2015 (11) TMI 396 - HC - Income Tax

Entitlement to exemption under section 11(2) and section 11(1)(a) - whether the assessee-respondent is a charitable institution as contemplated under section 2(15)? - assessee-company is a stock exchange registered as public limited company under the Companies Act, 1956, and is alleged to be a charitable institution under section 12A - Held that - We have gone through the objects of the Jaipur Stock Exchange Ltd. in the memorandum of association. The Jaipur Stock Exchange Ltd. is a company, registered by the Income-tax Department as charitable trust under section 12A of the Income-tax Act. The object of the stock exchange is not only to further the interests both of the brokers and dealers but also the public interested in securities, to assist, regulate and control the trade or business in securities, 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. The memorandum of association does not permit the profits to be distributed between the members. The profits are provided to be utilised for services of the public utility, would thus clearly fall and will qualify for exemption within the meaning of charitable purpose , as defined in section 2(15) of the Act. In our view, the question is covered by the judgment of the hon ble Supreme Court in Delhi Stock Exchange Association Ltd. v. CIT (1997 (3) TMI 11 - SUPREME Court), and CIT v. Andhra Chamber of Commerce (1964 (10) TMI 19 - SUPREME Court ), CIT v. Bar Council of Maharashtra (1981 (4) TMI 8 - SUPREME Court ) - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the Income-tax Appellate Tribunal was justified in holding that the assessee is a charitable institution under section 2(15) of the Income-tax Act, 1961.
2. Whether the assessee is entitled to exemption under section 11(2) and section 11(1)(a) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Justification of the Income-tax Appellate Tribunal's Decision:

The primary issue is whether the Income-tax Appellate Tribunal was justified in law in holding that the assessee, a stock exchange, qualifies as a charitable institution under section 2(15) of the Income-tax Act, 1961. The assessee, registered as a public limited company under the Companies Act, 1956, claimed to be a charitable institution under section 12A of the Act. The memorandum of association of the assessee outlines various objects, including supporting brokers, regulating business transactions, and maintaining high standards of commercial honor and integrity. The assessee argued that its primary object is to regulate and control the transaction of business on the stock exchange, which is a charitable purpose as defined in section 2(15) of the Act. The Tribunal, relying on previous judgments, including CIT v. Maharana of Mewar Charitable Foundation and CIT v. Plot Swetamber Murti Pujak Jain Mandal, allowed the exemption under section 11 of the Act.

2. Entitlement to Exemption under Section 11:

The second issue is whether the assessee is entitled to exemption under section 11(2) and section 11(1)(a) of the Income-tax Act. The assessee claimed exemption, declaring its taxable income as "nil" for the assessment years in question. The Assessing Officer denied the exemption, arguing that the assessee's ancillary objects indicate involvement in business activities, which disqualifies it from being considered a charitable institution. The Commissioner of Income-tax (Appeals) reversed this decision, granting the exemption based on the Tribunal's previous order for the assessment year 2000-01. The Tribunal upheld this decision, noting that the assessee's objects are for general public utility and that it does not distribute profits to its members.

Legal Precedents and Judgments:

The judgment references several legal precedents, including the Supreme Court's decisions in Yogiraj Charity Trust v. CIT and Delhi Stock Exchange Association Ltd. v. CIT. The court highlighted that for an institution to qualify for exemption, its income must be exclusively used for charitable purposes. The court distinguished the present case from Delhi Stock Exchange Association Ltd., noting that the Jaipur Stock Exchange's memorandum of association prohibits profit distribution among members, aligning it with charitable purposes.

Conclusion:

The court concluded that the Jaipur Stock Exchange's objects, as outlined in its memorandum of association, qualify as charitable purposes under section 2(15) of the Income-tax Act. The assessee's activities are aimed at regulating and controlling trade in securities, maintaining high standards of commercial honor, and promoting public utility without profit distribution. Therefore, the Tribunal was justified in granting the exemption under section 11. The court dismissed all the income-tax appeals, deciding the question of law in favor of the assessee and against the Department.