ACE DERIVATIVES & COMMODITY EXCHANGE INVESTOR (CLIENT) PRTAECTION FUND TRUST,MUMBAI vs. DIT (E), MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

2. The appellant has raised the following grounds:- “1. Director of Income Tax(Exemption) hereinafter referred as ‘DIT(E)’ erred in rejecting the application for registration u/s 12AA of the Income tax Act, 1961 ignoring all merits of the case.

ITA. No.6580/M/14 A.Y.2014-15

3. He further erred in concluding that the activity being carried out by the appellant could not be termed as any other objects of general public utility for the reasons that the trust has been formed for the specific persons who invested through stock exchange and not for general public and the object and contention is very clear that benefits are not open for general public at large. 4. He further erred in concluding that the appellant has violated the provisions of section 13(3) of the Act without appreciating the fact that the sitting fee and conveyance expenses paid to trustee for administering the trust and attending trust meeting are reasonable considering the service rendered by them and nature of payment and appellant has not violated the provisions of section 13(3) of the Act. 5. He further erred in concluding that the activities of the trust cannot be put to the test of genuiness without ascribing any reason for the same. 6. He failed to appreciate and ought to have held that: A. The trust is formed in pursuance of the guidelines/regulations issued by the forward markets commissions with the sole aim of creating a Fund which could provide compensation to the investors in case of loss on account of default by the member of exchange and for the protection, awareness and education of the investors of Exchange. b. The same is a public charitable cause, falling within the scope of the term charitable purpose as defined u/s 2(15) of the Act, vide the last limb thereof, i.e., the advancement of any other object of general public utility. c. An object beneficial to a section of the public is an object of general public utility and to serve a charitable purpose it is not necessary that the object leads to the benefit of the whole mankind or all persons in a particular country or even state. D It would be sufficient if the intention is to benefit a section of the community, sufficiently defined and identifiable by some common quality of a public or impersonal nature. e. Appellant is also eligible to claim exemption us/ 10(23(EC) cannot be a ground to reject the application for registration u/s 12AA of the Act. f. having regard to the accounts and detailed submissions made by the appellant, the appellant has clearly established that it has not violated the provisions of section 13(3) of the Act as payments made to trustees are in the nature of sitting fees and not in the nature of salary, allowance, etc. Even if it is assumed that A.Y.2014-15 they are in the nature of salary, allowance, etc., they are not unreasonable to attract the violation of section 13(3) of the Act.

7. The appellant prays that the DIT(E) be directed to grant certificate of registration u/s 12AA of the Act to the appellant.”

“The submission putforth by the assessee has been perused, however, the same is not acceptable. Firstly the trust has mainly established for the protection, awareness and education of the investors of the Exchange and that the objects of the trust are not charitable but had shade of business ethics involved for creation of goodwill. Therefore, the activities of the assessee trust cannot be considered well within the meaning of Section 2(15) of the Act. Further, as the activity are being carried out could not been termed as any other object of general public utility at large. In nutshell the registration could not be granted merely because of the requirement of creation of fund under the provisions of Exchange. It can be also seen that stock exchanges who wished to take benefit of Section 11 of the Act and has to register itself as per the requirement of section 10(23EC) of the Act and it is not mandatory for institution to register itself under 12AA of the Act to reap squarely fell within the meaning of section 10(23EC) of the Act. The registration u/s 12AA of the Act could not be granted merely because of the requirement of creation of fund under the A.Y.2014-15 provision of Commodity Exchange did not ipso facto would make such trsut/institutions a charitable one which would be entitled for registration u/s 12AA of the Act in order to qualify exemption u/s 11 and 12 of the Act.

6. Further, from the bank statement is observed that the trust has made various payment to the trustees on 20.08.2013 23.08.2013 and 27.08.2013 and the same has not been disclosed to the audit. In response the assessee states that section 13(3) covers only remuneration or allowance paid to the trustees and applicant trust has paid only sitting fees. The assessee trust has failed to appreciate the fact of section 13(3) states that whether any payment was made to any such person during the previous year by way of salary allowance or otherwise? If so give details. This is nothing but a benefit/allowance given to the trustees. Thereby the assessee has violated the provisions of section 13(3) of the income Tax Act, 1961.

7. After considering the submissions of the assessee, it appears that the activity as being carried out could not be termed as any other object of general public utility for simple reason that it was meant for the benefit of specific person who are the members and employees of the trust and not for general public.”

“5. Having considered the rival submissions and careful perusal of the relevant record we note that the application for registration u/s 12AA has been rejected by the DIT(Exemption) on the following grounds: i) the activity of the assessee being carried out not for the object of the general public utility but meant for benefit for specific persons investing A.Y.2014-15 through specific Stock Exchanges. ii) that the assessee does not qualify as a charitable institution as it does not cater for any public at large but it has been created to indemnity the investors against the loss caused on account of negligence etc.

6. At the outset we note that the Co-ordinate Bench of the Tribunal has dealt with both the objections of the DIT(Exemption) in the case of Interconnected Stock Exchange Investors Protection Fund Vs DIT(Exemption) (supra) and the conclusion of the Co- ordinate Bench is as under: “However, a comprehensive and holistic reading of the trust deed would allay all such misgiving/s or inference/s, and, in our clear view there is no scope for taking any such view. Firstly, as a condition for an eligible claim, the relevant member of the stock exchange is to be declared as a ‘defaulter’ following the prescribed procedure. Two, the corpus of the fund is to be built through, inter alia, share of listing fees, interest on 1% listing deposit, paid and kept by the issuer companies with the MCX Stock Exchange Investors Protection Fund Currency Derivatives Segment Trust 4 respective stock exchanges. An individual member of a particular member stock exchange is not called upon to pay any direct charges to the applicant fund. In fact, a part of the auction money of the defaulting money is also, in terms of the SEBI circular (FITTC/FII/02/2002 dated 15.05.2002), made over to the corpus of the fund. Accordingly, the object of the applicant cannot be as a service in relation to any trade, etc. Further, even assuming so, the same does not involve any consideration inasmuch as no quid pro quo can be attributed to the mandatory contributions to the fund by the participating stock exchanges. In our considered view, therefore, the applicant fund is a public charitable fund, set up to advance an object of general public utility, and has been wrongly denied registration as one by the Revenue. We, accordingly, vacating the findings of the competent authority vide the impugned order, direct it to grant registration applied for. We decide accordingly.”

4. We have heard the rival submissions and perused the material before us.We find that in the case of Interconnected Stock Exchange Investors Protection Fund(supra) the Tribunal has deliberated upon the issues and has decided it in the following manner: “However, a comprehensive and holistic reading of the trust deed would allay all such misgiving/s or inference/s, and, in our clear view there is no scope for taking any such view. Firstly, as a condition for an eligible claim, the relevant member of the stock exchange is to be declared as a ‘defaulter’ following the prescribed procedure. Two, the corpus of the fund is to be built through, inter alia, share of listing fees, interest on 1% listing deposit, paid and kept by the issuer companies with the respective stock exchanges. An individual member of a particular member stock exchange is not called upon to pay any direct charges to the applicant fund. In fact, a part of the auction money of the defaulting money is also, in terms of the SEBI circular (FITTC/FII/02/2002 dated 15.05.2002), made over to the corpus of the fund. Accordingly, the object of the applicant cannot be as a service in relation to any trade, etc. Further, even assuming so, the same does not involve any consideration inasmuch as no quid pro quo can be attributed to the mandatory contributions to the fund by the participating stock exchanges. In our considered view, therefore, the applicant fund is a public charitable fund, set up to advance an object of 6552/13NCDEX 3 general public utility, and has been wrongly denied registration as one by the Revenue. A.Y.2014-15 We, accordingly, vacating the findings of the competent authority vide the impugned order, direct it to grant registration applied for. We decide accordingly.

Respecfully, following the above decision, we decide effective ground of appeal in favour of the assessee-trust and direct the DIT-E to grant registration to it.

7. In view of the above said finding, we are of the view that the claim of the assessee is not liable to be declined on the ground of the registration u/s 10(23EC) of the Act. The other grounds for declining the claim of the appellant are in connection with the payment of meeting fees to the trustees which is not liable to be considered at this stage of the registration of the Trust. In this regard, we are also find in support of the decision of the Hon’ble ITAT in the case of title as Kul Foundation Vs. Commissioner of Income-Tax-1, Pune (2015) 54 taxmann.com 143 (Pune Tribunal) and in the case of Ashoka Education Foundation Vs. Commissioner of Income Tax -1, Nasik (2015) 53 taxmann.com 436 (Pune Tribunal). It is specifically held that at the time of registration of the Trust, the claim of the assessee is not liable to be declined in view of the provision of Section13 of the Act. In view of the said circumstances we are of the view that the claim of the assessee for the registration u/s 12A of the Act has wrongly been rejected by the Director of Income-tax (Exemption). Therefore, we set aside the order in question and restored the application before the DCIT exemption to consider the same in view of the observation made above in accordance with law. Accordingly, appeal filed by the appellant is hereby ordered to be allowed.