Commissioner Of Income Tax & Ors. vs Delhi Stock Exchange Association ...
2000 Latest Caselaw 791 Del

JUDGMENT

D.K. Jain, . J.

At the instance of the revenue , the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") has referred the following question under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the assessee-company's claim for exemption under section 11 of the Income Tax Act, 1961, for the whole of the assessment year 1974-75, or it should have been granted with effect from 1-12-1973, in view of the amendment of clause (xiv) of article. 103 of the articles of association of the company effected on I-12-1973, prohibiting distribution of dividends to the members ?"

2. The respondent-assessee is a public limited company formed with the object of promoting and regulating business of shares, stocks and securities. Since its incorporation, it is engaged in the business of stock exchange. The assessment year involved is 1974-75 for which the relevant accounting period ended on 31-3-1974. As in the past, the assessee claimed exemption under section 11 of the Act in respect of the income derived from enlistment fees and renewal fees received from the members of the stock exchange during the relevant previous year. The claim for exemption was, however, disallowed by the assessing officer on the ground that in the earlier years the Tribunal had held that the assessee was not entitled to the said exemption because there was no prohibition in the articles of association of the company against distribution of its profits by way of dividend or interest to the members.

2. The respondent-assessee is a public limited company formed with the object of promoting and regulating business of shares, stocks and securities. Since its incorporation, it is engaged in the business of stock exchange. The assessment year involved is 1974-75 for which the relevant accounting period ended on 31-3-1974. As in the past, the assessee claimed exemption under section 11 of the Act in respect of the income derived from enlistment fees and renewal fees received from the members of the stock exchange during the relevant previous year. The claim for exemption was, however, disallowed by the assessing officer on the ground that in the earlier years the Tribunal had held that the assessee was not entitled to the said exemption because there was no prohibition in the articles of association of the company against distribution of its profits by way of dividend or interest to the members.

Being aggrieved, the assessee preferred appeal to the Appellate Assistant Commissioner (hereinafter referred to as Appellate Assistant Commissioner). The Appellate Assistant Commissioner noticed that in the year under consideration there was a marked difference on facts as the assessee had amended its memorandum and articles of association at an extraordinary general body meeting held in December, 1973, whereby a clause prohibiting distribution of profits by way of interest or dividend in cash or in kind to the members, so long as the Central Government prohibited said distribution, was incorporated in article 103 of the articles of association. The Appellate Assistant Commissioner felt that in view of the said amendment the decision of the Tribunal in respect of the earlier years would not stand in the way of granting exemption to the assessee under section 11 of the Act. He accordingly accepted the claim of the assessee.

3. Being aggrieved the revenue took the matter in further appeal to the Tribunal. The sole grievance of the revenue before the Tribunal was that under the amended articles of association the exemption under section 11 of the Act was admissible to the assessee only from December, 1973, when the articles of association were amended and not in respect of the period prior to the said date. In other words, according to the revenue the exemption was admissible only for a part of the year and not for the whole of the year under consideration. The stand of the revenue did not find favour with the Tribunal. The Tribunal observed that the said amendment having taken place in the relevant accounting period i.e., commencing from 1-4-1973, and ending on 31-3-1974, the amendment covered the whole of the financial year 1973-74 and, therefore, the income for the whole of the assessment year was entitled to exemption under section 11 of the Act. On revenue's moving the Tribunal under section 256(1) of the Act the question stated hereinabove has been referred.

3. Being aggrieved the revenue took the matter in further appeal to the Tribunal. The sole grievance of the revenue before the Tribunal was that under the amended articles of association the exemption under section 11 of the Act was admissible to the assessee only from December, 1973, when the articles of association were amended and not in respect of the period prior to the said date. In other words, according to the revenue the exemption was admissible only for a part of the year and not for the whole of the year under consideration. The stand of the revenue did not find favour with the Tribunal. The Tribunal observed that the said amendment having taken place in the relevant accounting period i.e., commencing from 1-4-1973, and ending on 31-3-1974, the amendment covered the whole of the financial year 1973-74 and, therefore, the income for the whole of the assessment year was entitled to exemption under section 11 of the Act. On revenue's moving the Tribunal under section 256(1) of the Act the question stated hereinabove has been referred.

4. We have heard Mr. R.C. Pandey, learned counsel for the revenue and Mr. M.S. Syali, learned senior counsel for the assessee.

4. We have heard Mr. R.C. Pandey, learned counsel for the revenue and Mr. M.S. Syali, learned senior counsel for the assessee.

5. It is evident from the question proposed and referred at the instance of the revenue that it does not have any objection to the amendment carried out by the assessee in the memorandum and articles of association as also to the grant of exemption under section 11 of the Act after the said amendment with effect from 1-12-1973. Therefore, the only question which needs consideration is whether the said exemption is to be restricted only to a part of the year when the said amendment was carried out or it would apply to the income for the whole of the previous year relevant to the assessment year 1974-75.

5. It is evident from the question proposed and referred at the instance of the revenue that it does not have any objection to the amendment carried out by the assessee in the memorandum and articles of association as also to the grant of exemption under section 11 of the Act after the said amendment with effect from 1-12-1973. Therefore, the only question which needs consideration is whether the said exemption is to be restricted only to a part of the year when the said amendment was carried out or it would apply to the income for the whole of the previous year relevant to the assessment year 1974-75.

6. From a bare reading of section 11 of the Act, it is clear that the specified income which is not to be included in the total income of the person is the income of the previous year. Except for some special provisions, like section 188 of the Act etc., necessitating separate assessments for broken periods, the scheme of the Act contemplates only one assessment for the entire year. The total income of the assessee has to be computed for the whole of the previous year in accordance with the normal procedure prescribed under the Act and exemption under section 11 has to be allowed only in respect of that part of the income which is actually applied for the purposes of the trust in India during the previous year to which the income relates or which is deemed to have been applied to such purposes during such previous year under the option specified in the section. The balance income has to be subjected to tax as if such income were the total income for the previous year.

6. From a bare reading of section 11 of the Act, it is clear that the specified income which is not to be included in the total income of the person is the income of the previous year. Except for some special provisions, like section 188 of the Act etc., necessitating separate assessments for broken periods, the scheme of the Act contemplates only one assessment for the entire year. The total income of the assessee has to be computed for the whole of the previous year in accordance with the normal procedure prescribed under the Act and exemption under section 11 has to be allowed only in respect of that part of the income which is actually applied for the purposes of the trust in India during the previous year to which the income relates or which is deemed to have been applied to such purposes during such previous year under the option specified in the section. The balance income has to be subjected to tax as if such income were the total income for the previous year.

7. In the instant case, as noticed above, exemption under section 11 was disallowed in the past and in the present year only on the ground that the articles of association do not expressly prohibit declaration of dividend, etc., to the shareholders and not for any other reason. In our opinion, the flaw in the memorandum and articles of association which, according to the revenue , disentitled the assessee for claim under section 11, having been rectified during the previous year relevant to the assessment year 1974-75, the exemption under section 11 of the Act has to be allowed for the whole of the assessment year irrespective of the fact that the amendment took place in the midst of the previous year. We are of the view that after the said amendment had been carried out in December, 1973 the decisions of the Tribunal in respect of earlier assessment years could not be applied in respect of the present assessment year. We are, therefore, in agreement with the Tribunal that the income of the assessee for the whole of the previous year relevant to the assessment year 1974-75 is entitled to exemption under section 11 of the Act. We accordingly answer the question referred in the affirmative i.e., in favour of the assessee and against the revenue . There will, however, be no order as to costs.

7. In the instant case, as noticed above, exemption under section 11 was disallowed in the past and in the present year only on the ground that the articles of association do not expressly prohibit declaration of dividend, etc., to the shareholders and not for any other reason. In our opinion, the flaw in the memorandum and articles of association which, according to the revenue , disentitled the assessee for claim under section 11, having been rectified during the previous year relevant to the assessment year 1974-75, the exemption under section 11 of the Act has to be allowed for the whole of the assessment year irrespective of the fact that the amendment took place in the midst of the previous year. We are of the view that after the said amendment had been carried out in December, 1973 the decisions of the Tribunal in respect of earlier assessment years could not be applied in respect of the present assessment year. We are, therefore, in agreement with the Tribunal that the income of the assessee for the whole of the previous year relevant to the assessment year 1974-75 is entitled to exemption under section 11 of the Act. We accordingly answer the question referred in the affirmative i.e., in favour of the assessee and against the revenue . There will, however, be no order as to costs.