The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that Multi Commodity Exchange (MCX) Investment Protection Fund is eligible for income tax exemption.
The bench of Saktijit Dey (Vice President) and Amarjit Singh (Accountant Member) while dismissing the income tax department’s appeal regarding the applicability of the proviso to section 2(15) and the eligibility for benefits under section 11 of the Income Tax Act. The decision aligns with the earlier ruling in the NCDEX Investor (Client) Protection Fund case, reinforcing that the Fund operates as a public charitable entity with its contributions directed towards the benefit of the general public.
The bench’s ruling is a step forward in ensuring that such investor protection funds continue to receive the tax exemptions they are entitled to, further promoting the protection welfare of the investor community at large.
The respondent/assesssee, Multi Commodity Exchange Investor Protection Fund, e-filed its return of income on 30.09.2014 declaring total income at Rs. Nil. The case was subject to scrutiny assessment and notice was issued.
The trust was registered with the Directorate of Income Tax (Exemption), Mumbai under section 12A of the Act and it was also registered with the Charity Commissioner, Mumbai.
The assessee trust was formed to promote business activity of Multi Commodity Exchange (MCX) in the form of boosting confidence of investors in MCX as per the mandatory requirement of Forward Market Commission (FMC)/SEBI to attract more investors/clients/players to maximize profits of MCX and the income of the trust was in the form of contributions received from the MCX and its members.
During the course of assessment, the AO asked the assessee to explain why its income be not assessed as profit and gains of business and the exemption claimed under section 11 of the Income Tax Act be not denied to it.
However, the AO has not agreed with the submission of the assessee and held that its activities were not charitable. The AO was also of the view that assessee trust was set up as per SEBI/FMC guidelines which was not a voluntary activity. The assessing officer also of the view that activity of the assessee trust was for the benefit of related parties mentioned in section 13(3) as it was settled by MCX and beneficiaries were MCX and members and investors.
Therefore, assessing officer opined that activities of the assessee was not for the benefit of public at large but the same was for the benefit of its members those who made contribution to the funds of the assessee.
Alternatively, the AO also held that activity of the assessee was also hit by section 2(15) of the Act as the assessee was charging contribution charges and penalty towards profiting or rendering of services. Therefore, it was deemed to be engaged in various commercial activities which prima facie were in the nature of business. Since the object or activity of the assessee falls under the category of “advaancement of any other object of general public utility therefore the AO held that it has been found to be engaged in any commercial activities for a fees or cess either direct or indirect and also the receipt from such commercial activities were more than Rs. 25 lakh.
Therefore, the proviso to section 2(15) of the Income Tax Act was attracted. Accordingly, the receipt of the assessee was treated by the assessing officer as business profit and exemption claimed u/s 11 of the Income Tax Act was not allowed to the assessee.
The assessee filed an appeal before the CIT(A). The CIT(A) has dismissed the appeal filed by the assessee stating that assessee had not complied with hearing notices and concurring with the view of the AO held that assessee trust was not eligible for exemption u/s 11 of the Act.
The assessee filed appeal before the ITAT. The ITAT vide order dated 19.03.2020 (ITA No. 861/Mum/2020) restored the issue to the file of ld. CIT(A) for deciding on merit. The ld. CIT(A) held that the assessee is eligible for exemption u/s 11 of the Act and directed the AO to allow the same.
The tribunal while dismissing the appeal held that the assessing officer has nowhere demonstrated how the activities of the assessee trusts were for the benefit of persons covered u/s 13(3) r.w.s. 13(1)(c) of the Act. The CBDT vide Notification No. 77/2023/F-173/105/2013-ITA-1 dated 12.09.2023 specified that the Multi Commodity Exchange Investors Protection Fund Trust was set up by multi commodity exchange Ltd., Mumbai for the purpose of section 10(23EC) for the A.Y. 2014-15.
Case Details
Case Title: DCIT Versus Multi Commodity Exchange Investor Protection Fund
Case No.: ITA No. 3262/Mum/2024 (A.Y. 2014-15)
Date: 04.12.2024
Counsel For Appellant: Tanzil Padvekar
Counsel For Respondent: R.R. Makwana
