a company limited by guarantee to protect and regulate the public dealing in shares, etc., and to facilitate a clearing house for the transactions of members, which has been an object of general public utility. Membership right is a personal privilege and it does not affect the assessee#s claim of exemption under section 11. xii The assessee company owns a 100 per cent subsidiary company bearing the name, JSEL Securities Ltd. Which helps brokers in trading and thus objective of the assessee is of making profit and provisions of section 13 apply. JSEL Securities Ltd. came into legal exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orised Representative that the Jaipur Stock Exchange in itself is not empowered to do business in stock, shares, etc. The conclusions of the learned CIT(A) are as per paras 4.3 and 5 of his order as under: "4.3 In support of the objectives of general public utility, the learned Authorised Representative has relied upon the recent decision of Hon'ble Supreme Court in the case of Director of IT (Exemption) vs. Bharat Diamond Bourse (2003) 179 CTR (SC) 225 : (2003) 259 ITR 280 (SC) and Hon'ble Rajasthan High Court decision in the case of CIT vs. Jodhpur Chartered Accountants' Society (2002) 174 CTR (Raj) 504 : (2002) 258 ITR 548 (Raj) which very well cover the appellant's objectives as general public utility. It is further noticed that there is no deviation of facts from asst. yr. 1996-97 and the main objectives of the Jaipur Stock Exchange Ltd. remain the same. I therefore, do not see any reason to approve the findings of the AO. The action of the AO is not found justified in view of the facts and circumstances discussed. Jaipur Stock Exchange Ltd. is therefore, held as a charitable institution as per s. 2(15) of the IT Act, 1961. The AO is therefore, directed to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "12A. Sec. 2(15) defines 'charitable purpose' as under: 'Charitable purpose' includes relief to the poor, education, medical relief and the advancement of any other object of general public utility. Sec. 2(15), it may be noted, gives an inclusive, definition of the term 'charitable purpose' 'relief to the poor', 'education' and 'medical relief' are, on the face of it, objects of charitable nature and tend to confer benefit upon the public in general. But, there may be another objects of general public utility and such objects may also be of charitable nature. The term 'general public' does not mean whole of mankind or even all persons living in a particular place or area. It may be a particular section of public as distinguished from specified individuals. But, such section of society must be sufficiently defined and identifiable by some common quality or a public or impersonal nature. An object which is beneficial to such section of public would be an object of general public utility. 13. A close reading of cls. 1 and 2 of para A of the MOA tells that the main objects of the assessee exchange were not only to adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, furtherance or promotion of the interest of the members or employees or ex-members or ex-employees of the assessee exchange only. There would then be no common quality of a public or impersonal nature uniting the potential beneficiaries into a class. 15. Clause 39 of para B permits the assessee exchange to make payment or disbursement out of its funds or other movable property for any of the purposes which purposes may also include that mentioned in cl. 13. Then cl. 41 authorizes it to apply any surplus funds available with the assessee exchange in promoting its objects which objects may also include the object mentioned in c1. 13. Above all, c1. 42, in general, confers powers upon the assessee exchange 'to do all such other things as are incidental or conducive to the attainment of the above objects. The words 'above objects' used in this clause may well include the objects mentioned in cl. 13. 16. It may be seen that the object mentioned in c1. 13 of para B of MOA is calculated to benefit the members and employees or ex-members or ex-employees of the assessee exchange only and that benefit is not of public or impersonal nature as such benefit is not to be sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appening of such an event should not deter the Court from holding that the income of the assessee was not liable to tax on the basis of the existing facts. As long as the activities in which the assessee was engaged were not activities for profit and the income derived by it from them were being applied for charitable purposes, the assessee was entitled to claim the exemption under s. 11 notwithstanding the fact that its memorandum made reference to some objects which might not be of charitable nature. Even if the assessee carried on any business which was not of charitable nature, only the income derived from that source would not get the protection of s. 11.' 19. On reading cl. 13 of para B of the MOA, we are convinced that the said clause does not embody an object which may be regarded as ancillary or incidental to be primary or dominant object of the assessee exchange. The said clause confers unchecked and uncontrolled powers on the assessee to carry out an object which is to benefit its members, employees or ex-members or ex-employees solely. Several other clauses of para B may be put into action to assist the assessee in the attainment of the objects enshrined in cl. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent assessee, the learned CIT(A) has held that it is not entitled to exemption under s. 11 of the Act. In that case the assessee had distributed suitcases to the shareholders despite there being a letter from Ministry of Finance prohibiting the giving of presents of the value of Rs. 200 to the members as such presents amounted to the distribution of dividends. It was on such facts that the assessee in that case was not found entitled to the benefit of s. 11. No such or similar facts exist in the present case. Herein, there is no evidence that the assessee has in any manner, proceeded to attain the object of cl. B-13 for the benefit of its members or employees or ex-members or ex-employees or their dependants and connections. The case of Delhi Stock Exchange Association Ltd. is thus distinguishable on facts from those of the present case. 21. To sum up, we hold that since cl. B-13, which confers discretionary powers but create obligation upon the assessee to establish institution, funds or trusts for the exclusive benefit of its members or ex-employees or their dependants and connections and which cannot be regarded as an object ancillary or incidental to the attainment of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock exchange. For the asst. yr. 1974-75, for which the relevant accounting period ended on 31st March,1974, the assessee claimed exemption under s. 11 in respect of the income derived from enlistment fees and renewal fees received from the members of the stock exchange during the relevant previous year. The claim for exemption was disallowed by the AO on the ground that in the earlier years the Tribunal had held that the assessee was not entitled to exemption because there was no prohibition in the articles of association of the company against distributions of its profit by way of dividend or interest to the members. On appeal, the AAC noticed that in the year under consideration, there was a marked difference on the facts, as the assessee had amended its memorandum and articles of association at an extraordinary general body meeting held in December, 1973, whereby a clause prohibiting distribution of profits by way of interest or dividend in cash or in kind to the members, so long as the Central Government prohibited such distribution, was incorporated in art. 103 of the articles of association The Appellate CIT felt that in view of the amendment, the decision of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for profit but if the predominant object was to subserve the charitable purposes then the inhibition of these last 9 words would not be attracted. It is clear from the facts set out in the judgment of the High Court that profit-making was not the predominant object of the activity carried on by the Andhra Chamber of Commerce but the predominant object was to promote trade and commerce which was an object of general public utility. The High Court was, therefore, right in taking the view that the objects of the Andhra Chamber of Commerce fell within the last category of charitable purpose given in s. 2(15) of the Act and its income was exempt from tax under s. 11(1) of the Act. The appeal is accordingly dismissed with no order as to costs." Similarly, in the case of Stock Exchange of Ahmedabad vs. Asstt. CIT (2000) 68 ITJ (Ahd) 596 : (2000) 74 ITD 1 (Ahd), the said exchange has been held as a charitable institution and entitled to exemption under s. 11 of the Act. 15. First of all, the assessee had been claiming exemption under s. 11 of the Act since asst. yr. 1988-89 and it has been granted exemption since then and has been treated as charitable institution under s. 2(15) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5) of the Act and have been allowed exemption under s. 11 of the Act. Therefore, in the circumstances of the present case, following decision in assessee's own case and decisions of various stock exchanges referred to in this para, we hold the assessee as a charitable institution under s. 2(15) of the Act and assessee is eligible for grant of exemption under s. 11 of the Act and the assessee is allowed the benefit of accumulation of income. Thus, ground Nos. 1 and 2 of the Revenue are dismissed. 17. In ground No. 3, the Department is aggrieved that the learned CIT(A) has erred in not upholding the disallowance of depreciation made in view of the fact that main source of income was by way of receipts of annual subscription and member admission fees chargeable as income from other sources. 18. We have heard the parties. Briefly stated, the facts in this ground are as per p. 9 of AO's order as under: "The assessee has claimed a depreciation of Rs. 8,86,567 in the income and expenditure account. The assessee vide note sheet entry dt. 24th March, 2003 was asked why this claim of depreciation should not be disallowed as it is not allowable because there is no business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 303 : (1992) 198 ITR 598 (Guj) 2. CIT vs. Society of the Sisters of St. Anne (1984) 39 CTR (Kar) 9 : (1984) 146 ITR 28 (Kar) 3. CIT vs. Rajpur Pallottint Society (1989) 80 CTR (MP) 127 : (1989) 180 ITR 579 (MP) 4. CIT vs. Rao Bahadur Calavala Gunnan Chetty Charities (1982) 135 ITR 485 (Mad). Since the appellant assessee has been held as charitable institution as per s. 2(15) of IT Act, 1961, respectfully following the decision of the above Hon'ble High Court, the AO is directed to allow depreciation as per Sch. 4 of annual accounts of the year under appeal after due verification." 20. The assessee has been held to be a charitable institution under s. 2(15) of the Act and has been allowed exemption under s. 11 of the Act, in the foregoing paras by us. In such circumstances whether the depreciation claimed by the assessee on fixed assets is allowable deduction to arrive at the income available for application to charitable purposes. The assessee has relied upon judgments of various High Courts and the headnotes of said judgments by the various High Courts are reproduced as under: (1) CIT VS. Society of the Sisters of St. Anne (1984) 39 CTR (Kar) 9 : (1984) 146 ITR 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of above decisions, the depreciation on fixed assets is an allowable deduction which is necessary to arrive at the income available for application to charitable purposes. Hence, depreciation on fixed assets in the present case is an allowable deduction. Therefore, the AO is directed to examine the claim of depreciation as per rules and allow the same to the assessee. Thus, ground No. 3 of the Revenue is dismissed. CO No. 106/Jp/2003-Assessee 22. In this CO, the assessee is aggrieved that the learned CIT(A) has erred in making an addition of admission fee of Rs. 14,000 which was in the nature of capital receipt. The learned CIT(A) also erred in confirming the addition. 23. We have heard the parties. Briefly stated, the facts in this ground of CO are as per p. 2 of AO's order as under: It is seen that the assessee has received listing fees of Rs. 16,80,000 and admission fees of Rs. 14,000 during the year. Both these receipts have been upheld by the CIT(A), in his order for asst. yr. 1996-97 dt. 29th Nov., 1996 as revenue receipts and additions so made by the AO have been confirmed by the CIT(A). Looking at these facts, the assessee was asked why these receipts should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case by the decision of the Tribunal in asst. yr. 1988-89. We affirm the decision of the learned CIT(A) who has rightly confirmed the action of the AO. Thus, the CO of the assessee is dismissed. ITA No. 697/Jp/2003-2000-01 26. In ground No. 1, the Department is aggrieved that the learned CIT(A) has erred in holding the assessee company as a charitable institution as per s. 2(15) of the IT Act, 1961 and directing the AO to treat the same accordingly. 27. In ground No. 2, the Department is aggrieved that the learned CIT(A) has erred in holding that assessee company is eligible for grant of exemption under s. 11 of the IT Act and directing the AO to allow the benefit of accumulation of income to the extent of 25 per cent of such income. 28. We have heard the parties. Briefly stated, the facts of the case are that the assessee has claimed exemption under s. 11(2) and under s. 11(1)(a) and has declared taxable income at nil. In response to the objection of the AO to allow exemption as claimed by the assessee, the assessee's reply was that the main objects of the company are generally for the promotion and protection of the interests of those acting as brokers, dealers and job ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f receipts of annual subscription and member admission fees chargeable as income from other sources. 33. As regards ground No. 3, the assessee has claimed depreciation of Rs. 1,21,22,883 in the income and expenditure account, which has been rejected by the AO since the assessee is not a charitable institution. The learned CIT(A) reversed the decision of the AO and allowed the depreciation as per reasons mentioned at para 6 of his order. 34. After perusal of the facts of the case, we find that facts in the present case are similar to assessee's own case for the asst. yr. 1995-96 and in that year we have confirmed the order of learned CIT(A) vide ITA No. 696/Jp/2003 of even date. Following the same, we confirm the order of learned CIT(A) in the present case and dismiss ground No. 3 of Revenue. CO No. 107/Jp/2003-Assessee 35. In this CO, the assessee is aggrieved that the learned CIT(A) has erred in making an addition of admission fee of Rs. 2,50,000 which was in the nature of capital receipt. The learned CIT(A) also erred in confirming the addition. 36. We have heard the parties. Briefly stated, the facts of the case are that the assessee has claimed admission fee of Rs. 2,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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