BSE LTD.,MUMBAI vs. PR. CIT -2, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI ABY T VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO.899/MUM/2021 (A.Y. 2016-17) BSE Limited v. Pr.CIT-2 Phiroze Jeejeebhoy Towers Room No. 344, 3rd Floor 25th Floor, Dalal Street, Fort Aayakar Bhavan, M.K. Road Mumbai - 400001 Mumbai - 400020 PAN: AACCB6672L (Appellant) (Respondent) Assessee Represented by : Shri Vijay Mehta Department Represented by : Shri S. Srinivasu

Date of Conclusion of Hearing : 19.12.2023 Date of Pronouncement : 02.02.2024

O R D E R PER S. RIFAUR RAHMAN (AM)

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited 2. Brief facts of the case are, assessee company (BSE) is a recognized Stock Exchange. BSE is self-regulatory body governed by Companies Act, 1956 and Securities and Exchange Board of India (SEBI) along with Securities Contracts (Regulation) Act, 1956. The business of BSE is to support and protect the interest of investing public and the status of brokers and dealers having dealings on the exchange, to establish and promote honourable and just practices in securities transaction, to promote, develop and maintain a well- regulated market for dealing in securities, to promote industrial development in the country through efficient resource mobilization by way of investment in corporate securities.

Page No. 2

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited assessee for deduction on account of contribution made to Core Settlement Guarantee Fund of ₹.68,84,23,341/-. The assessee has preferred an appeal against the said assessment order which is pending before the CIT(A).

"3. On examination of records, it is observed that the order dated 30.12.2018, passed by Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue due to the following reasons: The assessment records of assessee for AY 2016-17 were perused. It is seen that SEBI vide circular dated 27.08.2014 issued instructions and norms for setting up core Settlement Guarantee Fund (SGF) by the Clearing Corporations (CC) with the objective to guard against any contingent liability arising from the default by the clearing member. The contributions were to be made by CC (50%) and Stock Exchange (25%) and clearing members. In the assessment order passed u/s. 143(3) of the Act dated 30-12-2018, the deduction claimed on account of assessee's contribution to Core Settlement Guarantee Fund of Rs.68.84

Page No. 3

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited crores was disallowed. The basis of disallowance is that the assessee has no information with respect to details regarding actual defaults during the year and amount of default that was met from the Core SGF, hence, the contribution made to Core SGF was disallowed. On further examination of Note 28(E) to Annual Report, it is seen that the amount required to be transferred to Core SGF was Rs.9742lakh. The exchange had already contributed and charged Rs.4320lakh. Further, investment income accrued on Companies contribution to SGF for period up to March, 2016 of Rs.279lakh (9742- (4320+5143)], the balance amount of Rs. 5143 lakh (9742- (4320+279)] is now charged to profit and loss account, which was disallowed in the assessment. From the above, it is seen that the SGF is with the assessee and remained unutilised, the investment income of Rs. 279 lakh (9742-(4320 + 5143)] is the income of the assessee and should have been routed through profit and loss account, which the assessee has net off while preparing its accounts. Therefore, the investment income of Rs. 279 lakhs having a bearing on determination of taxable income of assessee company are remained to be inquired into. This issue has bearing on assessment of taxable income. Failure of the assessing officer to examine the same and non- enquiries by the assessing officer in this aspect has rendered the assessment as erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Section 263 of the Act. 4. In view of the aforesaid reasons, it is proposed to revise the assessment order dt. 30.12.2018 under section 263 of theIncome- tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue."

Page No. 4

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited the assessee. The Ld. PCIT has held that the assessment order is erroneous and prejudicial to the interests of the revenue.

“(i) The issue has already been examined by the Assessing Officer in the course of the proceedings u/s. 143(3) of the Act and he has taken a possible view in the matter. (ii) The order passed by the Assessing Officer is neither erroneous nor prejudicial to the revenue as the interest earned on contributions made by the assessee to the Core Settlement Guarantee Fund is not the income of the assessee and, hence, not liable for tax.”

“(i) The issue has already been examined by the A.O. 11) The appellant submits that the issue of taxability of contribution and income thereon was raised by the Assessing Officer in his notices u/s.143(2) and 142(1) of the Act and had been examined by the AO in every aspect before completion of the assessment. The assessee had submitted detailed notes along with Annexure dated 07.12.2018 (PBP 11) vide Acknowledgement No. 07121810936561 as a response to the issues raised by the AO. 12) The appellant states that the Assessing Officer was made aware that BSE was required to contribute to Core Settlement Guarantee Fund and interest on cash contribution to Core SGF shall also accrued to the Core SGF. Further, an explanation on implementation by BSE of its provisions by Circular (CIR/MRD/DRMNP/25/2014) dated 27.08.2014 (PBP 18A), w.e.f. 01.12.2014, was also pointed out to the Assessing Officer. Also, the effect of the above circular was given in financial statements in Note no. 28 of the notes to accounts (PBP 106) and the same was duly pointed out to the A.O. in the submission made during the

Page No. 5

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited assessment proceedings vide letter dated 07.12.2018 (PBP 14). It was further explained that necessary clarification were received from SEBI and that the amount was mandatorily contributed to the said Core SGF which belong to Core SGF of ICCL and as per the SEBI circular, BSE was prohibited from sharing this fund with the assessee. 13) Thus, from the above contentions, it is evident that the Assessing Officer had enquired into the details and gone through the justification on contribution to Core SGF, as well as the fact that the accrual of interest on the contributions belongs to the Core SGF. 14) It is submitted that after considering all the facts, the Assessing Officer has not made any addition in respect of the interest amount of Rs. 2.79 cr. It is submitted that the action of the Assessing Officer in not bringing to tax the interest amount of Rs. 2.79 cr. is very much a possible view. In fact, in light of the submissions made hereinbelow, it can be said that the view taken by the Assessing Officer is the only view. Therefore, the assessment order is not erroneous or prejudicial to the revenue. We place reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Max India Ltd. (295 ITR 282) wherein it has been held that if the Assessing Officer has taken one view with which the Commissioner do not agree, it cannot be treated as an erroneous order prejudicial to the revenue, unless the view taken by the Assessing Officer is unsustainable in law. We further submit that in the assessee's own case for A.Y. 2015-16, wherein identical submissions were made before the Assessing Officer and the Commissioner attempted to revise the assessment order in respect of the issue of contribution made to Core Settlement Guarantee Fund, the Hon'ble Tribunal has held that the Assessing Officer has taken a possible view and, hence, the assessment cannot be revised. The above referred order of the Hon'ble Tribunal for A.Y. 2015-16 in ITA No. 1790/Mum/2019 dated 04.10.2019 has been placed on record. 15) Thus, the appellant pleads that the Ld. PCIT has erred in passing the order u/s. 263 of the Act, which is beyond jurisdiction.”

Page No. 6

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited “16) The Appellant submits that the assessee has made contribution to Core Settlement Guarantee Fund from time to time. The said contributions are mandatory as per Regulation 33 of the Securities Contracts (Regulations) (SECC) Regulations, 2012 and the assessee accordingly made such contributions from F.Y. 2012- 13 onwards. 17) As per S. 10(23EE) of the Act, w.e.f. A.Y. 2016-17, any specified income to Core Settlement Guarantee Fund, set up by a recognized clearing corporation in accordance with the regulations and notified by Central government in official Gazette is exempt provided that where any amount standing to the credit of the said fund is shared, either wholly or partly, the whole amount shared then shall become the income of that particular year in the hands of the specified persons. Specified income means the income by way of contribution received from specified persons, the income by way of penalties imposed by the recognized clearing corporation and credited to the Core SGF or the income from investment made by the Fund. Specified persons means recognized stock exchanges, recognized clearing corporations etc. Core Settlement Guarantee Fund, set up by Indian Clearing Corporation Limited (ICCL) is a recognized Core Settlement Guarantee Fund as per notification no. SO 2183(E) [No. 50/2016 (F.No. 197/47/2015-ΙTA-I)] dated 23/06/2016. 18) Thus, the amount contributed to Core SGF of ICCL by BSE Ltd is exempt in the hands of Core SGF u/s. 10(23EE) of the Act. Further, the amount contributed by BSE will become the income of BSE Ltd. only when such fund has been shared for the purpose of its business and will be considered as income of BSE Ltd in that particular assessment year and not otherwise. Similarly, the interest income of such fund has been exempted in the hands of the fund, meaning thereby it is otherwise the income of the fund and not of the contributor i.e. stock exchange. Thus, there is no question of adding interest income in the hands of the assessee. 19) The said interest income has been taken into account for the purpose of calculating further contribution to be made by the assessee to the Core Settlement Guarantee Fund. However, this does not mean that the interest income accrues or belongs to the assessee. 20) From the above mentioned contentions, it is discernible that the investment income of Rs. 2.79 crores accrued on contributions made by BSE to Core SGF till March 31, 2016, on pro-rata basis was attributed in proportion to its cash contribution and was to be considered for calculation of contribution to Core SGF as per SEBI Circular and to that extent BSE need not contribute more.

Page No. 7

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited 21) Also, the amount transferred by BSE and income accrued on investment by Core SGF has to be utilized by ICCL as per the guidelines provided by SEBI from time to time. The same is confirmed by ICCL vide their letter date 16.03.2021 (PBP 108). In the said letter, it has also been confirmed by ICCL that the investment income of Rs.2.79 cr., over which the assessee does not have any right, title or interest, has been considered by them while filing their return of income. It may be noted that BSE has no right/title or interest either over the amount already contributed to Core SGF or on investment income accrued on the same. 22) Further, vide para 2 of letter dated 19.12.2018, the Assessing Officer raised the issue of contribution made by the assessee to Core Settlement Guarantee Fund and asked the explanation regarding allowability of the same (PBP 49). The assessee vide letter dated 21.12.2018 (PBP 50 to 58) referred and clarified that the amount contributed to Core Settlement Guarantee Fund is an allowable deduction. The circular issued by the SEBI has been referred to and the objective of the Core Settlement Guarantee Fund was explained (PBP 52). Further, reference was made to S. 10(23EE) of the Act and it was pointed out that the specified income is taxable in the hands of Core Settlement Guarantee Fund and such income includes income from investment made by the Fund (PBP 54). It was pointed out that such income has been held to be exempt from the tax and the Indian Clearing Corporation Ltd. has been recognized for the said purpose. 23) The appellant contends that, in assessee's own case, the contribution to Core SGF is allowed as a deduction for A.Y. 2015-16 vide above referred ITAT order dated 04.10.2019. It has been held therein (para 12 on page no. 19) that the contribution made by the assessee to the Core Settlement Guarantee Fund has not remained with the assessee. The amount transferred will be utilized by ICCL as per the guidelinesprovided by SEBI from time to time. The assessee has no right over the amount already contributed to the Core Settlement Guarantee Fund. It has been concluded by the Hon'ble Tribunal that the amount contributed to the Core Settlement Guarantee Fund is an allowable expenditure as the same does not belong to the assessee anymore. It is submitted that once it is held that the contribution itself is an expenditure and it do not belong to the assessee anymore, the interest income on such contribution necessarily do not belong to the assessee and, therefore, there is no question of taxing the same in the hands of the assessee. This is more particularly so when the Income- tax Act itself, vide S. 10(23EE) of the Act, provides exemption of such income in the hands of Core Settlement Guarantee Fund, subject to certain conditions. It may kindly be appreciated that but for such exemption or but for compliance by the Core Settlement Guarantee

Page No. 8

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited Fund with the conditions laid down in S. 10(23EE) of the Act, such income would be taxable in the hands of Core Settlement Guarantee Fund. It is an elementary that income cannot belong to two persons and, hence, investment income cannot be taxed in the hands of the assessee. 24) The above view taken by the Hon'ble Tribunal in the case of the assessee has been followed by the Hon'ble Tribunal in the case of National Stock Exchange of India Limited v. DCIT for A.Ys. 2016- 17 and 2017-18 in ITA Nos. 730 and 731/Mum/2023 dated 26.10.2023. 25) It is submitted that the facts of the case under consideration is on a much better footing than the facts of the case before the Hon'bleTribunal in assessee's own case for A.Y. 2015-16 and in the case of National Stock Exchange of India Ltd. In the above referred two cases, the issue involved was allowability of contribution made to Fund as a deduction. The Hon'ble Benches of the Tribunal had held that such contribution is permanent outgo and, hence, to be allowed as a deduction in the hands of stock exchange. As against that in the present case, the issue involved regarding the taxability of interest income earned by the Fund on the amount of contribution made by the assessee to the Fund. Thus, the facts of the case being on a stronger footing, the issue deserves to be decided in favour of the assessee.”

Page No. 9

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited received by the assessee is adjusted against the contribution based on SEBI guidelines. Therefore, the Ld. Pr.CIT is right in invoking the provisions of section 263 of the Act.

Page No. 10

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited Therefore, the assessee has to contribute to the Core SGF was ₹.97.42 crores and they have already contributed ₹.43.20 crores and the balance to be contributed and charged was ₹.54.22 crores. However, the assessee has contributed the net off of exempt income to the profit and loss account to the extent of ₹.51.43 crores with the note on record. The Assessing Officer has accepted the same and completed the assessment. Now in revision proceedings u/s 263, Ld PCIT directs the Assessing Officer to include the above exempt income also while making the disallowance of contribution to the Core SGF. Therefore, Ld PCIT has treated the assessment itself as erroneous. On careful consideration of the above facts on record, we observe that the assessee is only a contributor to the funds and it is under control of ICCL. The above funds can be considered as part of assessee’s operation. The income accrued out of funds in the control of ICCL is chargeable to tax in their hands and ICCL has already submitted a letter indicating that this income was duly declared by them as their income and they have claimed that as exempt. That being so, the Ld PCIT has not brought on record how the share of income earned by the ICCL are chargeable to tax in the hands of the assessee. In the reassessment proceedings u/s 263 both the conditions has to be fulfilled before invoking the revision proceedings. He has held that the assessment order is erroneous but not brought on

Page No. 11

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited record how it is prejudicial to the interest of revenue. In our view, the income earned out of Core SGF held by ICCL is exempt u/s 10(23EE) of the Act in the hands of the ICCL and once it is held to be exempt, the exempt income shared with the other contributor is also exempt. In this case, ICCL has asked the assessee to make the contribution net of exempt income. It is brought to our notice that the contribution made by the assessee to the Core SGF is held to be allowable as expense in the hands of the assessee by the coordinate bench in the previous assessment year. The above decision was under challenge before Hon’ble High Court, therefore, in our view there is no prejudice caused to the revenue in this transaction of contribution to the funds after adjusting the share of exempt income.

Page No. 12

ITA NO. 899/MUM/2021 (A.Y. 2016-17) BSE Limited assessee it can be considered as erroneous order. However, in order to invoke provisions of section 263 of the Act, both conditions has to be satisfied, not just erroneous, even the condition, prejudicial to the revenue. But as per the discussion in the above paragraph we do not agree with the Ld. Pr.CIT that the condition of prejudicial to the interest of the Revenue is satisfied. Therefore, twin conditions as per provisions of section 263 are not satisfied in this case. Hence the order passed u/s.263 is set aside. Accordingly, Grounds raised by the assessee are allowed.

Order pronounced in the open court on 02nd February, 2024. Sd/- Sd/- (ABY T VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 02.02.2024 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum

Page No. 13