TMI Blog2006 (6) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... ras Stock Exchange [ 1976 (4) TMI 47 - MADRAS HIGH COURT] , and Ahmedabad Stock Exchange[ 1990 (6) TMI 84 - ITAT AHMEDABAD-A] . All the said cases relied upon by the AO have been discussed in the paras hereinbefore wherein the said stock exchanges have been held to be a charitable institution u/s 2(15) of the Act and have been allowed exemption u/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 u/s 2(15) of the Act and assessee is eligible for grant of exemption u/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. Whether the depreciation claimed by the assessee on fixed assets is allowable deduction to arrive at the income available for application to charitable purposes - Assessee has relied upon judgments of various High Courts and the headnotes of said judgments by the various High Courts are: CIT VS. Society of the Sisters of St. Anne [ 1983 (8) TMI 44 - KARNATAKA HIGH COURT] . Following the same, Depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng his members. The assessee also stated that the objects as set out in memorandum and articles of association (MOA) of Jaipur Stock Exchange Ltd. (JSEL) are charitable in nature as the stock exchange is providing general public utility. The assessee also mentioned that the question whether the objects of the company are charitable or not was duly examined by CIT who had granted the registration under s. 12A. Accordingly, it was claimed that the exchange is entitled for exemption under s. 11. 6. The AO after examining the reply of the assessee was of the view that registration under s. 12A alone does not give entitlement to the assessee for exemption under s. 11. The AO rejected the explanation of the assessee mainly for the reason that the assessee was allowed exemption under section 11 for the very first year of the commencement of the activities of the assessee for the asst. yr. 1988-89 by the Tribunal but the same was pending for adjudication before the Hon'ble Rajasthan High Court under s. 256(2) of the Act. The assessee for the said year has surrendered under KVSS. The assessee was free to apply property of the trust exclusively for the objects in B-13. The membership of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1387/Jp/1994 The Tribunal, Jaipur Bench, Jaipur, vide its order dated 28-2-1995 has already held that the object of the assessee is of general public utility and assessee is entitled to exemption under section 11. This decision of Tribunal still holds good unless and until the same is not reversed by the Hon'ble High Court and therefore pendency of reference before Hon'ble High Court cannot govern the claim of exemption under section 11 to the assessee. The decision of Tribunal is a binding precedent and the ratio given in the decision has to be followed by the learned Assessing Officer in view of the following decisions :Agrawal Warehousing Leasing Ltd. v. CIT [2002] 257 ITR 235 (MP.). Bank of Baroda v. H.C. Shrivastava [2002] 256 ITR 385 (Bom.) (iii) That the proceedings for assessments reopened under section 148 for assessment years 1989-90 and 1990-91 are stayed by the Hon ble High Court Hon ble Rajasthan High Court has not yet decided the writs filed by the assessee and therefore reopening of these cases will have no effect on grant of exemption under section 11. (iv) That in the office note for assessment year 1988-89, the Assessing Officer had noted that the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the apex Court were as under: Held, that profit making was not the predominant object of the activity carried on by the Andhra Chamber of Commerce but its predominant object was to promote trade and commerce which was an object of general public utility and the High Court was right in taking the view that the object of Andhra Chamber of Commerce fell within the last category of charitable purpose given in s. 2(15) of IT Act, 1961 and its income was exempt from tax under s. 11(1). The Supreme Court also dismissed the petitions for special leave to appeal filed by the Department against the judgment of the Madras High Court reported in CIT vs. Madras Stock Exchange Ltd. 1977 CTR (Mad) 1 : (1976) 105 ITR 546 (Mad) in relation to the other assessees viz., the South Indian Chamber of Commerce, the South India Film Chamber of Commerce, and the Madras Stock Exchange . (vi) Object of general public utility: The learned AO has stated that the objects of the assessee company are neither of a religious nature nor of a charitable nature for the following reasons: (a) The objects of the company are mainly to do the business of various kinds as is clear from the various objects stated to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity for profit . The Tribunal, Jaipur Bench, has already considered the implication of the declaration given in the memorandum and articles of association at below Para C and gave its finding that the Jaipur Stock Exchange is eligible for exemption under section 11. (C) Paras (iii), (iv) and (v ) on p. 6 of the assessment order This part of the order has been extensively discussed in the order of the Tribunal for assessment year 1988-89. In fact, there is no utilization or application of the income for the benefit of specified persons. The members of stock exchange or their close relatives or office bearers of the management of the exchange did not derive any benefit so as to deprive it from exemption under section 11. Clause Nos. B-14 to 21, 32, 33, 38 and 42 of the memorandum of association do not confer any power or permit use of income/surplus for noncharitable purposes. Clause B-13 of the memorandum has not been implemented so as to confer any benefit to members of the exchange or their relatives and therefore, Tribunal, Jaipur Bench, after dealing with these clauses granted the exemption under section 11 in assessment year 1988-89. (VII) Case of Delhi Stock Exchange Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . came into legal existence only on 20th April, 2000 and in no way it affects exemption under section 11 in the year under reference. The individual tradings of the brokers do not attract provisions of section 13 nor it results in any profit-making activity of JSEL. xiii Case of Addl. CIT v. Ahmedabad Mill Owners Association [1977] 106 ITR 725(Guj.) The facts in this case are distinguishable and therefore this case is not applicable. In this case, the main objects were both charitable and non-charitable, which affected the exemption. xiv Surplus of the company to the extent of 25 per cent under section 11(1)(a) was not invested in the modes specified in sections 11(5) and 13(1)(d). It is not necessary to have it invested in specified assets. 25 per cent of gross income under section 11(1) (a) can either be applied to the objects or it can been accumulated free of all conditions as held by the Apex Court in the case of S.R.M.M. CT.M. Tirupani Trust v. CIT [1998] 230 ITR 636 (SC). 9. The learned CIT(A) observed that the assessee (sic-AO) has failed to point out any specific condition or instance that the assessee has applied its income to the benefit of close relatives or the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to act accordingly. 10. The next ground of appeal relates to assessee's surplus income over expenditure at Rs. 1,46,03,267 as income under the head income from other sources. The AO has not given any working in the assessment order on this amount as how this figure is arrived for charging of tax as income from other sources. The learned Authorised Representative has mentioned that the income under the head other sources can be classified only when income is not falling under any of the other heads. Since the assessee is eligible for grant of exemption under s. 11 of the IT Act as discussed in this order, the AO is directed to allow the benefit of accumulation of income to the extent of 25 per cent of such income under s. 11(1)(a) subject to s. 13(1)(d) of the IT Act which requires that all the funds should be invested under the forms or modes specified in sub-s. (5) of s. 11 of the IT Act. 11. The learned Departmental Representative in the present case relied upon the order of the AO and the learned counsel for the assessee relied upon the order of the learned CIT(A). The learned counsel for the assessee had argued that the declaration made by the assessee under KVSS was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance further to promote the interest of the brokers, dealers and jobbers in stocks, shares and like securities but also to facilitate, assist, regulate and control the transaction of business on the stock exchange and to establish and provide for and manage clearing house for the transaction of the members. The main objects aim at maintaining high standards to commercial honour and integrity, providing honourable practices, discouraging and suppressing malpractices, settling disputes amongst brokers, dealers and jobbers, deciding all questions of usage, custom or courtesy in conducting the business of brokers, dealers and jobbers. The activities of the brokers, dealers and jobbers in stocks, shares and like securities were to lead to the advancement or promotion of trade, commerce and industry resulting in economic prosperity ensured for the benefit of entire community. Such prosperity would be shared not only by the brokers, dealers or jobbers or some other persons who are actively engaged in trade, commence and industry but also by those who stand to gain from the growth and progress of the national economy. It is thus seen that the main or primary objects to be attained by the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other potential beneficiaries. That being so, there would be no common quality of a public or impersonal nature uniting the potential beneficiaries into a class. Clause 13 thus runs in a direction which is opposite to that of 'charitable purpose' and goes beyond the scope of 'object of general public utility' used in the language of s. 2(15). This clause and other clauses which, directly or indirectly, help or may help the assessee to attain the object of cl. 13 are repugnant to the very spirit of 'charity' and are detrimental to and destructive of the primary or main objects, which undoubtedly confer the character of a charitable institution upon the assessee exchange. 17. In the case of Yogiraj Charity Trust vs. CIT 1976 CTR (SC) 211 : (1976) 103 ITR 777 (SC), their Lordships of the Supreme Court held that if one of the objects of the trust deed is not of a religious or charitable nature and the trust deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption from tax is not available to the assessee. But, their Lordships further observed that if the primary or dominant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrictive clause in the MOA or articles of association which may control the discretion of the assessee to spend its funds and/or income for the attainment of the objects mentioned in cl. 13. In view of the presence of cl. 13 and other such clauses as may be attracted for the attainment of the objects of cl. 13, exemption under s. 11 should not be available to the assessee exchange in view of Supreme Court decision in Yogiraj Charity's case. But, at the same time, we find that the primary or dominant purpose of the assessee is of the nature of 'general public utility'. Other clauses in para B are ancillary or incidental to the attainment of the primary or dominant purposes. Such primary or dominant purposes and those ancillary or incidental to them are separable from those in cl. 13 and other such clauses which may be called in aid that clause without causing damage to or hindrance in the attainment of the main objects. Moreover, the establishment of an association, institution, fund or trust for the exclusive benefit of the members or employees or ex-members or ex-employees or their dependants and connections is a possible event that mayor may not happen in future. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee exchange is separable from the primary or main objects pursued or to be pursued by the assessee without causing any harm or prejudice to the attainment of such primary or dominant objects and since the assessee is not found to have exercised its discretion under cl. B-13 in the year under consideration, benefit of exemption under s. 11 would be available to it provided other conditions as laid down in ss. 11, 12 and 12A are found to have been fulfilled. 12. The learned counsel for the assessee further argued that for the asst. yr. 1996-97, the learned CIT(A) vide order dt. 12th Nov., 1999 has held the assessee as a charitable institution and the Revenue is not in appeal against the said order. Therefore, the assessee has been considered as a charitable institution throughout except for the impugned years i.e. asst. yrs. 1995-96 and 2000-01. 13. The AO had mainly relied upon the decisions of Delhi Stock Exchange, Madras Stock Exchange and Ahmedabad Stock Exchange by various Courts where the said stock exchanges were denied the exemption under s. 11 of the Act. As regards Delhi Stock Exchange, it was denied exemption by Hon'ble Delhi High Court, Delhi Stock Exchange Asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars would not stand in the way of granting exemption to the assessee under s. 11. On further appeal, the Revenue contended that the exemption was admissible only for a part of the year and for the whole of the year under consideration. The Tribunal held that the amendment having taken place in the relevant accounting period i.e. commencing from 1st April, 1973, and ending on 31st March, 1974, the amendment covered the whole of the financial year 1973-74 and therefore, the income for the whole of the assessment year was entitled to exemption under s. 11. On a reference: Held, that after the amendment had been carried out in December, 1973, the decisions of the Tribunal in respect of the earlier assessment years could not be applied in respect of the present assessment year. The income of the assessee for the whole of the previous year relevant to the asst. yr.1974-75 was entitled to exemption under s. 11. 14. Also, in the case of CIT vs. Madras Stock Exchange Ltd. Ors., the Hon'ble apex Court has held that objects of Madras Stock Exchange Ltd. are of charitable purpose under s. 2(15) of the Act and income was exempt under s. 11(1) of the Act. For better appreciation, the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. asst. yrs. 1995-96 and 2000-01. The Jaipur Tribunal in assessee's own case for the asst. yr. 1988-89 has held the assessee as a charitable institution under s. 2(15) of the Act and has allowed the exemption under s. 11 of the Act. The assessee had made the surrender under KVSS with a view to settle the arrear of demand which has nothing to do with the surrender of claim of exemption under s. 11 of the Act. The assessee in the said year could not fulfil the requirements under s. 11(2) of the Act i.e. of giving primary notice of accumulation of income before the time allowed to file the return under s. 139(1) of the Act. Such surrender by the assessee does not reverse the decision of the Tribunal or the claim of the assessee for exemption under s. 11 of the Act or under s. 2(15) of the Act. 16. In asst. yr. 1996-97, the assessee has been considered as a charitable institution under s. 2(15) of the Act and has been granted exemption under s. 11 of the Act by the learned CIT(A) vide order dt. 12th Nov., 1999 and the Revenue is not in appeal before the Tribunal. As regards whether the assessee is a charitable institution under s. 2(15) of the Act and it can be given exemption u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowable only when there is business income. The assessee vide reply dt. 26th March, 2003 stated that in assessee's case, the depreciation is allowable as expenditure, it being a charitable institution and quoted following cases: 1. CIT vs. Seth Manilal Rachhordas Vishram Bhawan Trust (1992) 105 CTR (Guj) 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). I have thoroughly gone through the reply of the assessee and the decisions in abovementioned cases. In all these four cases it is held that the amount of depreciation debited to the account of a charitable institution is to be deducted to arrive at the income available for the application for charitable and religious purposes. The facts and circumstances of the case of the assessee (JSEL) are totally different and the decisions of abovementioned cases are not applicable in the present case. It is very clear that in abovementioned four cases, the assessees were charitable institutions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of a charitable institution, then there can be no way to preserve the corpus of the trust for deriving the income. Therefore, the amount of depreciation debited to the accounts of a charitable institutions is to be deducted to arrive at the income available for application to charitable and religious purposes. (2) CIT vs. Raipur Pallottine Society (1989) 80 CTR (MP) 127 : (1989) 180 ITR 579 (MP) Depreciation is the exhaustion of the effective life of a fixed asset owing to 'use' or obsolescence. It may be computed as that part of the cost of the asset which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure incurred in acquiring the asset over its effective lifetime and the amount of provisions made in respect of an accounting period is intended to represent the proportion of such expenditure which has expired during that period. If depreciation is not allowed as a necessary deduction in computing the income of a charitable trust, then there would be no way to preserve the corpus of the trust. A charitable trust is therefore, entitled to depreciation in respect of the assets owned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed that these are capital receipts being collected by the stock exchange as per the provisions of articles of association of the company as approved by SEBI. As on this point, Tribunal in its order dt. 28th Feb., 1995 (ITA No. 1387/Jp/1994 in asst. yr. 1988-89) has decided the issue in favour of Revenue and CIT(A) also confirmed the additions made by the AO in asst. yr. 1996-97 on these points, hence an addition of Rs. 14,000 for admission fees and Rs. 16,80,000 for listing fee is being made to the income of the assessee, taking them to be revenue receipts for the reasons discussed in assessment order under s. 143(3) in asst. yr. 1996-97 dt. 15th March, 1999. 24. The learned CIT(A) vide para 7.1 at p. 11 of his order has confirmed the action of the AO as under: I have examined this issue and noticed that the Hon'ble Tribunal, Jaipur Bench, Jaipur, vide its order dt. 28th May, 1995 in ITA No. 1387/Jp/1994 in asst. yr. 1988-89 held that the amount received by the assessee stock exchange by way of admission fee and/or entrance fee from its members which accrued to assessee on account of its performing specific services for members constituted revenue receipts falling under s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 MOA of JSEL are charitable in nature as the stock exchange is providing general public utility. The assessee also mentioned that the question whether the objections of the company is charitable or not was duly examined by CIT who had granted the registration under s. 12A. Accordingly, it was claimed that the exchange is entitled for exemption under s. 11. 29. The AO after examining the reply of the assessee rejected the claim of the assessee and arrived at conclusion which appears at p. 8 of his order as under: Moreover, during assessment proceedings of asst. yr. 1996-97, it was found that the accumulations out of the surplus of the company to the extent of 25 per cent under s. 11(1)(a) were not as per modes specified in ss. 11(5) and 13(1)(d) and this situation is similar in current year also. In view of the above facts of the case, the assessee's conten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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