TMI Blog1980 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, the income of the Delhi Stock Exchange Association Ltd. for the assessment year 1969-70 can be said to be income derived from property held under trust for charitable purposes ?" The assessee is a company limited by shares and was incorporated some time in 1947. This company was formed with a view to acquire and to take over, as going concerns, the activities, functions and business of the Delhi Stock and Shares Exchange Ltd. and the Delhi Stock and Share Broker's Association Ltd. The objects for which the company was established are set out in para. 3 of its memorandum of association. It is unnecessary to refer to them in detail. It is sufficient to state that the object was generally that of conducting a stock exchange and thus to promote and regulate the business in stocks, shares, debentures and other securities, to frame rules and bye-laws for regulating the conditions subject to which business on the stock exchange could be transacted and the like. It is necessary to refer only to cl. 16 of para. 3 of the memorandum which ran: "To establish and support or aid in the establishment and support of any funds, trusts and conveniences calculated to benefit sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the running of a stock exchange which involved an activity for profit could not be said to be an object of general public utility. Above all, it was pointed out on behalf of the department that the memorandum and articles of association of the assessee contained no prohibition against the declaration of dividends to its shareholders and that, in fact also, brief cases worth Rs. 4,269 were distributed to several members in the accounting period relevant to the assessment year, 1967-68. The Tribunal held that the running of a stock exchange was an object of general public utility and that its objects did not cease to be charitable because some surplus was realised by the stock exchange by reason of its receipts from its members or because it derived income from property. The Tribunal however, came to the conclusion that the income of the assessee could not be said to have been derived from property held under trust wholly for religious or charitable purpose. The reason given by the Tribunal for coming to this conclusion was as follows: " On a perusal of the memorandum and articles of association, we do not find any prohibition against distribution of dividends to the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose. The income could be used for distribution as dividends or for creating funds for the benefit of shareholders, employees and their dependents. " For the assessment year 1969-70, the AAC dismissed the assessee's appeal, following the decision of the Tribunal for the earlier three assessment years. The assessee preferred an appeal to the Tribunal. Before the Tribunal a reference was made by the counsel for the assessee to some correspondence between the assessee and the Ministry of Finance of the Govt. of India. He also relied on a letter dated August 28,1963, addressed by one Shri S. S. Sharma to the President of the assessee exchange. This letter was to the effect that the Government was averse to presents of the value of Rs. 200 being given to the members of the assessee, that such presents amounted to distribution of dividends in specie and that, therefore, the matter had rightly been referred by the assessee to its legal advisers and auditors for further advice. It was sought to be contended that, as the Government had the right to impose conditions for the recognition of stock exchange under s. 4 of the Securities (Contracts) Regulation Act, 1956, so as to bring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 11(4). The question, therefore, is whether it can be said that the assessee was under any legal obligation to utilise or apply the income only for religious or charitable purposes. We will assume, for the purposes of this case, that all the objects of the assessee-company were charitable as held by the Tribunal. Even so, unfortunately, though the company has been formed to carry on certain activities and to fulfil certain purposes which can be described as charitable purposes, the claim for exemption has to fail for the reason pointed out by the Tribunal that there is no trust or legal obligation compelling the assessee to utilise its income only for such purposes. The assessee is a company limited by shares and like any other such company is at liberty to distribute its entire profits or income by way of dividends. Learned counsel tried to make a point that the articles of association of the company did not contain any reference to dividends. But this does not help the assessee. On matters of which the articles of association of the assessee-company are silent, the provisions of Table A of the Companies Act would apply, there being nothing in the company's articles to exclude o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny did not in fact distribute any dividends will not be of any help to the assessee as the requirement for the purposes of the exemption is, not the factual position, but whether in law the company is under any obligation to devote its profits only to religious or charitable purposes. That test unfortunately fails in the present case. In the above context, it may be pointed out that the Hyderabad Stock Exchange Association (See [1967] 66 ITR 195 (AP)) was a company registered as a charitable company under the Companies Act and hence prohibited from distributing dividends. The Madras Stock Exchange (see [1976] 105 ITR 546 (Mad)) was a company limited by guarantee. The observations of the court at page 565-6 indicate that where there is no prohibition against distribution of dividends, the exemption under s. 11 would not be available and the court proceeded to discuss the question regarding the assessability of income from some of the activities only on the " hypothesis of there being scope for exemption under s. 11(1)(b) ". We are, therefore, of the view that the present assessee being at complete liberty to distribute its profits by way of dividend and in other ways referred to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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