Vildirect: IncomeTax-caselaws-1990-VIL-79-ITAT-AHM

1990-VIL-79-ITAT-AHM

Equivalent Citation: ITD 074, 001, TTJ 068, 596,

Income Tax Appellate Tribunal AHMEDABAD

Date: 24.06.1990

STOCK EXCHANGE AHMEDABAD

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Member(s) : GOPAL CHOWDHURY., T. N. CHOPRA.

JUDGMENT

Per Shri T.N. Chopra, A.M. --- These seven appeals filed by the assessee relate to assessment years 1989-90 to 1995-96. The central issue involved in these appeals is regarding claim of exemption under section 11 of the Income-tax Act, 1961. The claim of exemption has been rejected by the tax authorities against which the assessee being aggrieved has filed these appeals.

2. On behalf of the assessee Shri S.N. Soparkar, the learned counsel for the assessee, attended along with Shri M.G. Patel. Written submissions along with paper books in two volumes have been filed. On behalf of the Department Shri Dilip Shivpuri, Senior Departmental Representative argued the matter.

3. At the outset it would be useful to set out the relevant facts in brief. The assessee is an unregistered association of members who are stock brokers engaged in the business of buying and selling of shares and securities for and on behalf of their customers.

4. The assessee-trust has been constituted as a public charitable trust under a deed of trust executed on 27-2-1942 whereunder the immovable/ movable properties of the Ahmedabad Share and Stock Broker's Association, formed in 1894, have been vested upon trust on the trustees appointed by the General Meeting of the Ahmedabad Share and Stock Broker's Association for holding the same for all times for the objects and in accordance with the Rules and Regulations as sanctioned by the Government of Bombay on 1-5-1939 under the provisions of The Bombay Securities, Contract (Control) Act.

5. The assessee has framed Rules, Bye-laws and Regulations for the purpose of carrying out its activities and the same are approved by the Government of India under the Securities, Contract (Regulations) Act, 1956 vide its letter dated 1st May, 1959. The assessee has been recognised as a Recognised Stock Exchange under section 3 of the Securities, Contract (Regulations) Act, 1956. Further, the assessee had applied for registration under section 12A of the Income-tax Act, 1961 on 12-6-1973 and the Commissioner of Income-tax, Gujarat-II, Ahmedabad has granted registration vide order dated 25-8-1977.

6. In the earlier years the claim for exemption of income under the Income-tax Act has been accepted from assessment year 1959-60 onwards. For assessment years 1959-60 to 1963-64 orders of the Commissioner of Income-tax (Appeals) dated 16-2-1971 accepting the claim of exemption appear at pages 36 to 43 of the paper book. For assessment years 1964-65 to 1966-67 the CIT(A) vide order dated 31-3-1971 accepted the claim of exemption under section 11 as per the appellate order appearing at pages 45 and 46 of the paper book. For subsequent assessment years 1967-68 to 1984-85 the claim of exemption has been accepted by the Assessing Officer at the assessment stage itself.

7. For assessment years 1985-86 to 1988-89 the Government of India issued the Notification dated 11th September, 1987 whereby the assessee association was notified for the purposes of section 10(23C)(iv) for assessment years 1985-86 to 1988-89. For the subsequent assessment years, however, the Central Board of Direct Taxes declined to issue the Notification and the matter is pending by way of Writ Petition before the Hon'ble Gujarat High Court.

8. For the assessment years 1989-90 to 1995-96 to which the present appeals pertain, the claim of exemption under section 11 has been rejected by the Assessing Officer and the action has been upheld by the CIT(A).

9. For appreciating the controversy before us it would be necessary to refer to the objects of the assessee association as also its constitution as reflected in the Rules, Bye-laws and Regulations under which the assessee Stock Exchange has been constituted. The Bye-laws and Regulations deal with the machinery for buying and selling of shares and stocks by the members of the Association whereas the Rules from the constitution of the Association. These Rules and Regulations and bye-laws constitute the totality of the provisions governing the assessee-association.

10. Rule 4 of the assessee Association spells out the aims and objects of the Association. Clause (i) of Rule 4 contains the primary object of the Association and reads as under :---

"The Exchange is established ---

(i) to support and protect in the public interest the character and status of brokers and dealers and to further the interests both of brokers and dealers and of the public interested in securities, to assist, regulate and control in the public interest dealings in securities to ensure fair dealing, to maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices and just and equitable principles of trade and business, to discourage and to suppress malpractices, to settle disputes and to decide all questions of usage, custom or courtesy in the conduct of trade and business.

11. The General Meeting of the members of the Association elects a Governing Board which deals with the day-to-day administration of the Association. The powers of the Governing Board and the General Meeting are laid down in the relevant Rules of the assessee-association.

12. So far as the powers of the Governing Board are concerned, they are to be found in Rules 118 to 129. Clause (iv) of Rule 121 deals with the powers of the Governing Board regarding the disbursal of the funds of the Association and provides that the Government Board shall be empowered to "pay, disburse, dispose of or deal with any funds or other movable property of the Exchange for expenses for carrying on the administration, functions, workings and affairs of the Exchange and with the consent of the Exchange in general meeting for expenses other than such expenses and for contribution or payment towards a charitable or public purpose". The Governing Board has thus no power to utilise the funds of the Exchange for any purpose other than the two specific purposes contained in the sub-clause above viz., administration of the Exchange and contribution towards charitable or public purpose. The Governing Board cannot distribute the profits of the Exchange amongst-the members in any form whatsoever. Prior to amendment clause (iv) read as under :---

"to pay, disburse, dispose of or deal with any funds or other movable property of the Exchange for expenses necessary for carrying on the administration and business of the Exchange and with the consent of the Exchange in general meeting for expenses other than such expenses and for contribution or payment towards a charitable or public purpose."

13. As regards the powers of the General Meeting, these powers are set out in Rules 71 to 90. Clause (v) of Rule 74 deals with the powers in respect of payment and disbursal of funds of the Association. For dealing with funds clause (v) as amended on 13-2-1998 provides that sanction of the General Meeting would be necessary for "payment, disbursement, disposal of or dealing with any funds or other movable property of the Exchange for contribution of payment towards a charitable or public purpose or for expenses other than the expenses necessary for carrying on the administration, functions working and affairs of the Exchange; proved a resolution for this has been adopted at a general meeting called for the purpose at which a quorum of not less than fifty-two members is present and provided always that either during existence of the Exchange or on its dissolution, no payment or disbursement could be made directly or indirectly by way of dividend, bonus, or otherwise by way of profits or by way of distribution of assets to the members of the Exchange or to any one or more of them or to any person claiming through any one or more of them. Prior to amendment clause (v) read as under :---

"(v) Payment, disbursement, disposal of or dealing with any funds or other movable property of the Exchange for contribution or payment towards a charitable or public purpose or for expenses other than the expenses necessary for carrying on the administration and business of the Exchange; provided a resolution for this purpose has been adopted at a general meeting called for the purpose at which a quorum of not less than Fifty-two members is present."

Rule 74 thus empowers the General Meeting to sanction payment for two specific purposes viz., payment for contribution towards a charitable or other public purpose and expenses other than expenses necessary for carrying on the administrative functions of the Exchange. Thus, even the General Meeting is not empowered to distribute the profits of the Association among the members of the Association. The aforesaid amendments of the Rules has been approved by the Securities and Exchange Board of India (for short the SEBI), vide its letter dated January 12, 1999 the SEBI wrote to the assessee Exchange to the effect that the amendments made in rules 74 and 121 of the Exchange are merely clarificatory in nature and the amendments need not be published in the Official Gazette for being effective.

14. The main grounds on which exemption under section 11 has been denied by the tax authorities are that there is no restrictive provision in the trust deed prohibiting the institution from the distribution of profits to the members and in absence of such provision exemption under section 11 cannot be allowed. The decision of the Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235/91 Taxman 273 has been relied upon in support of this contention. It is further stated that the amendments of Rules 4,74 and 121 of the assessee Exchange made in 1998 cannot have retrospective effect and, therefore, the unamended Rules would be operative for the assessment years under appeal.

15. Shri S.N. Soparkar, the learned counsel appearing on behalf of the assessee Stock Exchange, strongly urged that the primary objective of the assessee is the control and development of the stock market which is beyond any doubt an object of general public utility and is covered as a charitable purpose as defined under section 2(15) of the Income-tax Act, 1961. The learned counsel assailed the order of the tax authorities declining grant of exemption under section 11 mainly on the following grounds :---

(i) The assessee Association has been granted registration under section 12A by the Commissioner of Income-tax and once registration is allowed under section 12A, the Assessing Officer is not entitled to deny the exemption on the ground that objects of the trust are not charitable. In support of this contention, reliance is placed on the following decisions :---

(a) ITO v. Mrs. Dwarika Prasad Trust [1989] 30 ITD 84 (Delhi) (TM);

(b) Ananda Marga Pracharaka Sangha v. CIT [1994] 76 Taxman 88/[1996] 218 ITR 254 (Cal.);

(d) CIT v. Ganapatrai Sagarmal [1989] 45 Taxman 285/[1990] 182 ITR 89 (Cal.).

(ii) Since the department has granted the exemption under section 11 for the past many years and the Government of India had even issued Notification under section 10(23C)(iv), there is no justification for making a departure for the assessment years under reference when the facts and circumstances of the assessee's case are identical with the earlier years and no new facts have been brought on record by the Income-tax Department in support of its view that the assessee is not a charitable organisation. The principle of res judicata applies. Reliance is placed on the following decisions :---

(a) Radhasoami Satsangh v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC);

(b) CIT v. Bhilai Engg. Corpn. P. Ltd. [1982] 133 ITR 687 (MP);

(d) Burmah Shell Refinery Ltd. v. G.B. Chand, ITO [1966] 61 ITR 493 (Bom.),

(e) CIT v. P. Krishna Warriar [1994] 208 ITR 823 (Ker.),

(f) CIT v. Shri Agastyar Trust [1984] 149 ITR 609/18 Taxman 178 (Mad.),

(g) H.A. Shah & Co. v. CIT/CEPT [1956] 30 ITR 618 (Bom.).

(iii) The amendments made in Rules 4,74 and 121 of the Rules of the assessee Exchange have been duly approved by the SEBI under section 7A of the Securities, Contracts (Regulation) Act, 1956 and since the rules are clarificatory in nature, they take retrospective effect. The learned counsel relied upon the following decisions :---

(a) Laxminarain Lath Trust v. CIT [1988] 170 ITR 375/33 Taxman 194 (Raj.);

(b) Jagdamba Charity Trust v. CIT [1981] 128 ITR 377 (Delhi).

Under the Rules, the Governing Board or the General Body did not have any power to distribute profits or assets of the Exchange among the members.

(iv) The publication of the amendments in the Official Gazette was not necessary in the assessee's case and, therefore, non-publication is not fatal for operation of the amended Rules.

(v) Various Stock Exchanges have been held to be charitable institutions entitled to exemption under section 11 of the Income-tax Act, 1961 since the basic objective of development of capital market is squarely covered under the definition of 'charitable purpose' as contained under section 2(15) of the I.T. Act. Reliance is placed on the following decisions :---

(a) CIT v. Madras Stock Exchange Ltd. [1981] 130 ITR 184/7 Taxman 27 (SC);

(b) CIT v. Bangalore Stock Exchange Ltd. [1978] 115 ITR 493(kar);

(d) ACIT v. Pune Stock Exchange [ITA Appeal Nos. 94 and 95 (PN) of 1989 dated 16-8-1996.]

16. Shri Dilip Shivpuri, the ld. DR. supporting the order of the CIT(A) strongly urged that the decision of the Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Ltd. squarely applies to the facts of the instant case. The ld. D.R. argued that the amendments made in the Rules of the assessee-association in February, 1998 cannot be treated as retrospective in character since these amendments are substantial in nature and alter the very essence and character of the institution. The ld. DR. referred to the Full Bench decision of Delhi High Court in the case of Bhriguraj Charity Trust v. CIT [1997] 228 ITR 50 and argued that the amendments would have prospective effect from February, 1998 onwards. The ld. D.R. next made a pointed reference to Rule 4(x) of the assessee-association which provides that one of the objects of the assessee trust is to establish and start funds and trusts for the benefit of members or ex-members, employees or ex-employees or the dependent or connections of such persons, etc. and strongly argued that the object is clearly non-charitable in nature and exemption under section 11 cannot be allowed.

17. We have given our thoughtful consideration to the rival contentions made before us. We have also gone through the Rules and Bye-laws of the assessee-association as well as the string of judicial pronouncements of various High Courts and Supreme Court cited before us on both sides. The assessee-association is a Recognised Stock Exchange under the Securities, Contracts (Regulation) Act, 1956 and has been constituted for the purpose of developing the stock market. There is no disputing the proposition that the basic objective of the Stock Exchange being development of the stock market is covered under the definition of 'charitable purpose' as contained under section 2(15) of the Income-tax Act. With the fast pace of industrialisation and the emerging recent trends of liberalisation and globalisation in the national economy, capital market would obviously be a potent tool for giving an impetus to development of commerce and industry. Stock market, while regulating and controlling the business of buying or selling of shares, debentures and other securities, considerably facilitate resource mobilisation by the industrial sector. The inflow of private savings into the corporate sector as well as the inflow of foreign capital into the various sectors of industry are aided and promoted by an efficient and developed capital market. In this view of the matter, various stock exchanges have been recognised as charitable institutions entitled to exemption under section 11. Thus, the dominant objective of the assessee-exchange is clearly covered as a charitable object for the purpose of exemption of income under section 11.

18. We have reproduced hereinbefore Rule 74(v) and Rule 121 (iv) prior to amendment thereof in February, 1998 as well as the amended Rules governing the assessee-association. In our opinion, the amendment of these rules, which received the approval of SEBI vide letter dated 9-3-1998 were clearly clarificatory in nature and did not in any manner alter the basic character of the assessee institution. Prior to the amendment, both the bodies viz., General Meeting as well as the Governing Board did not have powers to distribute profits of the Association among the members and this position has been further emphasised and clarified by amendments of Rules 74(v) and 121 (iv). The amendments do not in any manner modify or restrict the powers of the assessee Association with regard to dealing with the funds of the Association. It cannot be said that the amendments made in the Rules divested the General Meeting or the Governing Board of any powers including distribution of profits among the members which might have vested in these bodies prior to the amendment. The learned Departmental Representative strongly assailed the retrospectivity of the amendments in the rules by relying upon the decisions of the Supreme Court in CIT v. Kamala Town Trust [1996] 217 ITR 699/84 Taxman 248 and Delhi High Court decision in the case of Bhriguraj Charity Trust. In our opinion, since the amendments of the Rules are merely clarificatory in nature and do not alter the basic essence and character of the assessee-association, the amendments are to be treated as retrospective in nature. The decisions cited by the ld. D.R. are clearly distinguishable on facts. In Kamla Town Trust's case the rectification of the trust deed has been held to be prospective upon the concession by the assessee before the Hon'ble Supreme Court. In Bhriguraj Charity Trust's case the assessee trust prior to amendment of the trust deed was not a charitable trust. Subsequently the trust deed was rectified so as to exclude the non-charitable objects and in the context of these facts the Delhi High Court held that the rectification would have prospective operation. The case is clearly distinguishable and does not render any assistance to the departmental case before us.

19. We may refer to the decision of the Delhi High Court in the case of Jagdamba Charity Trust relied upon by the ld. counsel for the assessee before us. The retrospective operation of the rectification has been upheld by the Delhi High court in the facts and circumstances of the case. This decision has been approvingly referred by the Supreme Court in Kamla Town Trust's case.

20. On behalf of the department a plea has been taken before us that the amendment of the Rules, even after approval by the SEBI, remains inoperative in the instant case due to the fact that it has not been published in the Official Gazette as required under section 7A of the Securities Contracts (Regulation) Act, 1956. The contention is without substance and is rejected. Sub-section (2) of section 7A of the Securities Contracts (Regulation) Act, 1956 provides inter alia that amendment of Rules in relation to any matter referred to in clauses (a) to (a) of sub-sec. (1) shall have effect if it has been approved by the Central Government and published in the Official Gazette. The amendment of Rules 74(v) and 121 (iv) was not covered under the clauses (a) to (a) of sub-section (1) and therefore there is no mandatory requirement for getting the amendments published in the Official Gazette. The approval of SEBI is the sole requirement and the said requirement has been fulfilled in the instant case. Therefore, the amendments as made in the rules of the assessee-association have been validly made and become operative with retrospective effect as held by us above.

21. Shri Dilip Shivpuri, the ld. D.R has taken great pains to support the case of the Revenue and the main thrust of his argument before us is that the assessee-association is not entitled to exemption under section 11 in the absence of any prohibition clause in the constitution of the Association against distribution of profits or assets of the assessee-exchange among its members. In support of his submission Shri Shivpuri heavily relied upon the recent judgment of the Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Ltd.'s case. The Hon'ble Supreme Court judgment has been rendered in the context of entirely different set of facts and does not help the case of the Revenue. We have already dealt with the relevant Rules governing the assessee Association which empower the General Meeting and the Governing Board of the Exchange for dealing with the funds of the Association. Both the bodies are not empowered for distributing the profits of the Association among its members and any such distribution would be violative of the objects of the Association as well as the powers vested with the General Meeting and the Governing Board under the Rules of the Association. In Delhi Stock Exchange Association Ltd.'s case the basic fact having crucial relevance was that the assessee exchange was a company limited by shares and unless there is specific prohibition in the Memorandum of Association and Articles of Association of the company, the company had the statutory powers under the Companies Act, 1956 to declare dividend among its shareholders. There was no such specific prohibition in the Articles of Association of Delhi Stock Exchange against declaration of dividend among its shareholders. The claim of exemption under section 11 was therefore, denied. In the instant case before us, it has to be borne in mind that the assessee-exchange is not a limited company under the Companies Act and, therefore, declaration of dividend is not an automatic power statutorily conferred under the Companies Act. The assessee is governed by its rules and regulations and by-laws. Such Rules and Byelaws specifically provide in clear terms for the objects of the Association as well as dealing with the funds of the Association for charitable purposes or carrying out or meeting the expenses incurred for the administration of the Exchange. Rules do not provide for distribution of profits among the members and no such distribution can, therefore, be made by the Association. The Hon'ble Supreme Court judgment, therefore, does not apply to the facts of the instant case.

22. We may now deal with the effect of grant of registration by the CIT under section 12A of the I.T. Act in so far as the basic issue of exemption under section 11 of the I.T. Act is concerned. Section 12A of the Act provides that for claiming exemption under section 11 it is mandatory that an application for registration No. 10A is filed before the Commissioner of Income-tax along with the instrument under which the institution is established accompanied with the accounts of the institution relating to such prior year or years for which such accounts have been made up. The grant of registration by the CIT under section 12A does not constitute an empty formality which is to be completed within a routine and mechanical fashion by the CIT without any scrutiny regarding the charitable nature of the trust or institution required to be registered under the I.T. Act. In the instant case the CIT granted registration to the assessee-association vide order dated 1-6-1987 even though the application for registration was out of time by 13 years and 10 months. The information and details furnished along with the application for registration have obviously been scrutinised by the CIT while granting registration. It goes without saying that registration under section 12A is to be granted only if the CIT is satisfied that the trust or the institution is a charitable institution and its objects are covered as charitable as per the definition of "charitable purposes' contained under section 2(15) of the I.T. Act. Once the institution has been registered under' section 12A it is for the Assessing Officer to find out whether the income of the institution has been applied for the objects of the institution and the statutory conditions as contained under sections 11 to 13 are fulfilled by the assessee. In our opinion, it is beyond the province of the Assessing Officer to reject the claim of exemption under section 11 by looking into the objects of the Association and holding the same as non-charitable in nature. In support of the view being taken by us here, reliance is placed on the judgment of Calcutta High Court in Ananda Marga Pracharaka Sangha's case. At page 270 of the report Their Lordships observed as follows :---

". . . It may be mentioned here that the registration of the charitable society as a charitable society under section 12A is not an idle or empty formality. This is apparent from the tenor of the provisions of section 12A. It requires that not only an application should be filed in the prescribed form setting out the details of the origin of the trust but also the names and addresses of the trustees and/or managers. The form further requires a certified copy of the instrument of its creation as well as two copies of the latest accounts of the applicant-trust or institution for as far back as three years to accompany each application. The requirement of obtaining the details as also the copies of the past accounts cannot be said to be a ceremonial one. The purpose is to examine the objects of creation as well as an empirical study of the past activities of the applicant for three years where the application is made belatedly so that the Commissioner could come to a conclusion on examination of all the factors that the applicant is really a charitable trust or institution eligible for registration. . . ."

Similar view has been taken by the Third Member of the Tribunal in the case of Mrs. Dwarkaprasad Trust relied upon by the ld. counsel. The decisions of the Allahabad High Court in Fifth General Education Society's case and Calcutta High Court in Ganpatrai Sagarmal case have taken similar view in the matter. In view of the aforesaid discussion, we feel that after allowing registration under section 12A it is not for the Assessing Officer to deny exemption under section 11 on the ground that the assessee Association is not charitable in nature.

23. It is further to be noted that the assessee-association has been notified for exemption under section 10(23C)(iv) by the CBDT on 9-9-1987 for assessment years 1985-86 to 1988-89. Obviously the instrument under which the Association has been constituted as well as its Rules, Bye-laws and Regulations have been examined by the Revenue authorities while granting registration under section 12A as well as exemption under section 10(23C)(iv). We see no reason why a contrary view is being taken by the Revenue authorities in the context of identical facts and circumstances for the assessment years under appeal. There is no quarrel with the proposition that the doctrine of res judicata is not applicable to income-tax proceedings. However, this principle is subject to limitations for there should be finality and certainty in all litigations including litigation arising out of the Income-tax Act and an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse and if it has been arrived at after due inquiry. The assessee exchange has been allowed exemption from taxation right since assessment year 1959-60 onwards. For a period exceeding 15 years the assessee has been treated as a charitable institution for the purposes of claiming exemption under the I.T. Act. We see no justifiable ground for the Revenue to turn a somersault and treat the assessee-exchange as a non-charitable organisation for the assessment years under appeal. Certainty and finality are the most essential attributes of tax jurisprudence. It has not been shown in this case that the earlier decisions were either arbitrary or perverse and this was not a proper case in which the Revenue should have gone back on its approach adopted for well over two decades.

24. In respect of charities, courts apply the doctrine of cy press which envisages that where a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed and the law will substitute another mode of cy press. The said doctrine is applied on the principle that the court would lean in favour of charity and where a general charitable goal is projected and particular objects and modes are indicated, the court, acting to fulfil the broader benevolence of the donor and to avert the frustration of the good to the community, reconstructs as nearly as may be, the charitable intent and makes viable what otherwise may die---State of U.P. v. Bansidhar AIR 1974 SC 1084. In our opinion, it was permissible for the assessee-exchange to clarify the Rules governing the Association and it cannot be said that the exemption granted to the assessee-association for the last many years can be denied on such hyper technical grounds as absence of specific provision in the Rules against distribution of profits to the members of Association.

25. Another contention raised by the ld. D.R. which remains to be considered by us concerns Rule 4(x) contained in the Rules governing the assessee-association. The ld. D.R. argued that one of the objects of the assessee trust as per Rule 4(x) is to establish and support funds, trust and conveyance for the benefit of members or ex-members, employees or ex-employees or the dependents or connections of such persons etc. and since this object is non-charitable in nature, the assessee Association cannot be regarded as a charitable trust. We have carefully perused Rule 4 of the Association which bears the heading 'Objects'. Clause (i) of Rule 4 spells out the dominant objective of the assessee Association viz., to regulate and control the dealings in securities and to protect and promote the interest of brokers and dealers in the public interest. Further clauses of Rule 4 bear the headings viz., 'Buildings', 'Acquisition of property', 'Safe Deposit Vaults', 'Licence and Privileges', 'Information and Publications', 'Borrowings of Moneys' and 'Incidental Powers', etc. These clauses are apparently incorporated in the Rules by way of spelling out the powers of the Association which are to be exercised for achieving the model objective of conducting a Stock Exchange at Ahmedabad. Clause (x) referred by the ld. D.R. bears the heading 'Funds and Trusts'. Even if this clause is considered as an object of the trust, it is to be borne in mind that the charitable trust is entitled to establish funds, trusts and other conveyances for the benefit of a class of persons. So if a trade association is a charitable trust, certainly there could be a trust for the benefit of the members or employees, both present and past of such association. The inclusive definition of 'charitable purpose' has been given under section 2(15) of the I.T. Act and the expression 'general public' used in the subsection would cover an ascertainable segment of the general public.

26. Rule 4(x), in our opinion, does not militate against the assessee Association being a charitable institution. We find that in the case of Jaipur Stock Exchange Ltd. v. ITO [1995] 54 ITD 589 (Jp) a similar issue was raised on behalf of the Revenue and the Jaipur Bench of the Tribunal observed that the establishment of a fund or trust for the exclusive benefit of the members or employees or ex-members or ex-employees or their dependents and connections is a possible event that may or may not happen in future and further that the Stock Exchange is not under any obligation to establish such fund or trust for the members or employees etc. According to the Tribunal, such clause would not be fatal to the claim of exemption under section 11 of the Trust. In the instant case before us the clause under question is similarly worded and we think that such an ancillary clause which confers a power on the assessee Association to create a fund or trust for the benefit of members, ex-members or employees etc. may be construed as an ancillary or subsidiary clause which is intended to further and advance the dominant objective of the Association viz., promotion of the interest of brokers and dealers in the stock market so as to develop the capital market in the general public interest. We are fortified in our view by the decision of the Hon'ble Supreme Court in CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC) wherein it was held that the mere existence in article 39 of the Articles of Association of the assessee company of the powers of the General Meeting of the company to set apart the entire profits or a substantial part thereof for reserves would not, without more, vitiate the charitable nature of the institution. It is well established that where there are obligatory functions as well as optional or discretionary functions that could be undertaken by the trustees, it would be wrong to pick out one and to say that, that is the primary or dominant object or purpose. All the clauses of the relevant document will have to be considered in the light of the main objects sought to be achieved. Reference may be made to the following judgments in support of this proposition :---

(1) CIT v. Bar Council of Maharashtra [1981] 130 ITR 28 (SC) (refer pages 36-37);

(2) Madras Stock Exchange Ltd.'s case ;

(3) Addl CIT v. Delhi Brick Kiln Owners Association [1981] 130 ITR 55 (Delhi).

The primary or dominant objects of the assessee-exchange as clearly stated in Rule 4(i) is to conduct a Stock Exchange and develop an efficient capital market in the general public interest. Clause (i) is thus the key object and other clauses of Rule 4 are ancillary or incidental to this primary or dominant purpose of the assessee Stock Exchange. The clause (x) of Rule (4) would not, in our opinion, frustrate the charitable object of the assessee institution. The contention of the ld. D.R. based on Rule 4(x) is, therefore, rejected.

27. For the reasons discussed above and particularly keeping in view the various judicial pronouncements on the issue considered by us as above, we hold that the assessee is entitled to the claim of exemption under section 11 of the I.T. Act. Various other grounds contained in the grounds of appeal for the assessment years under reference have not been argued by the ld. Counsel for the assessee and these grounds were not pressed for our adjudication. We would, accordingly, hold that the assessee Association is a charitable institution under section 11(1) of the I.T. Act and would be entitled to exemption if the other conditions regarding application of income as per the provisions of sections 11 to 13 are satisfied in the instant case. With these observations, all the appeals art, allowed pro tanto.

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