FIXED INCOME MONEY MARKET AND DERIVAIVES ASSCOCIATION OF INDIA,MUMBAI vs. ITO (E) 1(3), MUMBAI

Fixed Income Money Market and Derivatives Association of India, आदेश / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-1, Mumbai, in short ‘Ld. CIT(A)’ dated 23.11.16 for AY 2012-13.

Fixed Income Money Market and Derivatives Association of India, 4. Subsequently, assessee filed another letter dated 17/03/2015, as per which assessee claimed that assessee company is formed to carry out charitable activities and even though there is amendment in section 2(15) w.e.f. AY 2009-10, still assessee company is not affected by such insertion of amending proviso of section 2(15) and assessee requested the AO to assess the income of the assessee u/s 11 of the Act and ignore the earlier claim of the assessee on mutuality concept and in this respect, assessee relied on few case law.

Fixed Income Money Market and Derivatives Association of India, 6. Aggrieved by the above order of AO, assessee preferred appeal before Ld. CIT(A) and submitted a detail note before him, which is reproduced below:- i. Appellant submitted that the assessee Company is pursuing activities which are in the nature of advancement of the object of general public utility, which is categorized us "charitable purpose" In the Income Tax Act and its status as charitable institution is not hit by amendment to sec. 2(15). Reserve bank of India, bestows responsibilities on the company to undertake activities to streamline and develop markets as a quasi-regulator, All the activities are undertaken with the sole aim of advancement of the object of general public utility. ii, Appellant further submitted that it is engaged in carrying out charitable activities. In India, the task of prescribing uniform market practices has been taken up by the appellant company. In the interest of maintaining integrity and orderly conditions in the G- sec market the RBI entrusted the task of developing a code of conduct for the users of NDS-OM platform on the appellant company. RBI has made the code of conduct mandatory for all market participants u/s 29(2) of the Government Securities Act, 2006, It is a Fixed Income Money Market and Derivatives Association of India, regulatory activity undertaken by the Appellant Company. In order to ensure that nobody is losing or unduly gaining due to genuine mistakes, the RBI instructed the appellant company to set up Dispute Resolution Mechanism to resolve trade disputes amongst the market players. Certificate of Deposits Is a Money market instrument used for raising short term (upto one year) deposits by the banks. In the interest of Money market and its orderly development, FIMMDA issues operational guidelines for Certificate of Deposits. Commercial Papers are issued through Issuing & Paying Agents. Their roles and responsibilities- are defined by FIMMDA. The issuers and the investors are guided by the publication made by FIMMDA, NCDs are Issued by corporates for raising funds and the investors are generally banks and insurance companies, NCDs are issued through Debenture Trustees. Their roles and responsibilities are defined by FIMMDA, The Issuers and the investors are guided by the publication made by FIMMDA. This activity is done in the interest of development of the securities market. The problems faced by the market participants are taken up with the Govt. and Regulators like RBI/SEBI. iii. The appellant also submitted that fair valuation of investment portfolio by the banks and primary dealers Fixed Income Money Market and Derivatives Association of India, is very important because it affects the profit and taxable Income of the Investor banks. FIMMDA has developed valuation methods for valuing G-Secs, State Loans, Corporate bonds, tax free bonds and other investments. RBI has mandated all banks and PDs to value their investments as per the valuation given by FIMMDA on its website, So, providing fair valuation is one of the main activities of FIMMDA. The valuations are arrived at on a daily basis after the markets close at 5.00 p.m. The valuations are published on FIMMDA website and picked up by the banks and other market participants. Website serves as an effective and quick way of disseminating the valuations. For this purpose, FIMMDA has launched its website. Commercial non- members are charged a small fee to cover the cost Involved in valuation and website maintenance. Though this activity generates some income, it is an activity being undertaken at the instance of RBI and to give a fair and unbiased valuation for the benefit of the public. Valuation and maintaining website are not for the purpose of earning income. There is no profit motive in this activity. iv. Appellant contended that for the growth and development of securities market, market participants should know as to which securities were traded at what time and at what price. For G-sec market, such Fixed Income Money Market and Derivatives Association of India, information is available on NDS-OM trading platform. However, in case of Commercial Paper (GP), Certificate of Deposit (CD), Corporate bonds, etc, there is no trading platform. The transactions are concluded bilaterally over telephone(OTC). Accordingly, trade reporting platforms were started in 2011, FIMMDA Incurred a capital expenditure of Rs.34,74,450/- to develop the F-Trac platform. Additionally, FIMMDA Is incurring a recurring annual maintenance expenses. FIMMDA members were allowed free access to the trade reporting platforms. To cover the cost involved in development and maintenance of the platform, the users, other than the members, were charged a small fee of Rs.30,000/- upto November 2011 as "Corporate Bond Reporting Platform Fee" and Rs.50,000/- from December 2011, as "F-Trac Application fee". Such fees received from 5 users upto November 2011 amounted to Rs.1,50,000/- and the fees received from 23 users from December 2011 amounted to Rs. 11,07,979. Trade Reporting platforms were not for the purpose of earning income from the non-member users. F-Trac platform was started in 2011 and w.e.f April 2014 this platform was transferred to CCIL and Stock exchanges and appellant company was just reimbursed the capital cost Incurred by the Company for developing the 9 Fixed Income Money Market and Derivatives Association of India, software. In fact, against the total capital expenditure of Rs34,74,4507-incurred, the Company received Rs.21,67,234/-; therefore, Company suffered a loss. v. Appellant further contended that providing training and developmental support is one of the objects of establishing FIMMDA. Training is given on topics related to securities market It is given to all the interested public Including FIMMDA members for a fee. Fees are charged to cover the cost of lecturer, food, hiring of laptops, etc. There is no profit motive in offering this service and/or deciding the fees. Sometimes there will be surplus. During the year ended 31st March 2012, the direct expenses and income were as under; Training and seminar direct expenses: Rs.24,98,144/- Fees received from participants : Rs,,28,46,096/- The fees collected from the participants are just to cover the direct costs. If proportionate administrative expenses are considered, this activity is not an income generating activity. vi. Appellant also contended that conferences are held to discuss the current topics-relevant to the securities markets and find out ways for the further development of the markets. Here also, delegate fees are collected Fixed Income Money Market and Derivatives Association of India, from participants to cover the cost of holding the conference. There is no profit motive in. offering this service and/or deciding the delegate fees. During conferences, the expenses are partly covered by voluntary sponsorship. During the relevant year the total Income from the delegates and sponsors together was to the tune of Rs.261,32 lakh whereas the total direct expenses of the conference were to the tune of Rs, 262.21 lakh resulting In a marginal loss, vii. It was stated that IIBF is offering certificate courses in collaboration with FIMMDA, FIMMDA's man-hours are spent in shaping the syllabus for the course, IIBF is sharing some of its income to cover the cost. It is purely educational activity. Apart from the general administrative cost, FIMMDA is incurring certain direct costs for carrying out this activity. They are as under:

Membership of IIBF : Rs.25,000/- Income shared by IIBF during the year: Rs.5,36,000/- viii. It was further stated that FIMMDA has accredited 7 Brokers dealing In OTC Interest: Rate Derivatives Products and one Broker Providing Electronic Platform In Interest Rate Derivatives. The Accredited Brokers are required to adhere Fixed Income Money Market and Derivatives Association of India, strictly to the code of conduct stipulated by FIMMDA including Arbitration laws and standard practices provided by FIMMDA, This ensures uniformity of terms and conditions for all the Brokers and ensures protection to the investors as well as the Brokers, helping them to further developing and deepening the market. They are not members of FIMMDA, Apart from the general administrative cost, FIMMDA is incurring certain direct costs for carrying out this activity, They are as under: Accreditation expenses ; Rs, 788/- Accreditation fees received : Rs,6,00,0007- , ix. It was also stated that RBI has recognized FIMMDA as voluntary market body for Bond, Money and Derivative market and FIMMDA is working for development of money market. Therefore, regulation and development of fixed income, money and derivatives markets in the country is an object of general public utility. From the above it will be seen that all the activities are as per the objects given in the memorandum of association which are in the nature of object of general public utility and hence charitable in nature and no activity of the appellant company is in the nature of trade, commerce business. The definition of charity, which entails giving and receiving nothing in return Is outdated. Charity is driven by altruism and Fixed Income Money Market and Derivatives Association of India, desire to serve others, though element of self- preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. On the contrary, a business activity is one which is undertaken with profit motive and on sound or recognized business principles.

I. The appellant submitted that Reserve Bank of India bestows responsibility on it to function as quasi regulator and hence its object being charitable it is exempt u/s.

11. In this regard it is mentioned that merely because RBI has assigned a particular work to the company Is not sufficient to claim exemption u/s. 11. in the case of Entertainment Society of Goa Vs. CIT (2013) 23 ITR 549 Hon'ble ITAT Mumbai have held that ''the proviso to section 2(15) will also apply to a regulatory body or a body incorporated by Government as the section does not provide any exception under the proviso. The contention of the appellant is therefore not acceptable.

Fixed Income Money Market and Derivatives Association of India, II. The appellant during the year has rendered certain services against which fee is received. This is a recurring feature since past so many years. It has, during the year under consideration, provided valuation of investments on its website for which It is charging fee. During the year an amount of Rs. 20.66 lakhs has been charged under the head website registration fees. It was stated that charge is not commercial but to cover the cost. However, on perusal of the details filed it is noted that for maintenance of website it has spent Rs. 9.09 lakhs only against which it has received Rs. 20.66 lakhs during the year. Thus it is rendering services, to the users for a fee and making profit and hence proviso to section 2(13) is attracted making the activities of the appellant as non charitable, III. Further it is noted that the appellant has received Rs. 12.57 lakhs as 'corporate bond reporting platform fee' and 'F Track application fee' which, is again for,the services rendered by it to the users. It was stated that against the capital expenditure of Rs. 34,74 lakhs Incurred for developing this platform in 2011, it received the sale amount of Rs, 21.67 lakhs in 2014 and hence there was a loss. In this regard it is mentioned that from 2011. to 2014 appellant has received revenue of more than Rs. 1 crore as usage Fixed Income Money Market and Derivatives Association of India, charges. Thus there is no loss as claimed by the appellant out of this activity. The appellant has thus made profit even out of this activity and hence proviso to section 2(15) Is applicable. iv, With reference to conference, it is noted that during the year appellant received Rs, 2.42 crores from delegates and Rs. 47.38 lakhs as sponsorship fees totaling to Rs. 2.89 crores. Against this, the expenditure on both as appearing in the receipt and expenditure account is RS. 2.62 crores and thus this activity also has resulted into profit. The appellant has made profit even out of this activity and hence proviso to section 2(15) is applicable, v. Further it is noted that appellant has received accreditation fees of Rs. 6 lakhs against which expenditure of Rs. 788/- only has been booked. Appellant is also carrying out training and seminar on which expenditure of Rs.24,98,144/- was made during the year, Against this fees of Rs. 28,46,096/- was received from participants which makes it a profit making activity. The appellant has made profit even out of this activity and hence proviso of section 2(15) is applicable. Hon'ble ITAT Cochin while deciding a similar issue In case of State Forum of Bankers Club 56 taxmann.com 172 held that where assessee-trust Fixed Income Money Market and Derivatives Association of India, was rendering service to banks by organizing lectures and seminars for benefit of bank employees, same was not charitable activity and assessee was not entitled for recognition under section 2(15). vi. In view of above facts it is held that proviso to section 2(15) squarely applied to the appellant since it is rendering services in the nature of business for a fee. As per the proviso to section 2(15) if a charitable organization carrying out objects of advancement of general public utility is involved in carrying on any activity in the nature of trade, commerce/ business or is charging fees for services in relation to any trade, commerce, business, is excluded from being ‘charitable.' The case of the appellant is excluded from being charitable also because the charitable activity claimed by it is admittedly in the domain of 'advancement of general utility’ only. The profit motive behind such business, commerce or trade activity is not required to be separately examined and proved for applicability of proviso to section 2(15). The specific amendment by way of proviso to section 2(15) w.e.f. A.Y. 2009-10 does not provide for carrying out business trade or commerce per se for applicability of proviso, rather the stipulation in the proviso is 'In relation to which is to be interpreted and applied in that context - in u wider term and not to be confined to Fixed Income Money Market and Derivatives Association of India, carrying out; trade, business and profession. It was held in the case of Subhram Trust vs. DIT (E) (2009) 317 ITR (AT)(Bang.) that the term 'in relation to' should be broadly interpreted i.e. to say if any activity which directly or indirectly facilitates the rendering of any service in relation to any trade, commerce or business, is carried on by trust:, then it will be covered under proviso to section 2(15)'. vii. Accordingly it is held that no exemption u/s, 11 is available to the appellant. Further, the principle of mutuality applied by the Assessing Officer is upheld against which no submissions have been made by the appellant No submissions have been made for other grounds, Accordingly, in view of above discussion, the AO Is directed to work out the amount to be taxed while giving effect to this order. viii. Grounds of appeal No, 1 to 4 are therefore, dismissed

8. Now before us, the assessee has preferred the appeal against the order of Ld. CIT(A) on the grounds mentioned below:-

1: 0 Re.: Denial of exemption under section 11 of the Income-tax Act, 1961; Fixed Income Money Market and Derivatives Association of India, 1 :1 The Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer of not granting exemption u/s. 11 of the Income-tax Act, 1961 (the Act) as claimed by the Appellant.

1 :2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the Appellant is entitled to an exemption u/s. 11 of the Act and the Commissioner of Income-tax (Appeals) ought to have held as such.

1 : 3 The Appellant submits that the Assessing Officer be directed to grant exemption u/s. 11 of the Act and to re-compute its total income accordingly.

2 :0 Re.: Applicability of the proviso to section 2(15) of the Act:

2 : 1 The Commissioner of Income-tax (Appeals) has erred in holding that the proviso to section 2(15) of the Act was applicable in the case of the Appellant.

2 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the proviso to section 2(15) of the Act is not applicable in its case and the Commissioner of Income-tax (Appeals) ought to have held as such.

Fixed Income Money Market and Derivatives Association of India, 3 : 0 Re.: Without prejudice, deduction of all expenses debited to the Profit & Loss Account be granted while computing income under the principle of mutuality in the ratio of receipts from members vis- a-vis non-members 3 : 1 The Assessing Officer has erred in not considering all the expenses debited to the Profit & Loss account while assessing the Appellant's income.

3 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the Assessing Officer be directed to grant deduction of all the expenses debited to the Profit and Loss Account while computing its income under the principle of mutuality in the ratio of receipts frony members vis-a-vis non-members and to re-compute its total income accordingly. /.

4 : 0 Re.: General: i 4 : 1 The Appellant craves leave to add, alter, amend, substitute and/or otherwise modify | in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.

9. At the time of hearing, Ld. AR submitted before us that initially assessee has declared its return of income based on the Fixed Income Money Market and Derivatives Association of India, mutuality concept and with regard to facts, he brought to our notice the details submitted before Ld. CIT(A) and further submitted that there is no change in object and activities carried on by the assessee from the date of its commencement. He further submitted that assessee company is established in year 1998 and its main activities are only charitable and he brought to our notice that Ld. CIT(A) has not brought on record any findings on the business or commercial activities carried on by the assessee. He submitted that assessee company is basically established u/s 25 of the Companies Act and there is no motive to make profit, even the amended proviso of section 2(15), still the activities of the assessee company is remain a charitable carrying on educational purposes. Further, he relied on the decision of Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vrs. DGIT(E) (2015) 371 ITR 333(Del) and decision of Coordinate Bench of ITAT in the case of Indian Chambers of Commerce vrs ITO (supra).

10. On the other hand, Ld. DR brought to our notice the orders of Ld. CIT(A) and AO and submitted that assessee is not carrying any charitable activity and the interest and misc. income Fixed Income Money Market and Derivatives Association of India, earned by the assessee as observed by the AO in para 6 of its order, which clearly indicates that it is the income from other sources and assessee was declaring its income based on mutuality concept and such other income was brought to tax by the AO by relying on the case of Banglore Club (supra), which is proper and as per the rule of law.

Fixed Income Money Market and Derivatives Association of India, Accordingly, grounds raised by the assessee are allowed for statistical purposes.