ACIT 25(3), MUMBAI V. NIKUL B. DAVE, MUMBAI

ITA 1378/MUM/2010

• Counselvise Citation: 137819914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 10-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: KI SHOR I MEHTA
• Keywords: Business income; Depreciation; Transactions in derivatives; Revenue expenditure; Capital expenditure
• Section: 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI R. S. PADVEKAR, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.1378/MUM/2010 ASSESSMENT YEAR : 2006-07 ASST. COMMISSIONER OF INCOME TAX CIRCLE-25(3), C-11, R.NO.308, PRATYAKSHKAR BHAWAN, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400020. ..( APPELLANT ) VS. SHRI NIKUL B. DAVE B-402, SHRI SHATRUNJAY CHSL, BEHIND PATEL NAGAR, M. G. ROAD, KANDIVALI (WEST), MUMBAI-400 067. P.A. NO. ( ABSPD 1316 K ) ..( RESPONDENT ) APPELLANT BY : SHRI T.T. JACOB RESPONDENT BY : SHRI KI SHOR I. MEHTA DATE OF HEARING : 10.10.2011 DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORD ER DATED 20.11.2009 FOR THE ASSESSMENT YEAR 2006-07. THE REVENU E IN THIS APPEAL HAS RAISED DISPUTED ON THREE DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING THE NATURE OF INCOME FROM SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ASSESSEE FOR THE RELE VANT ITA NO.1378/M/10 A.Y:06-07 2 YEAR HAD DECLARED LONG TERM CAPITAL GAIN OF RS.1,75,16 4/- AND SHORT TERM CAPITAL GAIN OF RS.28,55,803/- FROM PURCHASE AND SA LE OF SHARES. THE ASSESSEE HAD ALSO DECLARED DIVIDEND INCOME FROM SHARES RS.1,61,793/- IN ADDITION TO INTEREST INCOME AND DIVID END FROM MUTUAL FUNDS. THE AO ON EXAMINATION OF RECORDS NOTED THAT T HE ASSESSEE WAS REGULARLY DEALING IN SHARES INCLUDING INTRA-TRADE TRAN SACTIONS WITH HEAVY VOLUMES. THE TOTAL PURCHASE OF SHARES DURING THE YEAR WAS RS.8.44 CRORES AND TOTAL SALE TO THE TUNE OF RS.8.68 CROR ES IN RELATION TO SHORT TERM CAPITAL GAIN INVOLVING SALE AND PURCHASE O F 15,71,226/- SHARES. THE ASSESSEE WAS ALSO TRADING IN FUTURE AND OPTION . THE ASSESSEE HAD SHOWN INCOME FROM ALL DELIVERY BASED TRANSACTIO NS AS CAPITAL GAIN WHEREAS INCOME FROM NON DELIVERY BASED TRA NSACTIONS HAD BEEN SHOWN AS BUSINESS INCOME. CONSIDERING THE VOLUME AND FREQUENCY AND REGULARITY OF TRANSACTIONS, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME FROM CAPITAL GAIN DECLARE D BY THE ASSESSEE SHOULD NOT BE TREATED AS BUSINESS INCOME. THE ASSESSEE HOWEVER GAVE NO EXPLANATION. THE AO ON FURTHER EXA MINATION OF RECORDS NOTED THAT MOST OF THE SHARES WERE SOLD AFTER SHO RT HOLDING AND ASSESSEE HAD TAKEN LOANS FOR DOING SHARE BUSINESS. THE ASSESSEE HAD ALSO REPEATEDLY BOUGHT AND SOLD THE SAME SHARES AFTE R HOLDING THEM FOR A FEW DAYS OR FOR A SHORT DURATION. THE AO THEREFORE CONCLUDED THAT INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARES AND ITA NO.1378/M/10 A.Y:06-07 3 NOT MAKE INVESTMENT. THOUGH THE ASSESSEE HAD DECLARED DI VIDEND INCOME OF RS.1,61,793/- WHICH WAS ONLY INCIDENTAL TO TH E TRADING ACTIVITIES. THE AO THEREFORE, TREATED THE ENTIRE CAP ITAL GAIN CONSISTING OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME. 2.1 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE WAS AN ADVISOR IN EQUITY AND DERIVATIVES WHICH WAS HIS MAIN ACTIVITY. IN ADDITION, HE ALSO PURCHA SED SHARES AS INVESTMENT ON WHICH DIVIDEND INCOME HAD BEEN EARNED. THOUGH THE ASSESSEE HAD ALSO DEALT IN FUTURE AND OPTIONS, THERE WAS NO BAR ON A PERSON WHO IS AN INVESTOR TO TRADE IN SHARES OR TO PART ICIPATE IN FUTURE AND OPTIONS. IT WAS FURTHER ARGUED THAT FREQUENCY AND VOLUME OF TRANSACTION WAS NOT DECISIVE IN DECIDING THE NATURE OF TR ANSACTIONS. HE PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (29 SOT 117) IN WHICH INCOME FROM SHA RE TRANSACTIONS HAD BEEN HELD AS ASSESSABLE AS CAPITAL GAIN. THE ASSESSEE A LSO GAVE THE HOLDING PERIOD WISE DETAILS OF SHARE TRANSACTIONS RE LATING TO SHORT TERM CAPITAL GAIN WHICH WERE AS UNDER :- ITA NO.1378/M/10 A.Y:06-07 4 NO. OF DAYS NO. OF SHARES COST SALE GAIN/LOSS % OF SALES 0-30 DAYS 410417 70,177,938.77 71,965,915.51 1,787,976.74 72.38 30 TO 60 DAYS 112042 11,925,510.02 11,707,152.33 (218,357.70) 11.77 60 TO 90 DAYS 41900 3,974,675.10 4,652,248.42 677,573.33 4.68 90 TO 120 DAYS 17292 693,096.98 618,640.04 (74,456.94) 0.62 120 TO 150 DAYS 42708 1,532,099.27 1,460,229.63 (71,869.64) 1.47 150 TO 180 DAYS 39154 761,495.30 781,430.84 19,935.54 0.79 180 DAYS & ABOVE 132600 7,507.246.06 8,242,248.46 735,002.39 8.29 TOTAL 796113 96,572,061.50 96,427,865.22 2,855,803.72 100.00 2.2 THE ASSESSEE POINTED OUT THAT THOUGH THE MAJOR PORT ION OF SHORT TERM CAPITAL GAIN WAS FROM SALE OF SHARES WITHIN 30 DAYS , THE SAME COULD NOT BE TAKEN AS CRITERIA FOR DECIDING NATURE OF INCOME. ASSESSEE HAD PURCHASED SHARES AS AN INVESTOR WHICH WERE ALSO DECLARED IN BALANCE SHEET AS AN INVESTMENT AND, THEREFORE, IT WAS AR GUED THAT INCOME SHOULD BE ASSESSED AS CAPITAL GAIN IN VIEW OF THE DE CISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA). TH E CIT(A) AFTER NECESSARY EXAMINATION WAS SATISFIED BY THE EXPLANATION GI VEN BY THE ASSESSEE. IT WAS OBSERVED BY HIM THAT FREQUENCY AND VOLUM E OF TRANSACTION WAS NOT CONCLUSIVE IN DECIDING THE TRUE NATUR E OF TRANSACTIONS. FURTHER, THERE WAS NO BAR ON AN ASSESSEE WHO IS A TRADER, TO MAKE INVESTMENT ALSO. CIT(A) FURTHER OBSER VED THAT THOUGH IN ASSESSMENT YEAR 2005-06, CAPITAL GAIN DECLARED BY THE ASSESSEE HAD BEEN TREATED AS BUSINESS INCOME BY CIT(A), THE SAID ORDE R WAS PRIOR TO ITA NO.1378/M/10 A.Y:06-07 5 THE DECISION OF THE TRIBUNAL IN CASE OF GOPAL PUROHIT ( SUPRA), IN WHICH IT WAS HELD THAT INCOME FROM DELIVERY BASED SHARE TRANSACTIO NS SHOULD BE TREATED AS CAPITAL GAIN. CIT(A) ACCORDINGLY SET ASIDE TH E ORDER OF AO AND DIRECTED HIM TO ASSESS THE INCOME FROM SHARE TRANSACTION AS BUSINESS INCOME. AGGRIEVED BY THE SAID DECISION, THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ASSA ILED THE ORDER OF CIT(A). IT WAS ARGUED THAT CONSIDERING THE F REQUENCY, VOLUME AND HOLDING PERIOD, IT WAS QUITE CLEAR THAT THE ASSESSEE WAS TRADING IN SHARES AND WAS NOT AN INVESTOR. IT WAS ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2005-06 CIT(A) HAD CONFIRMED THE ASSESSMENT OF INCOME FROM SHARE TRANSACTIONS AS BUSINESS INCOME. THE LD . AR ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A) AND PLACED R ELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT ( SUPRA). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING NATURE O F INCOME FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSUE WH ETHER THE SHARE TRANSACTIONS IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HIGHLY A DEBATAB LE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH CASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS ITA NO.1378/M/10 A.Y:06-07 6 FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATUR E OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDIN G THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF P URCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSES SEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON T HE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT OR THE OBJECTS IN THE MEMO RANDUM OF ASSOCIATION. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF T HE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADANGOPAL RADHE YLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZ ING OF THE HOLDING PERIOD ETC. AN INVESTOR MAKES PURCHASES WITH LON G TERM GOAL OF EARNING INCOME FROM THE INVESTMENT AND HE IS NOT T EMPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH A RE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN IN VESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER THERE MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTE R SHORT HOLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES A RE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. ITA NO.1378/M/10 A.Y:06-07 7 4.1 IN THIS CASE, THE DETAILS OF SHARE TRANSACTIONS, HOLDI NG PERIOD- WISE AS GIVEN BY THE ASSESSEE HAVE BEEN REPRODUCED IN PARA 2.1 EARLIER. A CAREFUL PERUSAL OF THE SAME SHOWS THAT MOST O F THE SHARES HAVE BEEN SOLD WITHIN 30 DAYS WHICH CONSTITUTE ABOUT 7 2.38% OF THE TRANSACTIONS. THE SHARES WHICH HAVE BEEN SOLD WITHIN THRE E MONTHS CONSTITUTE ABOUT 88% OF TRANSACTIONS. THE PERCENTAGE OF SHARE SOLD AFTER SIX MONTHS IS ONLY 8% AND ALL THE TRANSACTIONS HA VE BEEN COMPLETED WITHIN A YEAR. THE INCOME FROM SUCH TRANSACTIO NS HAS BEEN DECLARED BY THE ASSESSEE A SHORT TERM CAPITAL GAIN TREATI NG THE SHARE PURCHASES AS INVESTMENT. THE PATTERN OF TRANSACTIONS CLEAR LY SHOWS THAT THE ASSESSEE IS TRADING IN SHARES AND IS NOT AN INVESTO R. AN INVESTOR WOULD LIKE TO HOLD THE SHARES FOR A LONGER TI ME SO AS TO EARN DIVIDEND AND HE IS NOT TEMPTED TO SELL SHARES ON EVERY SMALL RISE IN THE VALUE OF SHARES. THE FREQUENCY AND VOLUME IS QUITE HIG H MAKING THE INTENTION CLEAR THAT THE ASSESSEE WAS TRADING IN SHARES. T HERE ARE ALSO REPETITIVE TRANSACTIONS IN THE SAME SCRIPS. THE DIVIDEND INCOME EARNED IS ONLY RS.1,61,793/- WHICH IS QUITE INSIGNIFICANT COMPARE D TO THE PROFIT FROM THESE TRANSACTIONS AND THEREFORE, THE CONCLUSION OF T HE AO THAT DIVIDEND INCOME IS ONLY INCIDENTAL IS QUITE REASONABLE BECAUSE EVEN IN CASE OF TRADING IN SHARES THE ASSESSEE WILL BE ENTITLED TO DIVIDEND IN CASES IN WHICH SHARES REMAIN UNSOLD ON THE RECORD DATE. TH EREFORE, ITA NO.1378/M/10 A.Y:06-07 8 WE ARE OF THE VIEW THAT THE SHORT TERM CAPITAL GAIN D ECLARED BY THE ASSESSEE IS NOTHING BUT BUSINESS INCOME. 4.2 THE LD. AR FOR THE ASSESSEE HAS RELIED ON THE DECISI ON OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (29 SOT 171) T O ARGUE THAT INCOME FROM ALL DELIVERY BASED TRANSACTIONS HAS TO BE ASSESS ED AS INCOME AS HELD BY THE TRIBUNAL IN THE SAID CASE. WE HAV E CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), BUT WE FIND THAT THERE IS NO UNIVERSAL FINDING IN THA T CASE THAT ALL DELIVERY BASED TRANSACTIONS HAVE TO BE TREATED AS INVESTM ENT. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN CASE OF GOPAL PUROHIT (SUPRA), HAD DECIDED THE CASE FOLLOWING THE DECISION OF TRIBUNAL IN CASE OF SARNATH INFRASTRUCTURE PVT. LTD VS. ACIT (2009) 120 T TJ 216 HOLDING THAT FACTS IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LT D (SUPRA), WERE IDENTICAL. HOWEVER, IT IS NOTED THAT IN SARNATH INFRA STRUCTURE PVT. LTD (SUPRA), THE SHARES SOLD OUT OF INVESTMENT ACCOUNT HAD BE EN HELD THAT 2-3 YEARS AND REVENUE COULD NOT SHOW ANY SHARES SOLD WHICH HAD BEEN PURCHASED DURING THE YEAR OR IN THE IMMEDIATELY PRECED ING YEAR. THEREFORE, ONLY IN RESPECT OF SUCH CASES, THE DECISION IN C ASE OF GOPAL PUROHIT (SUPRA), COULD BE APPLIED. THE HONBLE HIGH COU RT OF DELHI HAD UPHELD THE DECISION OF THE TRIBUNAL IN THE CASE OF GOP AL PUROHIT (SUPRA), ON THE GROUND THAT THERE WAS NO SUBSTANTIAL Q UESTION OF LAW ITA NO.1378/M/10 A.Y:06-07 9 INVOLVED. EVEN BEFORE HONBLE HIGH COURT THERE WAS N O QUESTION RAISED THAT ALL DELIVERY BASED TRANSACTIONS HAVE ALWAYS T O BE TREATED AS INVESTMENT ACTIVITY. THUS THE DECISION OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT IN CASE OF GOPAL PUROHIT (SUPRA), CANNO T BE CONSIDERED AS A PRECEDENT FOR THE PROPOSITION THAT ALL D ELIVERY BASED SHARES HAVE TO BE TREATED AS INVESTMENT ACTIVITY. THE ASSESSEE CAN ALSO BE A TRADER IN CASE OF DELIVERY BASED PURCHASES AND SALES, WHICH IS A NORMAL FEATURE OF ANY TRADING ACTIVITY. THEREFOR E, IN OUR VIEW RELIANCE PLACED BY THE LD. AR ON THE DECISION IN THE CAS E OF GOPAL PUROHIT IS MISPLACED. EACH CASE HAS TO BE DECIDED BASED ON ITS OWN FACTS. CONSIDERING THE FACTS OF THIS CASE, WE HOLD THAT T HE SHARE TRANSACTIONS FROM WHICH THE ASSESSEE HAS SHOWN SHORT TERM CAPIT AL GAIN WERE OF THE NATURE OF TRADING ACTIVITY OF THE A SSESSEE AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND UP HOLD THE ORDER OF AO IN THIS RESPECT. HOWEVER, IN SO FAR AS LONG TERM CAPITAL GAIN IS CONCERNED, CONSIDERING THE HOLDING PERIOD, VOLUME AND F REQUENCY, THE INCOME DECLARED BY THE ASSESSEE AS LONG TERM CAPITAL GAIN I S REASONABLE AND HAS TO BE ACCEPTED. THE ORDER OF CIT(A ) IS THEREFORE PARTLY ALLOWED. 6. THE SECOND DISPUTE IS REGARDING THE NATURE OF LOSS F ROM TRANSACTIONS IN FUTURE AND OPTIONS AMOUNTING TO RS.6,95, 728/-. THE ASSESSEE HAD INCURRED LOSS OF RS.10,29,024/- IN F&O TRANSA CTIONS ITA NO.1378/M/10 A.Y:06-07 10 WHICH WERE SET OFF AGAINST BUSINESS INCOME. THE AO REFE RRED TO THE PROVISO (D) OF SECTION 43(5) AS PER WHICH AN ELIGIBLE TR ANSACTION IN RESPECT OF TRADING IN DERIVATIVES CARRIED OUT IN A RECOG NIZED EXCHANGE WOULD NOT BE SPECULATIVE TRANSACTION. THE SAID PROVISO W AS INSERTED W.E.F. 1.4.2006. HOWEVER THE AO NOTED THAT RECOGNIZED STOCK EXCHANGES WERE NOTIFIED ONLY ON 25.1.2006 AND THEREFO RE, THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE PRIOR TO 25.1.20 06 WERE TREATED BY THE AO AS SPECULATIVE TRANSACTION. THE AO ACCO RDINGLY DID NOT SET OFF LOSS OF RS.6,95,728/- AGAINST BUSINESS INCOME A ND ALLOWED IT TO BE CARRIED FORWARD. IN APPEAL CIT(A) HELD THA T PROVISO (D) TO SECTION 43(5) WAS APPLICABLE FROM ASSESSMENT YEAR 2006-07 AND THEREFORE, ALL TRANSACTIONS ENTERED INTO IN THAT ASSESSMEN T YEAR WOULD BE COVERED BY THE SAID AMENDMENT. HE ALSO REFERRED TO THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL OF CALCUTTA IN CASE OF SREE CAPITAL SERVICES LTD. VS. ACIT (124 TTJ 740) IN WHICH IT WAS HE LD THAT PROVISO (D) OF SECTION 43(5) WAS EFFECTIVE FROM ASSESSMENT YEAR 200 6-07. CIT(A) THEREFORE HELD THAT AMENDMENT WAS APPLICABLE F ROM 2006-07 AND NOT ONLY IN RESPECT OF TRANSACTIONS ENTERED ON OR AF TER 25.10.2006. AND ACCORDINGLY HE ALLOWED CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH REVENUE IS IN APPEAL. 6.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORD S AND CONSIDERED THE MATERIAL CAREFULLY. THE DISPUTE IS REGA RDING THE NATURE ITA NO.1378/M/10 A.Y:06-07 11 OF LOSS FROM F&O TRANSACTIONS. IN VIEW OF THE PROVISO (D ) OF SECTION 43(5), AN ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIVATIVES CARRIED OUT IN RECOGNIZED STOCK EXCHANGE ARE NOT TO BE T REATED AS SPECULATIVE TRANSACTIONS. THERE IS NO DISPUTE THAT TRANS ACTIONS WERE CARRIED OUT IN RECOGNISED STOCK EXCHANGES. THE AO HAS TR EATED THE TRANSACTIONS PRIOR TO 25.1.2006 AS NOT COVERED BY THE PR OVISO (D) ON THE GROUND THAT RECOGNIZED STOCK EXCHANGES WERE NOTIFIED ONLY ON 25.1.2006 AND, THEREFORE, PROVISO WOULD APPLY FROM THAT DATE. IN OUR VIEW THE INTERPRETATION ADOPTED BY THE AO HAS BEEN R IGHTLY REJECTED BY THE CIT(A). PROVISO (D) IS APPLICABLE FROM ASSESSMENT YE AR 2006-07 AND THEREFORE, ALL TRANSACTIONS IN F&O ENTERED INTO TH ROUGH RECOGNIZED STOCK EXCHANGE IN THAT ASSESSMENT YEAR WILL BE COVERED BY T HE PROVISO. THE DECISION OF THE SPECIAL BENCH IN CASE OF SHREE CAPITA L SERVICES LTD. VS. ACIT (SUPRA), ALSO SUPPORTS THIS VIEW. WE, THEREFORE , SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN ALLOWING THE CLA IM OF THE ASSESSEE AND THE SAME IS, THEREFORE, UPHELD. 7. THE THIRD DISPUTE IS REGARDING THE DISALLOWANCE OF ADMISSION FEES OF RS.7.50 LACS PAID TO MULTI COMMODITY EXCHANGE OF IN DIA LTD. THE AO HELD THAT THE EXPENDITURE WAS OF CAPITAL IN NATURE AND THEREFORE, DISALLOWED THE SAME. IN APPEAL, THE ASSESSEE SUBMITTED BE FORE CIT(A) THAT MEMBERSHIP OF THE STOCK EXCHANGE WAS NOT TRANSFERAB LE AND THE FEES WAS ALSO NOT REFUNDABLE. THE ASSESSEE DID NOT ACQUIR E ANY CAPITAL ITA NO.1378/M/10 A.Y:06-07 12 ASSET ON PAYING THE ADMISSION FEES. THE ASSESSEE ALSO REFERR ED TO THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. VENKATASUBRAMANIAM (291 ITR 193) IN WHICH IT WAS HELD THAT ADMISSION FEES PAID TO BECOME MEMBER OF STOCK EXCHANGE IS REVENUE EXPENDITURE. CIT(A) AGREED WITH THE SUBMISSION OF T HE ASSESSEE AND FOLLOWING THE SAID JUDGMENT ALLOWED THE CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH REVENUE IS IN APPEAL. 8. BEFORE US THE LD. A.R FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WHEREAS THE LD. D. R PLACED RELIANCE ON THE ORDER OF CIT(A). 9. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF MEMBERSHIP FEES PAID TO BECOME MEMBER OF MULT I COMMODITY STOCK EXCHANGE AS REVENUE EXPENDITURE. THE ASSESSEE HAS RELIED UPON THE JUDGMENT OF HON'BLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. VENKATASUBRAMANIAM (SUPRA), IN WHICH EX PENDITURE ON STOCK EXCHANGE MEMBERSHIP FEES WAS HELD AS REVENUE EXPEN DITURE. HOWEVER, WE FIND THAT THE SAID JUDGMENT RELATED TO ASSE SSMENT YEAR 1993-94. SUBSEQUENTLY FROM ASSESSMENT YEAR 1999-00 SECTIO N 32(2) WAS AMENDED AND CERTAIN INTANGIBLE ASSETS WERE MADE ELIG IBLE FOR ALLOWANCE OF DEPRECIATION. HON'BLE SUPREME COURT IN T HE CASE OF ITA NO.1378/M/10 A.Y:06-07 13 TECHNOSHARES AND STOCK LTD.(327 ITR 323) HAVE HELD THAT STOCK EXCHANGE MEMBERSHIP CARD IS AN INTANGIBLE ASSET ELIGIBLE FOR ALLOWANCE OF DEPRECIATION. CONSIDERING THESE DEVELOPMENTS EXPEND ITURE ON ACQUISITION OF STOCK EXCHANGE MEMBERSHIP CARD BE ALLOWED AS REVENUE EXPENDITURE. WE, THEREFORE, SET ASIDE THE ORDER OF C IT(A) AND CONFIRM THE DISALLOWANCE MADE BY THE AO HOLDING EXPENDITURE AS CAPITAL EXPENDITURE. THE ASSESSEE WILL HOWEVER BE ENTITLED TO DEPRECIATION AT THE SPECIFIED RATE. WE HOLD ACCORDINGLY. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.2011. SD/- SD/- (R. S. PADVEKAR) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28.10.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.