TWIN EARTH SECURITIES PVT. LTD., MUMBAI V. A.C.I.T.4(2), MUMBAI

ITA 2640/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4250 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAKESH RANJANDR
• Keywords: Capital asset; Depreciation; Cost of acquisition
• Section: 143(3); 32

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 2640 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) TWIN EARTH SECURITIES PRIVATE LIMITED, 301/302, PRIME PLAZA, 38-A, S.V.ROAD, SANTACRUZ, MUMBAI-400054 / V. THE ACIT-4(2), ROOM NO. 642, AAYAKAR BHAVAN, M K ROAD, MUMBAI- 400020 ./ PAN : AABCT3066F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE COMPANY BY NONE REVENUE BY : SHRI RAKESH RANJAN,DR / DATE OF HEARING : 02-12-2015 / DATE OF PRONOUNCEMENT : 10-02-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 2640/MUM/2012, IS DIRECTED AGAINST THE ORDER DATED 31.01.2012 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 8 , MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2008- 09. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE COMMISSIONER OF INCOME-TAX(APPEALS) -8 (HEREINAFTER REFERRED TO AS THE ITA 2640/M/12 2 CIT(A)) HAS ERRED IN ADOPTING THE WRITTEN DOWN VAL UE(HEREINAFTER REFERRED TO AS WDV ) AS ON 31-03-2005, OF THE BOMBAY STOCK EXCHANGE (HEREINAFTER REFERRED TO AS BSE) MEMBERSHIP CARD/ TRADING RIGHTS AS THE COST OF ACQUISITION OF BSE SHARES CONTRARY TO THE P ROVISIONS OF SECTION 55(2)(AB) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) FURTHER HAS ERRED IN CALCULATING THE INDEXED COST OF ACQUISITION WITH REFERENCE TO YEAR OF EXCHANGE OF BSE MEMBERSHIP CAR D FOR BSE LTD.S SHARES I.E. FY 2005-06 INSTEAD OF THE YEAR IN WHICH THE BSE MEMBERSHIP CARD WAS PURCHASED I.E. FY 2000-01. . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF SHARE BROKING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT,1961(HEREINAFTER C ALLED THE ACT) READ WITH SECTION 143(2) OF THE ACT, THE LEARNED ASSESSING OF FICER (HEREINAFTER CALLED THE AO) OBSERVED THAT THE ASSESSEE COMPANY HAS SOLD 45 62 SHARES OF BSE LIMITED , ON WHICH IT HAS EARNED LONG TERM CAPITAL GAINS . THE SAID SHARES WERE ALLOTTED TO THE ASSESSEE COMPANY UNDER THE SCH EME OF CAPITALIZATION AND DEMUTUALIZATION OF BOMBAY STOCK EXCHANGE , IN LIEU OF BSE MEMBERSHIP CARD. THE AO ASKED THE ASSESSEE COMPANY TO JUSTIFY THE COST OF ACQUISITION CLAIMED FOR CALCULATING CAPITAL GAIN ON SALE OF BSE SHARES. THE ASSESSEE COMPANY HAD CLAIMED THE COST OF RS.2,41,00,000/- FO R BSE CARD. THE ASSESSEE COMPANY WAS ASKED WHY THE SAID COST BE ACC EPTED AS THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON THE BSE CARD IN THE EARLIER YEARS AND TAKING THE ORIGINAL COST OF BSE CARD AS THE COST OF ACQUISITION AMOUNTS TO CLAIMING DOUBLE DEDUCTION ON THE SAME ASSET. THE AS SESSE COMPANY SUBMITTED THAT THE ABOVE COST IS TO BE TAKEN AS COS T OF ACQUISITION IN ACCORDANCE WITH SECTION 55(2)(AB) OF THE ACT WHICH CONTENTIONS WAS REJECTED BY THE AO AS IT WAS HELD BY THE AO THAT THE ASSESSE E COMPANY CANNOT CLAIM DOUBLE DEDUCTION ON THE SAME ASSET, UNDER THE TWO D IFFERENT PROVISIONS OF THE ACT. THE AO ALLOWED THE WRITTEN DOWN VALUE OF THE B SE CARD AS THE COST, AND INDEXATION ON ACCOUNT OF COST INFLATION WAS ALSO AL LOWED FROM THE FINANCIAL ITA 2640/M/12 3 YEAR 2005-06 WHEN DEMUTUALIZATION AND CORPORATIZATI ON OF BSE TOOK PLACE AND ACCORDINGLY LONG TERM CAPITAL GAINS ARISING FRO M SALE OF 4562 SHARES OF BSE WAS COMPUTED AT RS.1,45,80,661/- CHARGEABLE TO TAX UNDER THE ACT VIDE ASSESSMENT ORDERS DATED 16.11.2010 PASSED U/S 143(3 ) OF THE ACT . 4. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 16.11.2 010 PASSED U/S 143(3) OF THE ACT BY THE AO, THE ASSESSEE COMPANY FILED FIRST APPEAL WITH THE CIT(A). THE ASSESSEE COMPANY SUBMITTED THAT LONG TERM CAPIT AL GAIN IS TO BE COMPUTED AS PER SECTION 55(2)(AB) OF THE ACT WHICH UNCONDITIONALLY MANDATE TO TAKE THE COST OF ACQUISITION OF THE ORIGINAL MEM BERSHIP OF THE EXCHANGE AS THE COST OF THE SHARES ALLOTTED PURSUANT TO A SCHEM E FOR DEMUTUALIZATION OR CORPORATIZATION OF BSE. THE ASSESSEE COMPANY SUBMIT TED THAT THE ASSESSEE COMPANY ACQUIRED BSE MEMBERSHIP CARD/TRADING RIGHTS ON 20-07-2000 FOR RS.2,41,00,000/- WHICH SHALL BE ALLOWED AS COST OF ACQUISITION OF THE 10000 SHARES OF BSE LIMITED ALLOTTED TO THE ASSESSEE COMP ANY BY BSE LTD.. THE CIT(A) OBSERVED THAT THE PRIOR TO DEMUTUALIZATI ON AND CORPORATIZATION OF BSE , THE ASSESSEE COMPANY HELD MEMBERSHIP RIGHT IN BSE(AOP) WHICH CONSTITUTED THE TWO RIGHTS BEING TRADING RIGHTS AND MEMBERSHIP RIGHTS WHICH WERE NOT TWO DIFFERENT ASSETS BUT A SINGLE ASSET . UPON DEMUTUALIZATION AND CORPORATIZATION OF BSE, THE MEMBERSHIP RIGHT IN BSE (AOP) STOOD EXTINGUISHED; IN RETURN THE ASSESSEE COMPANY ACQUIR ED 10000 SHARES IN BSE LTD AS WELL TRADING RIGHT IN BSE LTD.. THEREFORE TH E TWO RESULTING ASSETS , BEING TRADING RIGHT AND MEMBERSHIP HAVE EMERGED FRO M THE EARLIER RIGHT IN BSE(AOP). THE CIT(A) REFERRED TO PROVISIONS OF SECT ION 47(XIIIA) OF THE ACT AND SECTION 55(2)(AB) OF THE ACT AND HELD THAT PROVISIO NS OF SECTION 50 OF THE ACT IS APPLICABLE AS THE ASSESSEE COMPANY HAS CLAIMED DEPR ECIATION ON THE BSE MEMBERSHIP RIGHT IN THE EARLIER YEARS FROM WHICH SH ARES HAVE EMERGED AND SUCH DEPRECIATION SHALL BE REDUCED FROM THE COST OF ACQUISITION OF THE SHARES OF BSE LTD. THE HONBLE SUPREME COURT HAS IN THE CA SE OF TECHNO SHARES AND ITA 2640/M/12 4 STOCKS LIMITED IN (2010) 327 ITR 323(SC) HAS HELD T HAT MEMBERSHIP RIGHTS IN BSE(AOP) IS ELIGIBLE FOR DEPRECIATION AS INTANGIBLE S. WHILE CALCULATING THE LONG TERM CAPITAL GAINS ON SALE OF SUCH SHARES AS SHARES OF BSE LTD ARE LONG TERM CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(42A) EXPLANATION1 (HA) OF THE ACT AND IF THE CONTENTIONS OF THE ASSESSEE COMPANY IS A CCEPTED , SECTION 50 OF THE ACT WILL BECOME OTIOSE. THE CIT(A) ALSO HELD THAT T HE ASSESSEE COMPANY WILL BE ENTITLED TO TAKE THE BENEFIT OF INDEXATION U/S 48 O F THE ACT WITH EFFECT FROM THE ASSESSMENT YEAR IN WHICH STATUS OF BSE CHANGED FROM AOP TO COMPANY I.E. ASSESSMENT YEAR 2006-07. THUS, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE COMPANY VIDE ORDERS DATED 31/1/2012. 5. AGGRIEVED BY THE ORDERS DATED 31/1/2012 OF THE C IT(A), THE ASSESSEE COMPANY FILED APPEAL BEFORE THE TRIBUNAL. NONE APP EARED ON BEHALF OF THE ASSESSEE COMPANY DESPITE SEVERAL OPPORTUNITIES BEIN G GIVEN TO THE ASSESSEE COMPANY AND THE LAST OPPORTUNITY BEING PROVIDED TO THE ASSESSEE COMPANY ON THE HEARING HELD ON 19/11/2014 BUT STILL NONE AP PEARED. THE LD. DR ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 6. WE HAVE CONSIDERED THE MATERIAL ON RECORD INCLUD ING CASE LAWS AND AFTER HEARING THE LD. DR , WE ARE PROCEEDING TO DECIDE TH E APPEAL AS DESPITE SEVERAL OPPORTUNITIES , THE ASSESSEE COMPANY DID NOT APPEAR BEFORE THE TRIBUNAL WHEN APPEAL WAS CALLED FOR HEARING. WE HAVE OBSERVE D THAT THE ASSESSEE COMPANY IS A MEMBER OF BOMBAY STOCK EXCHANGE AND IS ENGAGED IN THE BUSINESS OF SHARE BROKING. IT IS STATED THAT THE AS SESSEE COMPANY ACQUIRED THE MEMBERSHIP OF BOMBAY STOCK EXCHANGE(BSE) ON 20- 07-2000 FOR RS.2,41,00,000/- AND IT CLAIMED DEPRECIATION U/S 32 OF THE ACT ON THE MEMBERSHIP OF BSE BY TREATING IT AS PART OF BLOCK O F ASSET BEING INTANGIBLE ASSET U/S 32(1)(II) OF THE ACT WHICH WAS ALLOWED BY THE REVENUE. ITA 2640/M/12 5 THE BSE WAS ASSOCIATION OF PERSON (AOP), CONTROLLED AND MANAGED BY TRADING MEMBERS WHO HELD MEMBERSHIP CARDS PRIOR TO DEMUTUAL IZATION AND CORPORATIZATION OF BSE IN THE YEAR 2005. SECURITIES AND EXCHANGE BOARD OF INDIA(SEBI), A GOVERNMENT REGULATORY BODY DIRECTED THAT ALL THE EXCHANGES IN THE COUNTRY SHOULD BE DEMUTUALISED AND THEY SHOULD BE MANAGED BY A COMPANY WHERE SHARE-HOLDING IS HELD BY PUBLIC AT LA RGE AND NOT MERELY BY STOCK BROKERS AND TRADERS WHO HOLD TRADING RIGHTS. BSE, THEREFORE, IMPLEMENTED DEMUTUALIZATION PROCESS WHEREBY FIRST IT CONVERTED ITSELF INTO A COMPANY AND SUBSEQUENTLY AT LEAST SHAREHOLDING TO T HE EXTENT OF 51% WAS TO BE HELD BY MEMBERS OF PUBLIC AND PUBLIC INSTITUTION S. AS THE FIRST STEP, THE BSE-AOP WAS CONVERTED INTO A COMPANY AND TRADING ME MBERS WERE ALLOTTED SHARES AND SEPARATE TRADING RIGHT , I.E. THE TRADIN G RIGHTS AND MEMBERSHIP IN THE COMPANY WAS SEPARATED. AT THIS STAGE I.E. ON 10 TH OCTOBER 2005 , THE ASSESSEE COMPANY RECEIVED 10000 SHARES OF BSE LTD. AND TRADING RIGHTS IN BSE LTD. ON FORMATION OF BSE LIMITED . AS A SECOND STEP , THE BSE FACILITATED SALE OF SHARES OF INDIVIDUAL MEMBERS TO PUBLIC INST ITUTIONS. IT WAS IN THE PROCESS OF SECOND STEP, THAT THE 4562 SHARES OF BSE LTD. OUT OF 10000 SHARES OF BSE LTD. HELD BY THE ASSESSEE COMPANY WERE TRANS FERRED/SOLD BY THE ASSESSEE COMPANY FOR A CONSIDERATION OF RS.2,37,22, 400/- LEADING TO PRESENT DISPUTE. THE ASSESSEE COMPANY HAS CONTENDED THAT T HE ORIGINAL COST OF ACQUISITION OF BSE MEMBERSHIP ON 20-07-2000 OF RS.2 ,41,00,000/- SHALL BE TAKEN AS COST OF ACQUISITION OF 10000 SHARES OF BSE LTD ON PROPORTIONATE BASIS BY VIRTUE OF SECTION 55(2)(AB) OF THE ACT AND PERIOD OF HOLDING SHALL BE RECKONED FROM THE DATE OF ACQUISITION OF ORIGINAL M EMBERSHIP OF BSE ON 20- 07-2000 BY VIRTUE OF SECTION 2(42A) EXPLANATION 1 ( HA) AND SECTION 47(XIIIA) OF THE ACT FOR AVAILING THE BENEFIT OF COST INFLATION INDEX U/S 48 OF THE ACT , TO COMPUTE LONG TERM CAPITAL GAINS ON SALE OF 4562 SHA RES OF BSE LTD.. IT IS CONTENDED BY THE ASSESSEE COMPANY THAT IN VIEW OF T HE SPECIFIC PROVISIONS OF SECTION 55(2)(AB) OF THE ACT FOR COMPUTING LONG TER M CAPITAL GAINS ON SALE OF 4562 SHARES OF BSE LTD. AND ALSO FOR THE PURPOSES O F COST INFLATION INDEX , THE ITA 2640/M/12 6 PERIOD OF HOLDING SHALL BE RECKONED FROM THE DATE O F ACQUISITION OF THE ORIGINAL BSE MEMBERSHIP BY THE ASSESSEE COMPANY ON 20-07-200 0, IN VIEW OF THE PROVISIONS OF SECTION 2(42A) EXPLANATION 1 (HA ) OF THE ACT AND SECTION 47(XIIIA) OF THE ACT . WHILE THE REVENUE ON THE OTH ER HAND IS CONTENDING THAT THE MEMBERSHIP OF THE BSE AS ACQUIRED BY THE ASSESS EE COMPANY IN THE YEAR 2000 WAS AN INTANGIBLE ASSET FORMING PART OF BLOCK OF ASSET U/S 32(1)(II) OF THE ACT, ON WHICH DEPRECIATION U/S 32 OF THE ACT HAS BE EN CLAIMED BY THE ASSESSEE COMPANY AND ALLOWED BY THE REVENUE IN THE PRECEDING YEAR AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 50 OF THE ACT, THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSET ON THE DATE OF DEMUTUAL IZATION AND CORPORATIZATION OF BSE I.E. 10-10-2005 WHEN THE ASSESSEE COMPANY GO T 10000 SHARES IN BSE LIMITED AND TRADING RIGHTS IN BSE LTD., SHALL BE AL LOWED AS COST OF ACQUISITION OF SHARES IN VIEW OF PROVISIONS OF SECTION 55(2)(AB ) OF THE ACT AND PERIOD OF HOLDING FOR THE INDEXATION PURPOSES SHALL ALSO BE R ECKONED FROM THE DATE OF DEMUTUALIZATION OR CORPORATIZATION OF BSE ON 10-10- 2005 AND NOT FROM THE DATE OF ACQUISITION OF ORIGINAL MEMBERSHIP OF BSE B Y THE ASSESSEE COMPANY ON 20-07-2000, AS THE SAID ORIGINAL MEMBERSHIP OF B SE BEING INTANGIBLE ASSET FORMED PART OF BLOCK OF ASSETS ON WHICH THE ASSESSE E COMPANY HAS CLAIMED DEPRECIATION U/S 32 OF THE ACT AND IN VIEW OF PROVI SIONS OF SECTION 50 OF THE ACT , WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AS AT THE BEGINNING OF PREVIOUS YEAR , INTER-ALIA, CORRESPONDING TO THE PROPORTIONA TE SHARES SOLD SHALL BE REDUCED FROM THE FULL VALUE OF CONSIDERATION RECEIV ED BY THE ASSESSEE COMPANY ON SALE/TRANSFER OF 4562 EQUITY SHARES OF BSE LIMIT ED. AT THIS STAGE IT WILL BE RELEVANT TO REFER TO THE P ROVISIONS OF THE RELEVANT SECTIONS OF THE ACT AS UNDER: 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES, .. .. ITA 2640/M/12 7 ( 42A ) ['SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN [THIRTY-SIX] MONTHS IMMEDIATELY PRECEDI NG THE DATE OF ITS TRANSFER:] [ EXPLANATION 1 ].( I ) IN DETERMINING THE PERIOD FOR WHICH ANY CAPITAL A SSET IS HELD BY THE ASSESSEE . . ( HA ) IN THE CASE OF A CAPITAL ASSET, BEING EQUITY SHARE OR SHARES IN A COMPANY ALLOTTED PURSUANT TO DEMUTUALISATION OR COR PORATISATION OF A RECOGNISED STOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE( XIII ) OF SECTION 47 , THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNISED STO CK EXCHANGE IN INDIA IMMEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION;] TRANSACTIONS NOT REGARDED AS TRANSFER . 47. NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS : .. .. . [( XIIIA ) ANY TRANSFER OF A CAPITAL ASSET BEING A MEMBERSHIP RIGHT HELD BY A MEMBER OF A RECOGNISED STOCK EXCHANGE IN INDIA FOR ACQUISITION OF SHARES AND TRADING OR CLEARING RIGHTS ACQUIRED BY SUCH ME MBER IN THAT RECOGNISED STOCK EXCHANGE IN ACCORDANCE WITH A SCHEME FOR DEMU TUALISATION OR CORPORATISATION WHICH IS APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURIT IES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992);] [ SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS. 50. NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE ( 42A ) OF SECTION 2, WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDER THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), THE PROVISIONS O F SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLOWING MODIFICATIONS : ( 1 ) WHERE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASSET TOGETHER WITH T HE FULL VALUE OF ITA 2640/M/12 8 SUCH CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET FALLING WITHIN THE BLOCK OF THE ASSETS DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREGATE OF THE FOL LOWING AMOUNTS, NAMELY : ( I ) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER OR TRANSFERS; ( II ) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT TH E BEGINNING OF THE PREVIOUS YEAR; AND ( III ) THE ACTUAL COST OF ANY ASSET FALLING WITHIN THE BLO CK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSETS; ( 2 ) WHERE ANY BLOCK OF ASSETS CEASES TO EXIST AS SUCH, FOR THE REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED DURING THE PREVIOUS YEAR, THE COST OF ACQUISITION OF THE BLOCK OF ASSETS SHALL B E THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREV IOUS YEAR, AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK OF ASSETS, ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE IN COME RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER OR TRANSFE RS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHOR T-TERM CAPITAL ASSETS.] MEANING OF 'ADJUSTED', 'COST OF IMPROVEMENT' AND ' COST OF ACQUISITION'. 55. (1) FOR THE PURPOSES OF [ SECTIONS 48 AND 49 ], .. .. ( 2) [FOR THE PURPOSES OF SECTIONS 48 AND 49 , 'COST OF ACQUISITION', . [( AB ) IN RELATION TO A CAPITAL ASSET, BEING EQUITY SHARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXCHANGE IN INDIA UNDER A SCHEME FOR [DEMUTUALISATION OR] CORPORATISATION APPROVED BY TH E SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE S ECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF THE EXCHANGE:] [ PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TRADING OR CLEARING RIGHTS OF ITA 2640/M/12 9 THE RECOGNISED STOCK EXCHANGE ACQUIRED BY A SHAREH OLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUA LISATION OR CORPORATISATION, SHALL BE DEEMED TO BE NIL ;] THE PERUSAL OF SECTION 2(42A) OF THE ACT , EXPLANAT ION 1 (HA) WILL REVEAL THAT IN DETERMINING THE PERIOD OF HOLDING FOR WHICH ANY CAP ITAL ASSET IS HELD BY THE TAX-PAYER, THE CAPITAL ASSET BEING EQUITY SHARES OR SHARES IN A COMPANY ALLOTTED IN PURSUANCE TO THE DEMUTUALIZATION OR COR PORATIZATION OF THE RECOGNIZED STOCK EXCHANGE IN INDIA AS REFERRED TO I N SECTION 47(XIII) OF THE ACT, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE PE RSON WAS A MEMBER OF THE RECOGNIZED STOCK EXCHANGE IN INDIA IMMEDIATELY PRIO R TO SUCH DEMUTUALIZATION OR CORPORATIZATION . THE PERUSAL OF SECTION 47(XIIIA) OF THE ACT WILL RE VEAL THAT FOR BRINGING TO CHARGE CAPITAL GAINS U/S 45 OF THE ACT, ANY TRANSFE R OF CAPITAL ASSET BEING A MEMBERSHIP RIGHT HELD BY A MEMBER OF A RECOGNIZED S TOCK EXCHANGE IN INDIA FOR ACQUISITION OF SHARES AND TRADING OR CLEARING R IGHTS ACQUIRED BY SUCH MEMBER IN THAT RECOGNIZED STOCK EXCHANGE IN ACCORDA NCE WITH SCHEME OF DEMUTUALIZATION OR CORPORATIZATION WHICH IS APPROVE D BY THE SEBI SHALL NOT BE REGARDED AS TRANSFER. PERUSAL OF SECTION 50 OF THE ACT WILL REVEAL THAT I T IS A SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS UNDER THE ACT UNDER CHAPTER IV E COMPUTATION OF TOTAL INCOME C APITAL GAINS AND STARTS WITH A NON-OBSTANTE CLAUSE THAT NOTWITHSTANDING ANY THING TO CONTRARY CONTAINED IN CLAUSE (42A) OF SECTION 2 OF THE ACT, WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION IS PROVIDED UNDER THE ACT OR UNDER THE INDIAN INCOME T AX, 1922 (11 OF 1922), THE PROVISIONS OF SECTION 48 AND 49 SHALL BE APPLIE D SUBJECT TO MODIFICATIONS FOR COMPUTATION OF CAPITAL GAINS AS SPECIFIED U/S 5 0 OF THE ACT. SECTION 50(1) OF THE ACT STIPULATES , INTER-ALIA, THAT WITH RESPE CT OF BLOCK OF ASSETS AS DEFINED ITA 2640/M/12 10 UNDER SECTION 2(11) OF THE ACT, WHERE THE FULL VALU E OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER OF THE ASSET TOGETHER WITH THE FULL VALUE OF SUCH CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET FALLING WITH IN THE BLOCK O F ASSET DURING THE PREVIOUS YEAR , EXCEEDS THE AGGREGATE OF THE (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSET AT THE BEGINNING OF THE PREVIOUS YEAR ; AND (III) THE ACTUAL COST OF ANY ASSET ACQUIRED DURING THE PREVIO US YEAR, SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSETS .WHILE SECTION 50(2) OF THE ACT PROVIDES THAT WHEN BLOCK OF ASSET CEASES TO EXIST AS SUCH, FOR THE REASONS THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED DURING THE PREVIOUS YEAR , THE COST OF ACQUISITION OF THE BLOCK OF ASSET SHALL BE WRITTEN DOWN VALUE OF THE B LOCK OF ASSET AT THE BEGINNING OF THE PREVIOUS YEAR , AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK OF ASSETS, ACQUIRED DURIN G THE PREVIOUS YEAR AND THE INCOME RECEIVED OR ACCRUING AS A RESULT OF SUCH TRA NSFER OR TRANSFERS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRA NSFER OF SHORT-TERM CAPITAL ASSETS. WHEREAS SECTION 55(2)(AB) OF THE ACT STIPULATES THA T FOR THE PURPOSES OF SECTION 48 AND 49 OF THE ACT , IN RELATION TO A CAP ITAL ASSET BEING EQUITY SHARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNIZED STOCK EXCHANGE IN INDIA UNDER A SCHEME OF DEMUTUALIZATION AND CORPORATIZATI ON APPROVED BY SEBI , SHALL BE COST OF ACQUISITION OF HIS ORIGINAL MEMBER SHIP OF THE EXCHANGE. WHILE FOR CAPITAL ASSET BEING TRADING OR CLEARING RIGHTS OF THE RECOGNIZED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALL OTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUALIZATION OR CORP ORATIZATION , SHALL BE DEEMED TO BE NIL. ITA 2640/M/12 11 THE HONBLE SUPREME COURT HAS IN THE CASE OF TECHNO SHARES AND STOCKS LIMITED (SUPRA) HAS HELD THAT MEMBERSHIP RIGHT OF B SE (AOP- ASSESSMENT YEAR 1999-00 TO 2002-03 DEALT WITH BY HONBLE SUPRE ME COURT WAS PRIOR TO DEMUTUALIZATION OR CORPORATIZATION OF BSE ) IS A B USINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE AND IS A LICENSE OR AKIN TO L ICENSE AS DEFINED U/S 32(1)(II) OF THE ACT AND IS ENTITLED FOR DEPRECIATION AS BEIN G INTANGIBLE ASSET , IF ACQUIRED ON OR AFTER 01.04.1998 AS PROVIDED UNDER T HE AMENDED ACT . THE ASSESSEE COMPANY IN THE INSTANT CASE HAS ACQUI RED MEMBERSHIP OF BSE FOR RS.2,41,00,000/- ON 10-07-2000 WHICH IS AFTER 1 .4.1998 AND IS AN INTANGIBLE ASSET AS BUSINESS OR COMMERCIAL RIGHT O F SIMILAR NATURE AND IS LICENSE OR AKIN TO LICENSE AS STIPULATED U/S 32 (1)(II) OF THE ACT AND SHALL FORM PART OF BLOCK OF INTANGIBLE ASSETS AS DEFINED U/S 2 (11)(B) OF THE ACT AND SHALL BE ENTITLED FOR DEPRECIATION U/S 32 OF THE ACT. THE ASSESSEE COMPANY HAS PRIOR TO DEMUTUALIZATION OR CORPORATIZATION OF BSE, HAD I N-FACT CLAIMED DEPRECIATION ON THE MEMBERSHIP OF BSE IN THE RETURN OF INCOME FI LED WITH THE REVENUE WHICH WAS ALLOWED BY THE REVENUE. THE SECTION 50 O F THE ACT IS A SPECIAL PROVISION FOR COMPUTING CAPITAL GAINS IN CASE OF DE PRECIABLE ASSETS AND IN THE INSTANT CASE , THE MEMBERSHIP OF BSE IS DEPRECIABLE ASSET BEING INTANGIBLE ASSET U/S 32(1)(II) OF THE ACT ON WHICH THE ASSESSE E COMPANY HAS IN-FACT CLAIMED DEPRECIATION IN THE PRECEDING YEAR WHICH WA S ALLOWED BY THE REVENUE. THERE IS A NEED FOR HARMONIOUS CONSTRUCTION OF THES E RELEVANT SECTIONS TO ARRIVE AT THE TRUE MANDATE OF THE ACT IN THIS RESPE CT AND THE CONFLICTS, IF ANY NEEDED TO BE ACCORDINGLY RESOLVED. SECTION 50 OF TH E ACT, INTER-ALIA, STIPULATES THAT COST OF ACQUISITION FOR THE PURPOSES OF COMPUT ING CAPITAL GAINS SHALL BE TAKEN TO BE WRITTEN DOWN VALUE OF ASSET AS AT THE B EGINNING OF THE PREVIOUS YEAR. THE SECTION 50 OF THE ACT STARTS WITH A NON-O BSTANTE CLAUSE AND STIPULATE THAT NOTWITHSTANDING ANYTHING CONTAINED I N SECTION 2(42A) OF THE ACT, THE PROVISIONS OF SECTION 48 AND 49 OF THE ACT SHALL BE APPLIED SUBJECT TO THE MODIFICATIONS AS STIPULATED WHICH , INTER-ALIA , PROVIDES THAT COST OF ITA 2640/M/12 12 ACQUISITIONS SHALL BE DEEMED TO BE WRITTEN DOWN VAL UE OF THE BLOCK OF ASSET AS AT THE BEGINNING OF THE PREVIOUS YEAR AND ACTUAL CO ST OF ANY ASSET FALLING WITH THE BLOCK OF ASSET ACQUIRED DURING THE PREVIOUS YEA R , FOR THE PURPOSES OF COMPUTING CAPITAL GAINS WHICH SHALL BE DEEMED TO BE ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSETS . THUS, SECTION 50 OF THE ACT CLEARLY STIPULATE THAT THE ORIGINAL COST OF ACQUISITION OF THE DEPREC IABLE ASSETS SHALL NOT BE TAKEN AS COST OF ACQUISITION FOR THE PURPOSES OF CO MPUTING CAPITAL GAINS UNDER THE ACT BUT THE WRITTEN DOWN VALUE AS AT THE BEGINN ING OF THE PREVIOUS YEAR SHALL BE DEEMED TO BE COST OF ACQUISITION OF THE DE PRECIABLE ASSET . FURTHER, BENEFIT OF INDEXATION OF COST OF ACQUISITION SHALL ALSO NOT BE AVAILABLE AS PROVIDED U/S 48 OF THE ACT BECAUSE SECTION 50 OF TH E ACT BEING SPECIAL PROVISIONS FOR COMPUTATION OF CAPITAL GAIN IN CASE OF DEPRECIABLE ASSET HAS CLEARLY STIPULATED THAT THE PROVISIONS OF SECTION 4 8 AND 49 SHALL BE APPLICABLE SUBJECT TO THE STIPULATED MODIFICATIONS U/S 50 OF THE ACT AND WRITTEN DOWN VALUE OF THE BLOCK OF ASSET AT THE BEGINNING OF THE PREVIOUS YEAR SHALL , INTER- ALIA BE REDUCED FROM FULL VALUE OF CONSIDERATION TO ARRIVE AT CAPITAL GAINS WHICH SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISI NG FROM TRANSFER OF SHORT- TERM CAPITAL ASSETS MEANING THEREBY THAT NO BENEFIT OF COST INFLATION INDEX AS STIPULATED U/S 48 OF THE ACT SHALL BE ALLOWED TO TA XPAYER IN CASE OF DEPRECIABLE ASSET , WHICH PROPOSITION IS FURTHER SUPPORTED BY A NON-OBSTANTE CLAUSE IN SECTION 50 WHICH STATES THAT NOTWITHSTANDING ANYTH ING CONTAINED IN CLAUSE (42A) OF SECTION 2. AND SECTION 2(42A) OF THE ACT DEFINES SHORT TERM CAPITAL ASSET AND THE PERIOD OF HOLDING RELEVANT FOR DETERM INING THE SHORT TERM CAPITAL ASSET AND EXPLANATION 1 (HA) PROVIDES THAT IN DETER MINING THE PERIOD OF HOLDING FOR WHICH ANY CAPITAL ASSET IS HELD BY THE TAX-PAYER, THE CAPITAL ASSET BEING EQUITY SHARES OR SHARES IN A COMPANY ALLOTTED IN PURSUANCE TO THE DEMUTUALIZATION OR CORPORATIZATION OF THE RECOGNIZE D STOCK EXCHANGE IN INDIA AS REFERRED TO IN SECTION 47(XIII) OF THE ACT, THER E SHALL BE INCLUDED THE PERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNIZED STOCK EXCHANGE IN INDIA IMMEDIATELY PRIOR TO SUCH DEMUTUALIZATION OR CORPOR ATIZATION WHILE SECTION 50 ITA 2640/M/12 13 CLEARLY STIPULATE THAT THE CAPITAL GAINS ARISING TH ERE-FROM SHALL BE TREATED AS ARISING FROM TRANSFER OF SHORT TERM CAPITAL ASSETS WHILE SECTION 48 , INTER-ALIA, PROVIDES THAT BENEFIT OF COST INFLATION INDEX SHALL ONLY BE GRANTED IN CASE OF LONG TERM CAPITAL GAINS ARISING FROM THE TRANSFER O F A LONG-TERM CAPITAL ASSETS . ON THE OTHER HAND SECTION 55(2)(AB) OF THE ACT HA S EXPLAINED, INTER-ALIA, THE MEANING OF COST OF ACQUISITIONS AND STIPULATED THAT COST OF ACQUISITION FOR PURPOSES OF SECTION 48 AND 49 OF THE ACT IN RELATIO N TO THE CAPITAL ASSET , BEING EQUITY SHARE OR SHARES ALLOTTED TO A SHAREHOL DER OF A RECOGNIZED STOCK EXCHANGE IN INDIA UNDER A SCHEME OF DEMUTUALIZATION AND CORPORATIZATION APPROVED BY SEBI , SHALL BE COST OF ACQUISITION OF ORIGINAL MEMBERSHIP OF THE EXCHANGE. WHILE FOR CAPITAL ASSET BEING TRADING OR CLEARING RIGHTS OF THE RECOGNIZED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUA LIZATION OR CORPORATIZATION , SHALL BE DEEMED TO BE NIL, BY VIR TUE OF PROVISIONS OF SECTION55(2)(AB) OF THE ACT. WHILE BY VIRTUE OF SP ECIAL PROVISIONS AS CONTAINED IN SECTION 50 OF THE ACT , SECTION 48 AND 49 OF THE ACT SHALL BE APPLICABLE SUBJECT TO SUCH MODIFICATION AS STIPULATED BY SECTI ON 50 OF THE ACT, WHICH INTER-ALIA PROVIDES , THAT COST OF ACQUISITION SHAL L BE TAKEN TO BE WRITTEN DOWN VALUE AS AT THE BEGINNING OF THE PREVIOUS YEAR AND IT IS WELL SETTLED PROPOSITION THAT SPECIAL PROVISIONS SHALL PREVAIL ON THE GENERA L PROVISIONS BECAUSE IF A SPECIAL PROVISION IS MADE ON A CERTAIN MATTER, THAT MATTER IS EXCLUDED FROM THE GENERAL PROVISION. SECTION 55(2)(AB) OF THE ACT WHILE REFERRING TO COST OF ACQUISITION OF ORIGINAL MEMBERSHIP OF THE EXCHANGE HAS TO SUBJUGATE ITSELF AND COST OF ACQUISITION REFERRED THEREIN SECTION 55(2)( AB) OF THE ACT FOR THE PURPOSES OF SECTION 48 AND 49 OF THE ACT BEING COST OF ACQUISITION OF ORIGINAL MEMBERSHIP WILL MEAN THEREBY COST OF ACQUISITIONS F OR THE PURPOSES OF SECTION 48 AND 49 AS MODIFIED BY SECTION 50 OF THE ACT WHIC H SHALL BE TAKEN TO BE WRITTEN DOWN VALUE AS AT THE BEGINNING OF THE PREVI OUS YEAR AND AS INCREASED BY ACTUAL COST OF ANY ADDITIONS DURING THE PREVIOUS YEAR AND NOT THE ORIGINAL COST OF MEMBERSHIP PAID BY THE ASSESSEE COMPANY IN THE YEAR 2000 AND ITA 2640/M/12 14 SECONDLY BENEFIT OF INDEXATION SHALL ALSO NOT BE AV AILABLE TO THE ASSESSEE COMPANY TILL IT GOT EQUITY SHARES AND TRADING RIGHT S ON DEMUTUALIZATION OR CORPORATIZATION ON 10-10-2005 AS THE ASSESSEE COMPA NY WAS CLAIMING THE DEPRECIATION U/S 32 OF THE ACT ON MEMBERSHIP OF BSE TILL IT RECEIVED 10000 EQUITY SHARES OF BSE LIMITED AND TRADING RIGHTS OF BSE LIMITED IN THE PROCESS OF THE DEMUTUALIZATION AND CORPORATIZATION OF BSE, IN LIEU OF MEMBERSHIP OF BSE. PURSUANT TO DEMUTUALIZATION OR CORPORATIZATION OF BSE, THE ASSESSEE COMPANY HAS GOT 10000 EQUITY SHARES OF BSE LIMITED AND TRADING RIGHT OF BSE LIMITED . THUS, THE COST OF ACQUISITION OF 1000 0 EQUITY SHARES OF BSE LIMITED SHALL BE TAKEN AS WRITTEN DOWN VALUE OF THE MEMBERSHIP OF THE BSE AS AT THE BEGINNING OF PREVIOUS YEAR I.E. 01.04.200 5 WHILE THE COST OF ACQUISITION OF TRADING RIGHTS OF BSE ACQUIRED IN D EMUTUALIZATION OR CORPORATIZATION PROCESS SHALL BE DEEMED TO BE NIL , AS PER THE MANDATE OF SECTION 55(2)(AB) OF THE ACT. THE ASSESSEE COMPANY SHALL BE ENTITLED FOR WORKING OUT COST OF ACQUISITION OF 4562 SHARES OF B SE LIMITED SOLD DURING THE PREVIOUS YEAR ON PROPORTIONATE BASIS BASED ON THE N UMBER OF SHARES SOLD CALCULATED ON THE TOTAL WRITTEN DOWN VALUE OF THE 1 0000 SHARES OF BSE LIMITED SO ALLOTTED ON 10-10-2005. THE ASSESSEE COMPANY SH ALL NOT BE ENTITLED FOR CLAIMING BENEFIT OF COST INFLATION INDEXATION FROM THE PERIOD 10-07-2000 I.E. DATE OF ACQUISITION OF MEMBERSHIP OF BSE TILL 10-10 -2005 I.E. WHEN THE 10000 EQUITY SHARES ARE ALLOTTED BY BSE LIMITED ALONG WIT H TRADING RIGHTS IN BSE LIMITED, IN LIEU OF MEMBERSHIP OF BSE. THE ASSESSEE COMPANY ON DEMUTUALIZATION OR CORPORATIZATION OF BSE LIMITED I S HOLDING 10000 EQUITY SHARES OF BSE LIMITED AND TRADING RIGHT BOTH AS AS SETS W.E.F 10-10-2005 . THE ASSESSEE COMPANY SHALL BE ENTITLED TO CLAIM BE NEFIT OF COST INFLATION INDEX ON THE SALE OF 4562 EQUITY SHARES SO SOLD IN THE PR EVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2008-09, FROM THE ASSESSMENT YEAR 2 006-07 TILL THE CURRENT ASSESSMENT YEAR I.E. 2008-09. WE ORDER ACCORDINGLY 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS DISMISSED. ITA 2640/M/12 15 ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH FEBRUARY , 2016. # $% &' 10.02.2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 10-02-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI