SINO SECURITIES P.LTD, MUMBAI V. ITO 4(2)(4), MUMBAI

CO 69/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7512 (ITAT-MUMBAI)
• Duration Of Justice: 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 14-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURALI
• Assessee Lawyers: R J VAZIRANI
• Keywords: Depreciation; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.5310/MUM/2011 ASSESSMENT YEAR: 2008-2009 ITO 4(2)(4), MUMBAI-20 SINO SECURITIES P. LTD., 97/99, MUMBAI SAMACHAR MARG, FORT, MUMBAI-400 023. PAN NO.AADCS 4495 V APPELLANT VS. RESPONDENT AND CO NO.69/MUM/2012 ASSESSMENT YEAR: 2008-2009 SINO SECURITIES P. LTD., 97/99, MUMBAI SAMACHAR MARG, FORT, MUMBAI-400 023. PAN NO.AADCS 4495 V ITO 4(2)(4), MUMBAI-20 APPELLANT VS. RESPONDENT APPELLANT-DEPARTMENT BY : MR. M. MURALI RESPONDENT-ASSESSEE BY : MR. R.J.VAZIRANI DATE OF HEARING : 29 TH MAY 2012 DATE OF PRONOUNCEMENT : 8 TH JUNE, 2012 O R D E R PER AMIT SHUKLA (J.M.) : THIS APPEAL IS ARISING OUT OF ORDER DATED 24-5-2011, PASSED BY THE CIT(A)-8, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) FOR THE ASSESSM ENT YEAR 2008-2009.THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL :- ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION ON BSE CARD AMOUNTING TO ` .9,76,359/- AS THE BSE CARD CEASED TO EXIST AFTER DEMUTUALIZATION IN 2005-2006. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER OF THE LD. CIT(A) BEING CONTRARY TO LAW MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE ONLY ISSUE INVOLVED IS DISALLOWANCE OF DEPRECIATION ON BSE CARD. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SHARE BROKING AND TRADING IN SHARES AND IN THE FINANCIAL YEAR 2000-01, IT HAD PURCHASED THE MEMBERSHIP CA RD IN THE CASH SEGMENT AND DERIVATIVE SEGMENT FROM BOMBAY STOCK EXCHANGE (BSE) AND CLAIMED DEPRECIATION ON THE SAME. THE ASSE SSING OFFICER OBSERVED THAT THE MEMBERSHIP RIGHT ON THE BSE (CO MMONLY KNOWN AS THE BSE CARD) GOT DEMUTUALIZED IN THE FINANCIAL YEAR 2005-2006 RELEVANT TO THE ASSESSMENT YEAR 2006-2007 AND AFTE R DEMUTUALIZATION EACH MEMBER GOT 10000 SHARES OF THE BOMBAY STOCK EXCHANGE LTD., IN LIEU OF THE CARD. THIS, INTER ALIA , MEANS THAT THE BSE CARD CEASED TO EXIST AFTER DEMUTUALIZATION. THUS, TRANSFER OF ME MBERSHIP RIGHT IN LIEU OF SHARES WAS NOT CONSIDERED AS TRANSFER AS PER THE PROVISION OF SECTION 47 (XIIIA). THE ASSESSEE CONTENDED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S TECHNO SHARES & STOCKS LTD., REPORTED IN 193 TAX MAN 2 43 , IS IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 3 M/S TECHNO SHARES AND STOCKS LTD. (SUPRA) WILL APPLY PRIOR TO THE PERIOD OF DEMUTUALIZATION OF BOMBAY STOCK EXCHANGE AND THE JUDGMENT WAS RENDERED IN RESPECT OF ASSESSMENT YEARS 1999-2000 TO 2002-2003. ACCORDINGLY, HE DISALLOWED THE DEPRECIATION OF ` .9,76,359/- ON BSE CARD. 3 . THE LEARNED CIT (A) RELYING UPON THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2007-2008, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 4 . AT THE OUTSET, BOTH THE PARTIES FAIRLY AGREED THAT THIS ISSUE HAS BEEN DECIDED BY THE ITAT MUMBAI BENC H IN THE CASE OF THE ASSESSEE IN ITA NO.6264/M/2009 & 6394/M/2009 FO R THE ASSESSMENT YEAR 2006- 2007 VIDE ORDER DATED 23-11-2011, WHEREIN THIS ISSUE HAS BEEN DISCUSSED IN DETAIL AND THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE DEPARTMENT. 5. WE HAVE CAREFULLY GONE THROUGH THE FINDINGS OF THE ORDER PASSED BY THE ASSESSING OFFICER AND ALSO TH E DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE. WE FIND THAT THIS ISSUE HAS BEEN DISCUSSED ELABORATELY AFTER ANALYZING VARIOUS PROVISIONS, THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND RELEVANT MATERIAL ON DEMUTUALIZATION, CAME TO THE FOLLOWING CONCLUSION :- 25. FROM THE ABOVE, FOLLOWING CONCLUSIONS CAN BE DRAWN. I) BSE WHICH WAS A VOLUNTARY, NOT FOR PROFIT CHARACTER OF ENTITY, GOT CONVERTED INTO A FOR PROFIT AND CORPORATE ACTIVITY; ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 4 II) BSE MEMBERSHIP CARD IS CANCELLED AND THE TWIN RIGHTS THAT A HOLDER OF BSE CARDHOLDER HAD GOT SEPARATED INTO THE FOLLOWING INDEPENDENT RIGHTS (A) OWNERSHIP RIGHTS AND (B) TRADING RIGHTS. III) THE PREVIOUS RIGHTS OF A BSE MEMBERSHIP CARDHOLDER GETS EXTINGUISHED AND IN LIEU THEREOF THE BSE MEMBER ACQUIRES SHARES IN BSEL AND TRADING RIGHTS IN BSEL; IV) UNDER SECTION 47(XIIIA), SUCH EXTINGUISHMENT OF RIGHTS AND ACQUISITION OF SHARES AND TRADING RIGHTS IN BSEL IS NOT REGARDED AS TRANSFER. V) THAT COST OF ACQUISITION OF OWNERSHIP RIGHTS AND TRADING RIGHTS WOULD HAVE TO BE SPLIT AND VALUED ON TRANSMISSION. VI) TRADING RIGHTS ARE BASED AS DEPOSIT SYSTEM AS OPPOSED TO CARD SYSTEM; VII) THE TRADING CARD SYSTEM IS REPLACED BY THE DEPOSIT SYSTEM; VIII) THE MONEY DEPOSIT BY THE MEMBER TO OBTAIN TRADING RIGHTS, IS BE CONSIDERED AS A DEPOSIT WITH STOCK EXCHANGE FOR TRADING PURPOSE; IX) VALUE OF OWNERSHIP RIGHT SHALL BE THE SHARE IN THE NET ASSETS AND GOODWILL OF THE STOCK EXCHANGE; X) THE VALUE OF DEPOSIT PLACED TO OBTAIN TRADING RIGHTS WILL BE THE VALUE OF THE RIGHT TO TRADE; XI) A TRADING MEMBER HAS TO RETAIN THE DEPOSIT AS LONG AS HE TRADES. IF A TRADING MEMBER WISHES TO TERMINATE HIS MEMBERSHIP, HE CAN DEMAND REFUND OF DEPOSIT. 26. HENCE, IT IS CLEAR THAT THE ASSET OF THE ASSESSEE, AS IT EXISTED WHILE IT WAS A BSE MEMBERSHIP CA RDHOLDER, IS DIFFE RENT FROM THE ASSETS HELD BY THE ASSESSEE AFTER CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHANGES, WHICH RESULTED IN THE ASSESSEE BECOMING A SHARE HOLDER IN BSEL. 27. THE OWNERSHIP RIGHTS OF THE ASSESSEE GIVES IT A RIGHT TO PARTICIPATE IN THE OWNERSHIP OF THE ASSETS AND MANAGEMENT OF THE STOCK EXCHANGE. THE ASSESSEE HAS BEEN GRANTED CERTAIN SHARES IN BSEL AT PAR. THE ASSESSEE HAS DI SCLOSED THEM AS INVESTMENT. RIGHTLY, THE ASSESSEE HAS NOT CLAIMED THAT THE SHARES ALLOTTED IN BSEL WAS A BUSINESS AND COMMERCIAL RIGHT OF SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE ACT. 28. COMING TO THE TRADING RIGHTS, THE REPORT OF THE GROUP ON CORPORATIZATION AND DEMUTUALIZAT ION OF STOCK EXCHANGE FIXED THE VALUE AS EQUIVALENT TO THE DEPOSIT REQUIREMENT. THE TRADING RIGHT IS A BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE ACT. ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 5 29. THE BUSINESS AND COMMERCIAL RI GHTS OF SIMILAR NATURE HELD BY THE ASSESSEE AS A HOLDER OF THE MEMBERSHIP CARD OF THE ERSTWHILE BSE NO LONGER EXISTS. THE SAME GOT EXTINGUISHED. HENCE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT NO DEPRECIATION CAN BE GRANTED ON THE WRITTEN DOWN VALUE OF THE BSE MEMBERSHIP CARD. AT BEST, THE CLAIM FOR DEPRECIATION CAN BE ON A TRADING RIGHT OF THE MEMBERS, WHIC H IS NEWLY ACQUIRED, WHICH ASPECT WE WILL DISCUSS HEREAFTER. 30. AS WE HAVE NOTICED, THE GROUP ON CORPORATISATION AND DEMUTUALIZATION OF STOCK EXCHANGES HAS SUGGESTED THE MANNER OF VALUATION OF OWNERSHIP RIGHTS AND TRADING RIGHTS. IT WAS RECOMMENDED THAT THE VALUE OF TRADING RIGHTS BE FI XED AT THE AMOUNT OF DEPOSIT THAT WAS REQUIRED FOR ACQUIRING TRADING RIGHTS. THE VALUE OF THE BSE CARD TO THE EXTENT ALLOCABLE OR ATTRIBUTABLE TO OWNERSHIP RIGHTS, CAN BE SAID TO HAVE BEEN TRANSMITTED BY WAY OF ALLOTMENT OF SHARES IN BSEL. THE VALUE IS TO BE DETERMINED BY THE UNDERLYING VALUE OF ASSETS OF BSEL OR THROUGH SOME OTHER APPROVED METHOD. 31. COMING TO TRADING RIGHTS, WE FIND THAT THE VALUE THAT CAN BE ASSIGNED FROM OUT OF THE VALUE OF BSE CARD IS ONLY TO THE EXTENT OF DEPOSIT MADE. TRADING RIGHT IS NO DOUBT A BUSINESS IN COMMERCIAL RIGHTS BUT VALUE IS EQUIVALENT TO THE QUANTUM OF DEPOSIT. THE ASSESSEE IS ENTITLED TO REFUND OF THE DEPOSIT. WHEN THE VALUE IS EQUAL TO A REFUNDABLE DEPOSIT, HOW CAN SUCH VALUE OF REFUNDABLE DEPOSIT BE DEPRECIATED WHEN THE VALUE IN REALITY DOES NOT COME DOWN. IF THE REFUNDABLE DEPOSIT IS DEDUCTED FROM THE VALUE, THEN THE PRESENT VALUE OF TRADING RIGHT IS NIL. UNDER THESE CIRCUMSTANCES, THERE IS NO VALUE TO THE TRADING IN COMMERCIAL RIGHT ENTITLING THE ASSESSEE FOR DEDUCTION BY WAY OF DEPRECIATION. HENCE, NO DEPRECIATION CAN BE GRANTED ON THIS RIGHT. THUS, WE UPHOLD THE FINDING OF THE REVENUE AUTHORITIES. WE NOW DISCUSS THE IMPACT OF THE FOLLOWING SECTIONS:- X X X X 32. ALL THESE SECTIONS DEAL WITH CO MPUTATION OF CAPITAL GAINS UNDER CHAPTER-IV(E) I.E., SECTION 45 TO 55A OF THE ACT. IN OUR CONSIDERED OPINION, THESE SECTIONS WHICH ARE FO R THE COMPUTATION OF CAPITAL GAINS, HAVE NO RELEVANCE ON THE ALLOWABILITY OF DEPRECIATION. THE ARGUMENT OF THE ASSESSEE THAT IT HAD TAKEN THE ORIGINAL COST OF THE SHARE @ ` 1, WHILE COMPUTING CAPITAL GAIN IN A LATTER YEAR, DOES NOT EFFECT OUR DECISION. THUS, WE UPHOLD THE ORDER OF THE ASSESSING OFFICER AS CONFIRMED BY THE COMMISSIONER (APPEALS) WHEREIN DEPRECIATION ON MEMBERSHIP CARD HAS BEEN DENIED. 6 . THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE HOLD THAT THE ASSESSEE IS NOT ENTITLED FO R DEPRECIATION ON BSE CARD AND THE FINDING GIVEN BY THE ASSESSING OFFICER IS UPHELD AND THE ORDER PASSED ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 6 BY THE CIT(A) IS SET ASIDE. THUS, APPEAL FILED BY THE DEPARTMENT IS ALLOWED. 7. CROSS OBJECTION NO.69/M/2012 : IN THE CROSS OBJECTION, THE A SSESSEE HAS TAKEN THE FOLLOWING GROUNDS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERING THE CLAIM OF THE RESPONDENT OF LONG TERM CAPITAL GAIN ON SALE OF 45 62 SHARES OF BSE LTD. AS PER THE PROVISIONS OF SECTION 55(2)(AB) R. W.S.2(H) & (HA) OF SECTION 2(42A) OF THE ACT. THIS ASPECT OF THE MATTER HAS NOT BEEN DECIDED BY THE LEARNED CIT(A) ON THE GROUND THAT THIS IS AN ALTER NATIVE PLEA AS THE MAIN ISSUE OF ALLOWANCE OF DEPRECIATION WAS DELETED BY HIM. WE, THEREFORE, RESTORE THIS MATTER BACK TO THE FILE OF THE CIT(A), WHO WILL DEAL AND DECIDE THE ISSUE RAISED IN CROSS-OBJECTION AF RESH AND IN ACCORDANCE WITH THE PROVISIONS OF LAW. NEEDLESS TO SAY THAT THE CIT(A) WILL PROVIDE DUE AND EFFECTIVE OPPORTUNITY TO THE ASSESSEE. THUS, CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 8 TH DAY OF JUNE, 2012. SD/- SD/- (G.E. VEERABHADRAPPA) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 8 TH JUNE, 2012 ITA NO : 5292/MUM/2011 & CO NO.69/MUM/2012 7 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM