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TMI Blog2015 (2) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... red opinion, by issuing the direction (referred above), the SEBI has only prescribed the minimum amount that should be spent for such purposes. The direction issued by SEBI nowhere states that the amount should be appropriated out of listing fees or it should be kept in separate account disabling the assessee from using it. The direction no where states that the SEBI would spend the money towards the specific purposes and recover the same from the assessee, if the assessee fails to spend the same. the assessee has only appropriated the listing fees after it reached its hands and the purpose of such transfer was only to earmark the income for spending the same for specific purposes. Hence the same should be considered as mere appropriation of income of the assessee. Hence, we are of the view that the accounting treatment adopted by the assessee to transfer the amount directly from listing fee receipts would not make the same as diversion of income by overriding title at the source. Accordingly AO was justified in assessing the income so appropriate to investors reserve account etc., as income of the assessee. - Decided against assessee. A.R submition that the amount so transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions issued by Securities Exchange Board of India (SEBI) and hence they shall not constitute income of the assessee. The Assessing Officer did not accept the contentions of the assessee. During the pendency of assessment proceedings, the assessee approached the Joint Commissioner of Income Tax seeking directions under Section 144A of the Income tax Act, 1961 (in short 'the Act'). The Ld. JCIT held that the entire listing fee of ₹ 2.49 Crores has to be assessed in the hands of the assessee on accrual basis, since the assessee is following mercantile system of account. Thus, the Ld. JCIT concurred with the view taken by the Assessing Officer on the issue relating to Listing fee. With regard to the amounts transferred to various Reserves, the Ld. JCIT concurred with the view taken by the Assessing Officer that they are mere appropriation of income and not diversion of income by overriding title. With regard to the contribution made to SEBI, the Ld. JCIT directed the Assessing Officer to verify the fact sand decide the issue accordingly. 4. Pursuant to the directions issued by the Ld. JCIT, the Assessing Officer assessed the entire amount of ₹ 2.49 Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m its members lest they should delist their company from the Stock exchange. However, the companies still remain attached with the assessee due to various services, advices and guidance provided by the assessee to the companies listed with it like conducting investor awareness/education program etc. In this practical situation, there was uncertainty about the continuity of the companies and also about the payment of listing fee. Hence, the assessee has been following the method of accounting of the listing fee as and when the listing fees are received. The Ld. A. R submitted that the said system of accounting is also in accordance with the Accounting Standard, viz., AS-9 relating to revenue recognition, which provides that the revenue should not be recognized if the recovery of the same is uncertain. The Ld. A.R submitted that the assessee is following the very same method of accounting for accounting the Listing fee for the past several years. The Ld. A.R also submitted that even if the listing fee is recognized as income, the deduction of the equal amount as Bad debts is required to be made leaving the said exercise as tax neutral. Accordingly, the Ld. A.R submitted that the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessee as to how the element of uncertainty exists in respect of listing fee receivable from each of the company, it may not be possible for the Tribunal to adjudicate this issue. Accordingly, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly, we set aside the order of Ld. CIT(Appeals) on this issue and restore the same to the file of the assessing officer with the direction to examine the same afresh by duly considering the explanations and information that may be furnished by the assessee. We also direct the assessee to furnish necessary\evidences / explanations to the assessing officer to demonstrate the existence of the element of uncertainty over the collection of the listing fees from each of the companies. 10. The next issue relates to the addition of ₹ 32.01 lakhs relating to the amount transferred to various Reserve accounts from out of the listing fees received by the assessee. As noted earlier, the assessee directly transferred the following amounts from listing fee receipts to the respective Reserve account:- (a) Investor Service Reserve ₹ 23,16,889 (b) Investor Protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te investment claims of the clients of the defaulting members that were not speculative in nature. (ii) The interest earned on the IPF could be utilized only for the purpose of investor education, awareness and research and any unutilized interest for the financial year, should be transferred back to the IPF. (iii) The ISF should not be utilized for unrelated activities such as website development and maintenance, advertisements in the nature of brand building and advertisements in association with brokers etc. (iv) Any expenditure from the IPF/ISF which was not conformity with the government/ SEBI norms should be credited back to IPF/ISF immediately. 61. The fact that interest income should also belong to the fund and not available for the assessee clearly indicates the character of the receipt. None of the purpose for which the amounts were appropriated were for the benefit of the appellant, but was for the benefit of the investing public or customers. It was under these circumstances, that the re was clearly diversion by overriding title, in that, the amount which had necessarily to be appropriated against every receipt of listing fees was so taken to the Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rately accounted for as per the Molasses Cotrol(Amendment) Order for construction of storage tanks was considered as Diverted at source and hence not includible in assessee s income. The Ld. A.R submitted that the ratio of the above said decisions shall equally apply to the present case also, since the assessee has transferred a portion of Listing fee receipts to the Reserve accounts as per the order of SEBI. He further submitted that the status of the assessee was considered in the assessee's own case [CIT v. Madras Stock Exchange Ltd. And Others (105 ITR 546) (Mad.)] and the Hon'ble jurisdictional High Court held that the assessee is carrying on a statutory function, i.e.to control and regulate the contracts relating to shares and securities. Accordingly, the Hon'ble Madras High Court held that the listing fees received by the assessee cannot be said to be an activity for profit within the meaning of then existing provisions of Section 2(15) of the Act. The Ld. counsel submitted that the fact that the assessee is carrying on statutory function stands established by the above said decision. The Ld. counsel further submitted that the assessee has set aside a part of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lasses storage fund and the same could be utilized only for constructing storage tank only. It was further noticed that, if the assessee fails to collect such amount as directed by the Molasses Control (Amendment) Order, the Central Government will construct a molasses storage tank and recoup the construction charges from the assessee. Thus, it was seen that the assessee did not have any control and domain over the amount so collected and it could not also utilize the same for business purposes. Under these set of facts, it was held that the amount so collected did not reach the assessee and got diverted by overriding title at the source itself. 14. The facts prevailing in the instant case are that the assessee herein was not directed to collect any amount separately along with the listing fee. The Molasses Control (Amendment) Order was issued by the Central Government, whereas in the instant case, the SEBI has issued directives, which read as under:- The Exchange is directed to set aside at least 10%of the listing fees for providing services to the investing public A perusal of the above said direction would show that it was only a direction and the assessee has been given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the facts prevailing in the instant case are totally different. Accordingly we are of the view that the assessee has only appropriated the listing fees after it reached its hands and the purpose of such transfer was only to earmark the income for spending the same for specific purposes. Hence the same should be considered as mere appropriation of income of the assessee. Hence, we are of the view that the accounting treatment adopted by the assessee to transfer the amount directly from listing fee receipts would not make the same as diversion of income by overriding title at the source. Accordingly, we are of the view that the assessing officer was justified in assessing the income so appropriate to investors reserve account etc., as income of the assessee. In view of the foregoing discussions, we are unable to sustain the order passed by Ld. CIT(Appeals) on this issue and accordingly set aside the same. 16. The Ld. A.R submitted that the amount so transferred to Investors reserve account etc., if not considered as diversion of income at source, then the expenditure incurred from out of such reserve accounts should be allowed as deduction. We find merit in the said contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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