TMI Blog2017 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was to be applied solely for the promotion of its objects. Further, the assessee company was governed by its by-laws and chapter XV-A of the said by-laws dealt with code of ethics for directors and functionaries of exchanges and put several restrictive conditions upon directors to obtain any sort of benefits / pecuniary advantages by using their position as directors. It is quite evident that the floating of subsidiary company was in tune with SEBI directions and contradicts the stand of the revenue that the sub-broker membership of the subsidiary was open to select few and not to public at large and the benefit to select few was extended by the assessee. It is an admitted position that the assessee was being reimbursed on actual basis by the subsidiary for various services and therefore, it was wrong to infer that the assessee extended benefits as mentioned in Section 13(2) to class of persons enumerated in Section 13(3) which prima-facie weakens the conclusion of the revenue that the case of the assessee was hit by the provisions of Section 13(2) & 13(3). Revenue has alleged that the assessee failed to charge interest on the amount remaining outstanding at year-end - H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ₹ 110.85 Lacs. During the assessment proceedings, Ld. Assessing Officer [AO] noted that the assessee held 42.50 Lacs equity shares of ₹ 10/- each in its 100% subsidiary concern namely OTCEI Securities Ltd. [OSL] since financial year 1999-2000. Since, OSL was not public sector company, the case of the assessee, in the opinion of Ld. AO , was hit by the provisions of Section 11(5) 13(1)(d)(iii) and therefore the impugned exemption was not available to the assessee. 2.3 The Ld. AO further noted that OSL obtained membership rights of bigger stock exchanges like National Stock Exchange [NSE] and Bombay Stock Exchange [BSE] and the members of the assessee exchange could only be registered as the sub-brokers of the OSL and no other client / sub broker could be entertained by OSL. Further, OSL could not undertake any dealing in its own accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d / 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 subsidiary was in conformity with the directions of Securities Exchange Board of India [SEBI] and the same was one of the prescribed mode of investment as per Section 11(5) read with rule Rule-17C of Income Tax Rules and therefore, the case of the assessee was not at all hit by the provisions of Section 11(5) and 13(1)(d)(iii). 4.1 The Ld. AR further drew our attention to the fact that the shareholders of the assessee trust were public sector / government entities and the board of directors of assessee company was constituted main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances 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 upon by the revenue was distinguished by pointing out that in that case there was clear cut finding that huge amount was spent by the assessee towards the benefit of its members which led to denial of impugned exemption and therefore, the ratio of the same do not apply to assessee s case. 4.6 Per contra Ld. DR supported the stand taken by lower authorities and contended that benefit was extended to select few by floating the subsidiary and no interest was charged on outstanding amount activity. Further, the creation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 in Page Nos. 3 to 56 of the paper book, the main object of the assessee was to promote and assist dealings in securities of any nature issued by limited companies in India. Further, clause V of the said memorandum contained restrictive conditions as to distribution of dividend / bonus/ profits / remuneration / fees whatsoever to its members and the income / property of the assessee was to be applied solely for the promotion of its objects. Further, the assessee company was governed by its by-laws and chapte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 shall maintain separate deposit with the subsidiary/company. the Bose Minimum Copilot deposited by the sub-broker with the promoting stack exchange shall not be transferred to the subsidiary/company. This deposit to be maintained with the subsidiary/company shall be in the form of cash 6. The trading /exposure limit of the sub-brokers; shall be based on the deposit received by the subsidiary/company from the sub-brokers and these limits shall not exceed the limits as prescribed by the stock exchange of which the subsidiary/company is a member. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound 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 arrived at after due inquiry then the revenue is not permitted to deviate from its earlier stand. 5.5 Lastly, the revenue has alleged that the assessee failed to charge interest on the amount remaining outstanding at year-end. However, a perusal of ledger extract as produced in the paper book reveals that the same represent reimbursement of the last month of the relevant financial year which has been settled subsequently within a short span of time thereafter and hence, there was no occasion / justification to charge the interest against the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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