Commissioner of Income Tax-I vs Saurashtra Kutch Stock Exchanage Securities Ltd.

Akil Kureshi, J.—Leave to amend. Revenue has raised following questions for our consideration:

(A) Whether the Appellate Tribunal is right in law and on facts in directing the department to allow registration u/s 12A as well as the benefit of exemption u/s 11 of the Act?

(B) Whether the Appellate Tribunal is right in law and on facts in granting reduction of Rs. 3,01,60,000/- made on account of capital receipts from total assessed income of Rs. 3,29,51,982/-?

Though two separate questions are framed, principally the issue is with respect to granting reduction of Rs. 3,01,60,000/- by the CIT(Appeals) on account of capital receipts out of the total assessed income of Rs. 3,29,51,982/- as adopted by the Assessing Officer. The assessee had before the Assessing Officer explained that it had received the corpus fund from the holding company i.e. Saurashtra Kutch Stock Exchange Ltd.(''SKSE'' for short) by way of share capital. Necessary documents in support of such a claim were also produced. It was pointed out that such investment was necessary due to directives of SEBI providing that SKSE and its members together shall hold 100% equity shares of the company and that the holding of SKSE should not be less than 51% of the value. It was therefore, pointed out that receipt is capital in nature and cannot be treated as income of the company.

Such stand was accepted by CIT(Appeals) who observed that impugned investment is in the form of share capital and this was necessary for the reason that there was directives from SEBI for investment to be made by SKSE. The amount was received through Account Payee cheque duly establishing genuineness of such receipt, identity of parties and paying capacity was also proved. It was further noted that exemption u/s 11 of the Act could not have been denied since the amount has not been given for day to day activities but for creating a corpus in the nature of capital. The view of the CIT (Appeals) however was not based solely on this later factor. He concluded that:

3.0 In view of the above, it is clear that the investment made by the holding company in Share Capital of the Company is capital receipt and only and only because addition was made erroneously in the immediately preceding year on account of corpus fund and foot note in the return as to the corpus fund of Share Capital of Rs. 3.00 crores is mentioned, the nature of transaction cannot be changed and do not become liable to tax in any manner.

Such issue was carried in appeal before the Tribunal. The Tribunal confirmed the view of CIT(Appeals) making following observations:

We have considered the facts of the case and have gone through the submissions made by both the parties. We find that amount has been received in share capital it was necessitated for the reason that there was a directive of the SEBI for investment to be made by SKSE. The amount was received as share capital during the year under consideration and there is no dispute about the SKSE is assessed to tax. The amount is received by account payee cheque to the condition regarding genuineness, identity of the party and paying capacity of the party stands proved. Therefore, this amount cannot be taxed in the hands of assessee but it should be taxed in the hands of the stock exchange and hence the CIT(A) is justified in his action and our interference is not required.

We find that CIT (Appeals) as well as Tribunal both concurrently found that amount was received by way of share capital which was compulsorily required to be invested by SKSE as per the directives of SEBI. Payment was made through cheque. Genuineness was never doubted. Company''s capacity and identity of the buyer were also established. The amount was for the purpose of creating the share capital. Same was therefore, rightly treated as capital receipt. Tax Appeal is therefore, dismissed.