M/s BGSE Financials Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-1(1)(2), Bangalore

ITA 3130/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5553 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 22-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 2(14); 37

Judgement Text

ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.3130/BANG/2018 ASSESSMENT YEAR: 2013-14 M/S. BGSE FINANCIALS LTD. STOCK EXCHANGE TOWERS 1 ST CROSS, JC ROAD BENGALURU-560 027 PAN NO : AABCB3792J VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-1(1)(2) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SMT. SUMAN LUNKAR, A.R. RESPONDENT BY : SHRI PRIYADARSHI MISHRA, D.R. DATE OF HEARING : 05.10.2020 DATE OF PRONOUNCEMENT : 06.10.2020 O R D E R PER GEORGE GEORGE K., JUDICIAL MEMBER: THIS APPEAL AT THE INSTANCE OF ASSESSEE IS DIRECTED AGAINST CIT(A) ORDER DATED 4.9.2018. THE RELEVANT ASSESSME NT YEAR IS 2013-14. 2. THE SOLITARY ISSUE RAISED IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ASSESSMENT ORDER, WHEREIN A SUM OF R S.11,34,836/- BEING ADMISSION FEES PAID TO STOCK EXCHANGE WAS DIS ALLOWED AS CAPITAL EXPENDITURE (ALTHOUGH THE CIT(A) ALLOWED DE PRECIATION ON THE SAME). ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 2 OF 8 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS: ASSESSEE IS A PRIVATE LIMITED COMPANY. IT IS ENGA GED IN STOCK EXCHANGE OPERATIONS. DURING THE RELEVANT ASSESSMEN T YEAR, THE ASSESSEE HAD MADE PAYMENT OF RS.11,34,836/- TO MCX- SX STOCK EXCHANGE TOWARDS ADMISSION FEES AND PROCESSING CHAR GES. ASSESSEE HAD CLAIMED IT AS A DEDUCTION. IN THE ASSESSMENT O RDER COMPLETED U/S 143(3) OF THE INCOME-TAX ACT,1961 ['THE ACT' FO R SHORT] (ORDER DATED 29.1.2016), THE ADMISSION FEES WAS DISALLOWED AS A CAPITAL EXPENDITURE. THE RELEVANT OBSERVATIONS OF THE A.O. ARE AS FOLLOWS: 4.3--------------------------THE AMOUNT PAID IN TH E NATURE OF LICENSE FEE/ACQUISITION OF ANY PERMIT/OTHER EXPENSES ETC, W HICH ARE ESSENTIAL TO COMMENCE A BUSINESS ARE TO BE TREATED AS CAPITAL EXPENDITURE.--- ----------------- 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE FILED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. BEFORE TH E FIRST APPELLATE AUTHORITY, IT WAS SUBMITTED THAT RS.11,34,836/- PAI D AS ADMISSION FEES IN A STOCK EXCHANGE IS ONLY A PERMISSION TO DO TRADING IN SHARES AND NO CAPITAL ASSET IS ACQUIRED BY THE ASSESSEE. THEREFORE, IT WAS SUBMITTED THAT THE EXPENDITURE INCURRED AS ADMISSIO N FEES IS TO BE ALLOWED AS A REVENUE EXPENDITURE. ALTERNATIVELY, I T WAS CONTENDED THAT IF EXPENDITURE IS TO BE TREATED AS A CAPITAL E XPENDITURE, DEPRECIATION ON THE SAME IS TO BE GRANTED. 5. THE CIT(A) AFTER REFERRING TO THE PRECEDENCE ON THE ISSUE HELD THAT THE EXPENDITURE OF RS.11,34,836/- BEING ADMISS ION FEES PAID TO A STOCK EXCHANGE IS A CAPITAL EXPENDITURE. THE CIT (A) HOWEVER ALLOWED THE ALTERNATIVE CLAIM OF THE ASSESSEE AND G RANTED DEPRECIATION ON IT. ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 3 OF 8 6. THE ASSESSEE BEING AGGRIEVED HAS FILED THIS APPE AL BEFORE THE TRIBUNAL RAISING THE FOLLOWING EFFECTIVE GROUNDS: 2.1 IN ANY CASE, THE LEARNED ASSESSING OFFICER HAD ERRED IN TREATING THE STOCK EX CHANGE ADMISSION FEE AS CAPIT AL IN NATURE AND ACCORDINGLY DISALLOWING THE SUM OF RS.11,34,836/- A ND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME ALBEIT ALLO WING THE DEPRECIATION THEREON. ON THE PROPER APPRECIATION O F FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, IT WI LL BE THERETO, THE PAYMENT WAS MADE TO CARRY ON THE TRADING ACTIVITIES AND HENCE REVENUE IN NATURE AND ALLOWABLE AS BUSINESS EXPENDI TURE AS CLAIMED BY THE APPELLANT. 2.2 THE AUTHORITIES BELOW HAVE ERRED IN NOT APPRECI ATING THE FACT THAT THE PAYMENT TO STOCK EXCHANGE WAS ONE TIME NON REFUNDABLE PAYMENT IN THE NATURE OF FEES TO ENABLE TRADE ACTIV ITIES AND NOT A DEPOSIT TO ACQUIRE ANY RIGHT. THE DISALLOWANCE AS MADE BEING CONTRARY TO FACTS AND LAW APPLICABLE IS TO BE DELET ED. 2.3 IN ANY CASE, WITHOUT FURTHER PREJUDICE, THE LEA RNED AUTHORITIES BELOW HAVE ERRED IN TREATING THE FEES P AID AS LICENSE/RIGHT/MEMBERSHIP. ON PROPER APPRECIATION O F FACTS AND THE LAW APPLICABLE, THE CONCLUSIONS DRAWN BY THE AUTHOR ITIES BELOW ARE WHOLLY ERRONEOUS AND IS TO BE DISREGARDED. 7. THE LD. A.R. REITERATED THE SUBMISSIONS MADE BEF ORE THE CIT(A). THE LD. A.R. ALSO FILED A COMPILATION OF C ASE LAWS (I) & (II). THE COMPILATION OF CASE LAWS (II) ARE JUDICIAL PRON OUNCEMENTS THAT ARE NOT CITED BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. D.R. ON THE OTHER HAND, RELIED ON THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. REPORTED IN 32 7 ITR 323 (SC). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SECTION 37 OF THE ACT PROVIDES THAT AN EXPENDITURE (NOT BEING AN EXPENDITURE OF NATURE DESCRIBED IN SECTION 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSO NAL EXPENSES OF THE ASSESSEE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPU TING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT & GAINS OF BUSINE SS OR PROFESSION. THE SOLITARY ISSUE THAT ARISES FOR OUR CONSIDERATIO N IS ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 4 OF 8 WHETHER THE IMPUGNED EXPENDITURE WHERE IT IS A CAPI TAL EXPENDITURE OR REVENUE EXPENDITURE. IN ORDER TO DECIDE WHETHER EXPENDITURE INCURRED BY THE ASSESSEE TO ACQUIRE MEMBERSHIP/ADMI SSION OF STOCK EXCHANGE IS A CAPITAL EXPENDITURE, WE HAVE TO NECES SARILY EXAMINE THE RULES NOTIFIED BY THE CONCERNED STOCK EXCHANGE IN THIS BEHALF. RULE 18(A) READS AS UNDER. EVERY TRADING MEMBER OF EXCHANGE SHALL UPON BEING ADMITTED AS A TRADING MEMBER OF EXCHANGE IS TO BE ISSUED CERTIFIED OR ENTITLEMENT SLIP AS PROOF OF HAVING BE EN ADMITTED TO THE BENEFITS AND PRIVILEGES OF TRADING MEMBERSHIP OF EX CHANGE. SUCH A CERTIFICATE OR ENTITLEMENT SLIP SHALL NOT BE TRANSF ERABLE OR TRANSMITTABLE EXCEPT AS MENTIONED THEREIN. AS PER RULE 18(B) OF THE SAID RULES A CERTIFICATE OR ENTITLEMENT SLIP IS TRANSFERABLE FOR NOMINATION SUBJECT TO REQUISITE APPROVALS. RULE 20 PROHIBITS A TRADIN G MEMBER FROM ASSIGNING, MORTGAGING, PLEDGING, HYPOTHECATING OR C HARGING HIS RIGHT OF MEMBERSHIP OR ANY RIGHTS OR PRIVILEGES ATTACHED THERETO. THE SAID RULE MAKES IT QUITE CLEAR THAT ACQUISITION OF MEMBE RSHIP IN STOCK EXCHANGE BY THE ASSESSEE CREATES INTANGIBLE RIGHT I N ITS FAVOUR, WHICH WAS ALSO TRANSFERABLE BY NOMINATION. IT IS THIS ME MBERSHIP OF THE STOCK EXCHANGE WHICH ENABLE THE ASSESSEE THE BENEFI TS AND PRIVILEGES OF TRADING MEMBER OF STOCK EXCHANGE, THEREBY ENABLI NG IT TO CARRY ON ITS TRADE AS A MEMBER OF STOCK EXCHANGE. 8.1. IN ORDER TO CONSTITUTE A CAPITAL ASSET, THE ASSET SHOULD GENERALLY HAVE AN ELEMENT OF PERMANENCY ABOUT IT AN D SHOULD BE CAPABLE OF BEING A SOURCE OF INCOME. THIS DISTINCT ION IS WELL BROUGHT OUT BY THE DEFINITION OF CAPITAL ASSET GIVEN IN S ECTION 2(14) OF THE INCOME-TAX ACT. SECTION 2(14) OF THE INCOME-TAX AC T DEFINES CAPITAL ASSET AS PROPERTY OF ANY KIND HELD BY AN ASSESSEE , WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE (I) ANY STOCK-IN-TRADE, CONSUMABLE STORES OR RAW MATERI ALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION; (II) PERSON AL EFFECTS . ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 5 OF 8 ASSETS, LIKE STOCK-IN-TRADE, CONSUMABLE STORES OR R AW MATERIALS HELD FOR THE PURPOSES OF THE BUSINESS OR PROFESSION HAVE NO ELEMENT OF PERMANENCY IN THE HANDS OF A TRADER IN THEM AND, TH EREFORE, THEY ARE EXCLUDED FROM THE AMBIT OF CAPITAL ASSET. TESTED ON THE AFORESAID PARAMETERS, THE MEMBERSHIP OF A STOCK EXCHANGE CONF ERS A VALUABLE RIGHT ON ITS HOLDER TO ENJOY THE RIGHTS AND PRIVILE GES OF A TRADING MEMBER AND ALSO TO CARRY ON THE TRADE AS A MEMBER O F THE STOCK EXCHANGE. IT HAS BEEN HELD IN R.C. COOPER V. UNION OF INDIA AIR 1970 SC 564, 591 THAT THE TERM PROPERTY, IN ITS ORDINA RY CONNOTATION, MEANS THE HIGHEST RIGHT A MAN CAN HAVE TO ANYTHING, BEING TH AT RIGHT WHICH ONE HAS TO LANDS OR TENEMENTS, GOODS OR CHATT ELS WHICH DOES NOT DEPEND ON ANOTHERS COURTESY; IT INCLUDES OWNERSHIP , ESTATES AND INTERESTS IN CORPOREAL THINGS, AND ALSO RIGHTS SUCH AS TRADE-MARKS, COPY-RIGHTS, PATENTS AND EVEN RIGHTS IN PERSONAM CA PABLE OF TRANSFER OR TRANSMISSION, SUCH AS DEBTS; AND SIGNIFIES A BEN EFICIAL RIGHT TO OR A THING CONSIDERED AS HAVING A MONEY VALUE, ESPECIALL Y WITH REFERENCE TO TRANSFER OR SUCCESSION, AND TO THEIR CAPACITY OF BEING INJURED. IT IS, THUS, CLEAR THAT THE TERM PROPERTY INCLUDES EVEN RIGHTS IN PERSONAM CAPABLE OF BEING TRANSFERRED OR TRANSMITTED. RIGHT S CONFERRED BY THE STOCK EXCHANGE ON ITS MEMBERS ARE IN THE NATURE OF RIGHTS IN PERSONAM WHICH ARE CAPABLE OF BEING TRANSFERRED AND TRANSMIT TED AND, THEREFORE, THEY CONSTITUTE PROPERTY AND THEREB Y A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE INCOME-T AX ACT. MEMBERSHIP OF A STOCK EXCHANGE IS NOT IN THE NATURE OF STOCK-IN- TRADE, CONSUMABLE STORES OR RAW MATERIALS HELD FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OR IN THE NATURE OF PERS ONAL EFFECTS AND, HENCE, IT CANNOT BE EXCLUDED FROM THE PURVIEW OF BE ING CALLED A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) . MEMBERSHIP OF A STOCK EXCHANGE NOT ONLY HAS AN ELEMENT OF PERMANENC Y BUT ALSO HAS THE ELEMENT OF BEING A SOURCE OF INCOME AND, THEREF ORE, IT MUST BE HELD TO BE IN THE NATURE OF A CAPITAL ASSET. ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 6 OF 8 8.2 CAPITAL EXPENDITURE IS CLOSELY AKIN TO THE C ONCEPT OF SECURING SOMETHING, WHETHER TANGIBLE OR INTANGIBLE PROPERTY, OR CORPOREAL OR INCORPOREAL RIGHTS, WHICH CONFER LASTI NG OR ENDURING BENEFIT TO THE ENTERPRISE. AN EXPENSE MADE BY A BU SINESS TO DERIVE A LONG-TERM BENEFIT IS, THEREFORE, GENERALLY TREATED AS CAPITAL EXPENDITURE. REVENUE EXPENDITURE, ON THE OTHER HAN D, IS OPERATIONAL IN ITS PERSPECTIVE AND SOLELY INTENDED FOR THE FURT HERANCE OF THE ENTERPRISE. CAPITAL EXPENDITURE GENERALLY LEADS T O ACQUISITION OF AN ASSET WHICH IS INTENDED TO BE OF LASTING VALUE; WHI LE REVENUE EXPENDITURE REPRESENTS EITHER RUNNING EXPENSES WHI CH ARE INCURRED IN EARNING PROFIT OR INCURRED WITH THE PRIMARY OBJE CT OF SECURING AN IMMEDIATE RETURN OR INCURRED IN ACQUIRING ASSETS WH ICH ARE NOT OF LASTING VALUE IN THAT THEY GET EXHAUSTED OR CONSUME D (LIKE RAW MATERIALS) IN THE PROCESS OF SECURING THE RETURN OR LIMITED NUMBER OF RETURNS. EXPENDITURE INCURRED ON ESTABLISHING, REP LACING AND/OR ENLARGING THE PROFIT/YIELD (INCOME-EARNING ASSET) I S GENERALLY OF CAPITAL NATURE WHILE EXPENDITURE INCURRED IN THE PR OCESS OF EARNING OF THE PROFITS IS OF REVENUE NATURE. 8.3 THE HONBLE APEX COURT IN THE CASE OF TECHNO S HARES AND STOCKS LIMITED VS. CIT (SUPRA) HAD HELD THAT MEMBER SHIP OF STOCK EXCHANGE WAS BUSINESS OR COMMERCIAL RIGHT CONFERRED BY THE RULES OF EXCHANGE. THE MEMBERSHIP RIGHT COULD BE SAID TO BE OWNED BY THE MEMBER AND USED FOR THE PURPOSE OF BUSINESS. IT WA S SIMILAR TO A LICENSE OR FRANCHISE AND WAS TO BE TREATED AS AN IN TANGIBLE ASSET. HONBLE APEX COURT, HELD THAT ASSESSEE BEING THE OW NER AND AS THE SAID ASSET WAS USED FOR THE PURPOSE OF BUSINESS WAS ENTITLED TO DEPRECIATION ON THE SAME. THE HONBLE APEX COURT H AD EXAMINED THE NATURE AND CHARACTER OF MEMBERSHIP CARD, WHICH ENAB LED THE ASSESSEE TO TRADE ON THE FLOOR OR AS A BROKER OF TH E STOCK EXCHANGE. IT WAS HELD BY THE HONBLE APEX COURT THAT THIS MEM BERSHIP WAS A ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 7 OF 8 BUSINESS OR A COMMERCIAL RIGHT IN THE NATURE OF LIC ENSE U/S 32(1)(II) OF THE ACT. THE HONBLE SUPREME COURT CONCLUDED TH AT IT WAS A RIGHT OR A LICENSE OWNED BY THE ASSESSEE AND WAS USED BY HIM AS AN ASSET, I.E. THE CAPITAL ASSET. 8.4 THE HONBLE APEX COURT IN THE CASE OF ALEMBIC CHEMICAL WORK COMPANY LTD. VS. CIT REPORTED IN 177 ITR 377 H AD ELUCIDATED AND AFFIRMED THAT ONCE AND FOR ALL PAYMENT WHEN I T COMES INTO EXISTENCE, AN ASSET OR AN ADVANTAGE OF ENDURING BEN EFIT IN ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLU SION IS A CAPITAL EXPENDITURE AND NOT ATTRIBUTABLE TO REVENUE. THIS IS THE PRIMARY AND BASIC TEST. ASSESSEE HAS NOT BEEN ABLE TO ESTABLIS H ANY SPECIAL CIRCUMSTANCES FOR AN OPPOSITE CONCLUSION IN THE PRE SENT CASE. FURTHER, THE EXPENDITURE INCURRED WAS FOR ACQUIRING AND BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE OF ENDURING BE NEFIT AND NOT FOR RUNNING BUSINESS TO PRODUCE MORE PROFITS. 8.5 THE HONBLE DELHI HIGH COURT IN THE CASE OF AB HIPRA CAPITAL LTD. VS. DCIT (INVESTIGATION) REPORTED IN 4 02 ITR 1 ON IDENTICAL FACTS HAD DECIDED THE ISSUE IN FAVOUR OF THE REVENUE. THE JUDICIAL PRONOUNCEMENTS RELIED ON THE LEARNED A.R. ARE DISTINGUISHABLE ON FACTS. IN NONE OF CASES RELIED ON THE LEARNED A.R., THERE WAS REFERENCE TO HONBLE APEX COURT JUDGEMENT IN CASE OF TECHNO SHARES AND STOCKS LTD. VS. CIT (SUPRA), WHER EIN IT CLEARLY HELD MEMBERSHIP OF A STOCK EXCHANGE IS A CAPITAL A SSET. MOREOVER, THE CASES RELIED ON BY THE LEARNED A.R., HAD PROCEE DED ON THE BASIS THAT ASSESSEE ON INCURRING THE EXPENDITURE FOR ACQU IRING MEMBERSHIP OF A STOCK EXCHANGE HAS NOT BECOME OWNER OF ANY ASS ET AND THEREFORE CANNOT BE SAID THAT ANY ENDURING BENEFIT HAD ACCRUE D TO THE ASSESSEE. WHEREAS IN LIGHT OF HONBLE SUPREME COURT JUDGEMENT IN THE CASE OF TECHNO SHARES AND STOCKS LIMITED (SUPRA ) MEMBERSHIP ITA NO.3130/BANG/2018 M/S. BGSE FINANCIALS LTD., BANGALORE PAGE 8 OF 8 OF STOCK EXCHANGE IS TO BE TREATED AS A CAPITAL ASS ET. THEREFORE, CIT(A) HAS RIGHTLY TREATED THE ADMISSION FEE AS A MEMBERSH IP OF THE STOCK EXCHANGE CAPITAL ASSET AND ALLOWED ALTERNATIVE PLEA OF ASSESSEE THAT DEPRECIATION IS TO BE GRANTED ON THE SAME. HENCE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND WE AFFIRM THE SAME. IT IS ORDERED ACCORDINGLY. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH OCT, 2020 SD/- (A.K. GARODIA) ACCOUNTANT MEMBER SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER BANGALORE, DATED 6 TH OCT, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.