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TMI Blog2015 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... from the corresponding assessment order passed u/s.143(3) dated 03.12.2008 were that the assessee-company is incorporated to facilitate, support control and manage in the public interest business of buying, selling, clearing, dealing and settlement of securities and instruments of all kinds. A return of income was filed declaring Rs. 45,00920/- in respect of the above issue. It was noted by the AO that the Assessee had received an interest of Rs. 87,60,247/-. Against that receipt of interest, the assessee has claimed deduction from such interest income in respect of following accounts. i. Interest credited to Defaulters Account 185813 ii. Interest credited to Broker's Contingency Fund 56050 iii. Interest credited to Trade Guarantee Fund 2122626 iv. Interest on 1% Security Deposit credited to CPF 150594 Total 2515083 3. A query was raised to explain as to why the deduction of interest of Rs. 25,15,083/- be not disallowed. In compliance, the Assessee's reply was as under: "7. As regards deduction claimed from interest in respect of amount of interest transferred to Trade Guarantee Fund and Broker's Contingency Fund, we have to submit as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, interest on investment out of this fund is also required to be transferred to the fund and accordingly interest has been transferred to this fund every year." 3.1 However, the AO was not convinced and disallowed the claim in the following manner: "The submission of the assessee has been perused and no force is found in the contention of the assessee. Though, the interest on investments out of these funds are required to be transferred as per Guidelines issued by the SEBI, but it is very clear that nowhere this interest amount is taxed. Neither the assessee nor the SEBI (fund) paid tax on such interest amounts received during the year. Since these funds are reflected in the books of the assessee company, the onus is on the assessee to pay tax on such interest. The assessee is transferring interest amounts from P&L A/c. to its Reserve. These funds are no where shifted but are reflected in the books of the assessee. In view of this, such interest amount is treated as income of the assessee for the year under consideration. However, considering the facts that customer protection fund is a separate legal entity and as reported that the same is filing its return of income, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest on three different funds maintained by it. Though these funds are under supervision of Sebi, the same are maintained in the books of the appellant only. The money is not transferred to any outside entity and there is no overriding title, therefore the income earned/received by the appellant is not taxable in anybody else's hand. This income is not specifically exempt under any provisions of IT act therefore appellant's claim of reducing interest income from its taxable income is without any basis. On any income, someone has to pay tax if the same is not exempt. It is not in dispute that the said income is not exempt under arty provisions of IT act and therefore the same has to be taxed somewhere. Since the appellant is maintaining these funds and also receiving the income, there is no entity or person in whose name these can be taxed. The operations of the funds may be as per Sebi guidelines but it does not mean that the income is not received. Income is taxable even in the case of an entity under liquidation. Therefore reducing interest income without the same being exempt or not transferred to an outside entity by way of overriding title, is not correct. I ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this fund. As such interest income from investments relatable to utilization out of fund has been transferred to this fund and reduced from the gross interest income from all investments. Such claim has been upheld by the Appellate Authority in earlier assessments of the Exchange." 5.1 However, he has informed that in the past the stock exchange was assessed under the status of "AOP" but later on it was converted into a company, however, the issue of accrual of interest was always decided in assessee's favour. Our attention was drawn on an order of ITAT 'D' Bench Ahmedabad bearing ITA No.1195/Ahd/2008 for A.Y. 2004-05 titled as Deputy Director of Income Tax (Exemption) Ahmedabad Vs. Stock Exchange of Ahmedabad, Ahmedabad order dated 6th of August, 2010 wherein "investors service sales" was held as a contingent liability and the same was considered as exemption u/s.11 of IT Act. An another order of ITAT 'D' Bench Ahmedabad bearing ITA No.1814/Ahd/2008 for A.Y. 2005-06 order dated 17.10.2008 the issue of disallowance of contribution transferred to investor service sale was decided in assessee's favour was discussed at length and thereafter held that he co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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