TMI Blog1990 (6) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of their customers. 4. The assessee-trust has been constituted as a public charitable trust under a deed of trust executed on 27-2-1942 whereunder the immovable/ movable properties of the Ahmedabad Share and Stock Broker's Association, formed in 1894, have been vested upon trust on the trustees appointed by the General Meeting of the Ahmedabad Share and Stock Broker's Association for holding the same for all times for the objects and in accordance with the Rules and Regulations as sanctioned by the Government of Bombay on 1-5-1939 under the provisions of The Bombay Securities, Contract (Control) Act. 5. The assessee has framed Rules, Bye-laws and Regulations for the purpose of carrying out its activities and the same are approved by the Government of India under the Securities, Contract (Regulations) Act, 1956 vide its letter dated 1st May, 1959. The assessee has been recognised as a Recognised Stock Exchange under section 3 of the Securities, Contract (Regulations) Act, 1956. Further, the assessee had applied for registration under section 12A of the Income-tax Act, 1961 on 12-6-1973 and the Commissioner of Income-tax, Gujarat-II, Ahmedabad has granted registration vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic interest dealings in securities to ensure fair dealing, to maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices and just and equitable principles of trade and business, to discourage and to suppress malpractices, to settle disputes and to decide all questions of usage, custom or courtesy in the conduct of trade and business. 11. The General Meeting of the members of the Association elects a Governing Board which deals with the day-to-day administration of the Association. The powers of the Governing Board and the General Meeting are laid down in the relevant Rules of the assessee-association. 12. So far as the powers of the Governing Board are concerned, they are to be found in Rules 118 to 129. Clause (iv) of Rule 121 deals with the powers of the Governing Board regarding the disbursal of the funds of the Association and provides that the Government Board shall be empowered to "pay, disburse, dispose of or deal with any funds or other movable property of the Exchange for expenses for carrying on the administration, functions, workings and affairs of the Exchange and with the consent of the Exchange in general meeting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is purpose has been adopted at a general meeting called for the purpose at which a quorum of not less than Fifty-two members is present." Rule 74 thus empowers the General Meeting to sanction payment for two specific purposes viz., payment for contribution towards a charitable or other public purpose and expenses other than expenses necessary for carrying on the administrative functions of the Exchange. Thus, even the General Meeting is not empowered to distribute the profits of the Association among the members of the Association. The aforesaid amendments of the Rules has been approved by the Securities and Exchange Board of India (for short the SEBI), vide its letter dated January 12, 1999 the SEBI wrote to the assessee Exchange to the effect that the amendments made in rules 74 and 121 of the Exchange are merely clarificatory in nature and the amendments need not be published in the Official Gazette for being effective. 14. The main grounds on which exemption under section 11 has been denied by the tax authorities are that there is no restrictive provision in the trust deed prohibiting the institution from the distribution of profits to the members and in absence of such pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); (c) CWT v. N.R. Cirkar [1989] 178 ITR 311/43 Taxman 133 (Gauhati); (d) Burmah Shell Refinery Ltd. v. G.B. Chand, ITO [1966] 61 ITR 493 (Bom.), (e) CIT v. P. Krishna Warriar [1994] 208 ITR 823 (Ker.), (f) CIT v. Shri Agastyar Trust [1984] 149 ITR 609/18 Taxman 178 (Mad.), (g) H.A. Shah Co. v. CIT/CEPT [1956] 30 ITR 618 (Bom.). (iii) The amendments made in Rules 4,74 and 121 of the Rules of the assessee Exchange have been duly approved by the SEBI under section 7A of the Securities, Contracts (Regulation) Act, 1956 and since the rules are clarificatory in nature, they take retrospective effect. The learned counsel relied upon the following decisions :--- (a) Laxminarain Lath Trust v. CIT [1988] 170 ITR 375/33 Taxman 194 (Raj.); (b) Jagdamba Charity Trust v. CIT [1981] 128 ITR 377 (Delhi). Under the Rules, the Governing Board or the General Body did not have any power to distribute profits or assets of the Exchange among the members. (iv) The publication of the amendments in the Official Gazette was not necessary in the assessee's case and, therefore, non-publication is not fatal for operation of the amended Rules. (v) Various Stock Exchanges have been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of 'charitable purpose' as contained under section 2(15) of the Income-tax Act. With the fast pace of industrialisation and the emerging recent trends of liberalisation and globalisation in the national economy, capital market would obviously be a potent tool for giving an impetus to development of commerce and industry. Stock market, while regulating and controlling the business of buying or selling of shares, debentures and other securities, considerably facilitate resource mobilisation by the industrial sector. The inflow of private savings into the corporate sector as well as the inflow of foreign capital into the various sectors of industry are aided and promoted by an efficient and developed capital market. In this view of the matter, various stock exchanges have been recognised as charitable institutions entitled to exemption under section 11. Thus, the dominant objective of the assessee-exchange is clearly covered as a charitable object for the purpose of exemption of income under section 11. 18. We have reproduced hereinbefore Rule 74(v) and Rule 121 (iv) prior to amendment thereof in February, 1998 as well as the amended Rules governing the assessee-association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred by the Supreme Court in Kamla Town Trust's case. 20. On behalf of the department a plea has been taken before us that the amendment of the Rules, even after approval by the SEBI, remains inoperative in the instant case due to the fact that it has not been published in the Official Gazette as required under section 7A of the Securities Contracts (Regulation) Act, 1956. The contention is without substance and is rejected. Sub-section (2) of section 7A of the Securities Contracts (Regulation) Act, 1956 provides inter alia that amendment of Rules in relation to any matter referred to in clauses (a) to (a) of sub-sec. (1) shall have effect if it has been approved by the Central Government and published in the Official Gazette. The amendment of Rules 74(v) and 121 (iv) was not covered under the clauses (a) to (a) of sub-section (1) and therefore there is no mandatory requirement for getting the amendments published in the Official Gazette. The approval of SEBI is the sole requirement and the said requirement has been fulfilled in the instant case. Therefore, the amendments as made in the rules of the assessee-association have been validly made and become operative with retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Rules do not provide for distribution of profits among the members and no such distribution can, therefore, be made by the Association. The Hon'ble Supreme Court judgment, therefore, does not apply to the facts of the instant case. 22. We may now deal with the effect of grant of registration by the CIT under section 12A of the I.T. Act in so far as the basic issue of exemption under section 11 of the I.T. Act is concerned. Section 12A of the Act provides that for claiming exemption under section 11 it is mandatory that an application for registration No. 10A is filed before the Commissioner of Income-tax along with the instrument under which the institution is established accompanied with the accounts of the institution relating to such prior year or years for which such accounts have been made up. The grant of registration by the CIT under section 12A does not constitute an empty formality which is to be completed within a routine and mechanical fashion by the CIT without any scrutiny regarding the charitable nature of the trust or institution required to be registered under the I.T. Act. In the instant case the CIT granted registration to the assessee-association vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Similar view has been taken by the Third Member of the Tribunal in the case of Mrs. Dwarkaprasad Trust relied upon by the ld. counsel. The decisions of the Allahabad High Court in Fifth General Education Society's case and Calcutta High Court in Ganpatrai Sagarmal case have taken similar view in the matter. In view of the aforesaid discussion, we feel that after allowing registration under section 12A it is not for the Assessing Officer to deny exemption under section 11 on the ground that the assessee Association is not charitable in nature. 23. It is further to be noted that the assessee-association has been notified for exemption under section 10(23C)(iv) by the CBDT on 9-9-1987 for assessment years 1985-86 to 1988-89. Obviously the instrument under which the Association has been constituted as well as its Rules, Bye-laws and Regulations have been examined by the Revenue authorities while granting registration under section 12A as well as exemption under section 10(23C)(iv). We see no reason why a contrary view is being taken by the Revenue authorities in the context of identical facts and circumstances for the assessment years under appeal. There is no quarrel with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The ld. D.R. argued that one of the objects of the assessee trust as per Rule 4(x) is to establish and support funds, trust and conveyance for the benefit of members or ex-members, employees or ex-employees or the dependents or connections of such persons etc. and since this object is non-charitable in nature, the assessee Association cannot be regarded as a charitable trust. We have carefully perused Rule 4 of the Association which bears the heading 'Objects'. Clause (i) of Rule 4 spells out the dominant objective of the assessee Association viz., to regulate and control the dealings in securities and to protect and promote the interest of brokers and dealers in the public interest. Further clauses of Rule 4 bear the headings viz., 'Buildings', 'Acquisition of property', 'Safe Deposit Vaults', 'Licence and Privileges', 'Information and Publications', 'Borrowings of Moneys' and 'Incidental Powers', etc. These clauses are apparently incorporated in the Rules by way of spelling out the powers of the Association which are to be exercised for achieving the model objective of conducting a Stock Exchange at Ahmedabad. Clause (x) referred by the ld. D.R. bears the heading 'Funds and Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctions as well as optional or discretionary functions that could be undertaken by the trustees, it would be wrong to pick out one and to say that, that is the primary or dominant object or purpose. All the clauses of the relevant document will have to be considered in the light of the main objects sought to be achieved. Reference may be made to the following judgments in support of this proposition :--- (1) CIT v. Bar Council of Maharashtra [1981] 130 ITR 28 (SC) (refer pages 36-37); (2) Madras Stock Exchange Ltd.'s case ; (3) Addl CIT v. Delhi Brick Kiln Owners Association [1981] 130 ITR 55 (Delhi). The primary or dominant objects of the assessee-exchange as clearly stated in Rule 4(i) is to conduct a Stock Exchange and develop an efficient capital market in the general public interest. Clause (i) is thus the key object and other clauses of Rule 4 are ancillary or incidental to this primary or dominant purpose of the assessee Stock Exchange. The clause (x) of Rule (4) would not, in our opinion, frustrate the charitable object of the assessee institution. The contention of the ld. D.R. based on Rule 4(x) is, therefore, rejected. 27. For the reasons discussed above and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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