TATA SECURITIES LTD, MUMBAI V. ADDL CIT RG 4(2), MUMBAI

ITA 3405/MUM/2010

• Counselvise Citation: 340519914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 02-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Principle of natural justice; Source of fund; Cost of acquisition
• Section: 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 3405/MUM./2010 (ASSESSMENT YEAR : 2006-07 ) TATA SECURITIES LTD. C/O KALYANIWALLA & MISTRY ARMY & NAVY BUILDING 148, MAHATMA GANDHI ROAD FOR, MUMBAI 400 001 PAN AAACH8215R .. APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE-4(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. M.M. GOLVALAL ZANIN MEHRA REVENUE BY : MR. V.V. SHASTRI DATE OF HEARING 28.12.2011 DATE OF ORDER 28.12.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 8 TH FEBRUARY 2010, PASSED BY THE COMMISSIONER (APPEALS)-VIII, MUMBAI, FOR ASSESSMENT YEAR 2006-07 . 2. GROUNDS NO.1, READS AS FOLLOWS:- TATA SECURITIES LTD. ITA NO.3405/MUM./2007 2 1. BOTH THE LOWER AUTHORITIES ERRED IN DISALLOWING RS,6,63,422I BEING DEPRECIATION ON STOCK EXCHANGE CARD. THE APPELLANT SUBMITS THE ASSESSING OFFICER BE DIRECTED TO DELETE THE SAID DI SALLOWANCE. 3. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE IS SUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF MUMBAI H BENCH OF THE TRIBUNAL IN SINO SECURITIES PVT. LTD., ITA NO.6264/MUM./2009, FOR AS SESSMENT YEAR 2006-07, ORDER DATED 23 RD NOVEMBER 2011, WHEREIN, ONE OF US (A.M.) IS THE AU THOR OF THE ORDER. THE TRIBUNAL, WHILE DECIDING THE IDENTIC AL ISSUE IN FAVOUR OF THE ASSESSEE, OBSERVED AS FOLLOWS:- 21. THE FIRST ISSUE IS, WHETHER THE ASSESSEE IS EN TITLED TO DEPRECIATION ON THE WDV OF THE ERSTWHILE BSE CARD A FTER BECOMING A MEMBER OF BSEL. THE ASSESSEE, CONSEQUENT TO DEMUTUA LIZATION, HAS ACQUIRED TWO SEPARATE RIGHTS IN NEW COMPANY BSEL. T HESE RIGHTS ARE (I) OWNERSHIP RIGHTS AND (II) TRADING RIGHTS. 22. THESE ASSETS ARE HELD AS A CONSEQUENCE TO THE A SSESSEE BEING A BSE MEMBERSHIP CARDHOLDER. THE HON'BLE SUPREME COUR T IN TECHNO SHARES AND STOCK LTD. (SUPRA) HELD THAT THE BSE MEM BERSHIP CARD CONFERRED CERTAIN RIGHTS TO THE MEMBERS IN TERMS OF RULES AND BYLAWS OF BSE, AS THEY STOOD DURING THE RELEVANT YEARS, AN D THAT THIS WAS A BUSINESS IN COMMERCIAL RIGHT. PARAS-19 AND 25 OF TH E JUDGMENT OF HON'BLE SUPREME COURT IN TECHNO SHARES AND STOCKS L TD. (SUPRA), READS AS FOLLOWS:- 19. THE NEXT QUESTION IS - WHETHER THE MEMBERSHIP RIGHT COULD BE SAID TO BE OWNED BY THE ASSESSEE AND USED FOR THE B USINESS PURPOSE IN TERMS OF SECTION 32(1)(II). OUR ANSWER IS IN THE AFFIRMATIVE FOR THE REASON THAT THE RULES AND THE BYE-LAWS HEREINABOVE INDICATE THAT THE RIGHT OF MEMBERSHIP (INCLUDING THE RIGHT OF NOMINAT ION) VESTS IN THE EXCHANGE ONLY WHEN A MEMBER COMMITS DEFAULT. OTHERW ISE, HE CONTINUES TO PARTICIPATE IN THE TRADING SESSION ON THE FLOOR OF THE EXCHANGE; THAT HE CONTINUES TO DEAL WITH OTHER MEMB ERS OF THE EXCHANGE AND EVEN HAS THE RIGHT TO NOMINATE SUBJECT TO COMPLIANCE OF THE RULES. MOREOVER, BY VIRTUE OF EXPLANATION 3 TO SECTION 32(1) (II) THE COMMERCIAL OR BUSINESS RIGHT WHICH IS SIMI LAR TO A LICENCE OR FRANCHISE IS DECLARED TO BE AN INTANGIBLE ASSET. MOREOVER, UNDER RULE 5 MEMBERSHIP IS A PERSONAL PERMISSION FROM THE EXCHANGE WHICH IS NOTHING BUT A LICENCE WHICH ENABLES THE MEMBER TO EXERCISE RIGHTS AND PRIVILEGES ATTACHED THERETO. IT IS THIS LICENCE WHICH ENABLES THE MEMBER TO TRADE ON THE FLOOR OF THE EXCHANGE AN D TO PARTICIPATE IN THE TRADING SESSION ON THE FLOOR OF THE EXCHANGE . IT IS THIS LICENCE WHICH ENABLES THE MEMBER TO ACCESS THE MARKET. THER EFORE, THE RIGHT OF MEMBERSHIP, WHICH INCLUDES RIGHT OF. MEMBERSHIP WHICH IS A LICENCE OR AKIN TO A LICENCE WHICH IS ONE OF TH E ITEMS WHICH FALLS IN SECTION 32(1) (II) OF THE 1961 ACT THE RIGHT TO PAR TICIPATE IN THE MARKET HAS AN ECONOMIC AND MONEY VALUE IT IS AN EXP ENSE INCURRED BY THE ASSESSEE WHICH SATISFIES THE TEST :::OF. BEI NG A LICENCE OR TATA SECURITIES LTD. ITA NO.3405/MUM./2007 3 ANY OTHER :BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE IN TERMS OF SECTION 32(1)(II). 24. BEFORE CONCLUDING, WE WISH TO CLARIFY THAT OUR PRESENT JUDGMENT IS STRICTLY CONFINED TO THE RIGHT OF MEMBERSHIP CON FERRED UPON THE MEMBER UNDER THE BSE MEMBERSHIP CARD DURING THE REL EVANT ASSESSMENT YEARS . WE HOLD THAT THE SAID RIGHT OF MEMBERSHIP IS A BUSINESS OR COMMERCIAL RIGHT WHICH GIVES A NON-DE FAULTING CONTINUING MEMBER A RIGHT TO ACCESS THE EXCHANGE AN D TO PARTICIPATE THEREIN AND IN THAT SENSE IT IS A LICENCE OR AKIN T O LICENCE IN TERMS OF SECTION 32(1)(II) OF THE 1961 ACT. THAT, SUCH A RIG HT VESTS IN THE EXCHANGE ONLY ON DEFAULT / DEMISE IN TERMS OF THE RULES AND BYE- LAWS OF BSE, AS THEY STOOD AT THE RELEVANT TIME. OU R JUDGMENT SHOULD NOT BE UNDERSTOOD TO MEAN THAT EVERY BUSINESS OR CO MMERCIAL RIGHT WOULD CONSTITUTE A LICENCE OR A FRANCHISE IN TE RMS OF SECTION 32(1) (II) OF THE 1961 ACT. [EMPHASIS ADDED ] 23. THE QUESTION BEFORE US IS WHETHER THIS RIGHT I. E., THE RIGHTS CONFERRED UPON THE MEMBERS AS A BSE MEMBERSHIP CARD HOLDER WHICH WAS HELD TO BE A DEPRECIABLE ASSET, CONTINUES TO BE HELD IN THE SAME FORM BY THE ASSESSEE. THE JUDGMENT OF HON'BLE SUPRE ME COURT, AS IT IS CLEAR, DOES NOT EXTEND TO THE CURRENT ASSESSMENT YEAR. THIS RIGHT AS A BSE MEMBERSHIP CARD HOLDER HAS UNDERGONE A CHANGE CONSEQUENT TO CORPORATIZATION AND DEMUTUALIZATION OF BSE. THE RIGHTS IN QUESTION ARE NOT HELD IN THE SAME FORM. 24. TO UNDERSTAND CORPORATIZATION AND DEMUTUALIZ ATION OF STOCK EXCHANGE, WE EXTRACT CERTAIN PORTIONS OF THE GROUP REPORT FOR READY REFERENCE:- REPORT OF THE GROUP ON CORPORATISATION & DEMUTUALISATION OF STOCK EXCHANGE S 1. INTRODUCTION 1.1 THE GOVERNMENT HAD ANNOUNCED ITS PROPOSAL TO CORPOR ATISE THE STOCK EXCHANGES BY WHICH OWNERSHIP, MANAGEMENT AND TRADING RIGHTS WOULD BE SEGREGATED FROM EACH OTHER AND LEGISLATIVE CHANGES, IF REQUIRED, WOULD BE PROPOSED ACCORDINGLY TO GIVE EFF ECT TO THE CORPORATISATION AND DEMUTUALISATION OF STOCK EXCHAN GES. THE FINANCE MINISTER HAS ALSO EMPHASIZED IN HIS BUDGET SPEECH F OR THE YEAR 2002- 03 THAT THIS PROCESS WOULD BE COMPLETED DURING THE COURSE OF THE YEAR TO IMPLEMENT THE DECISION TO SEPARATE OWNERSHI P, MANAGEMENT AND OPERATION OF THE STOCK EXCHANGES. DEMUTUALISATION THE NEW GOVERNANCE STRUCTURE 5.6 THIS REDEFINITION OF THE ROLES AND THE NEW PARA DIGM OF COMPETITION, FORCED CHANGES IN THE TRADITIONAL GOVE RNANCE STRUCTURES OF STOCK EXCHANGES. COUNTRIES RESPONDED TO THESE PR ESSURES BY CONVERTING THEIR TRADITIONAL 'NOT FOR-PROFIT' STOCK EXCHANGES INTO A 'FOR PROFIT' COMPANY. THIS PROCESS OF TRANSITION FROM 'M UTUALLY-OWNED' ASSOCIATION TO A COMPANY 'OWNED BY SHAREHOLDERS', I N OTHER WORDS TATA SECURITIES LTD. ITA NO.3405/MUM./2007 4 TRANSFORMING THE LEGAL STRUCTURE FROM A MUTUAL FORM TO A BUSINESS CORPORATION FORM AND PRIVATISING THE CORPORATIONS S O CONSTITUTED, IS REFERRED TO AS DEMUTUALISATION. FURTHER, THE COMPAN Y SO CONSTITUTED MAY CHOOSE TO BE A LISTED OR AN UNLISTED, CLOSELY H ELD PUBLIC COMPANY. THE CONCEPT OF DEMUTUALISATION CAN BE APPLIED TO AN Y 'NON-PROFIT' ORGANISATION OR ASSOCIATION AS WELL. 5.7 DEMUTUALISATION INVOLVES THE SEGREGATION OF MEM BERS' RIGHT INTO DISTINCT SEGMENTS, VIZ. OWNERSHIP RIGHTS AND TRADIN G RIGHTS. IT CHANGES THE RELATIONSHIP BETWEEN MEMBERS AND THE STOCK EXCH ANGE. MEMBERS WHILE RETAINING THEIR TRADING RIGHTS ACQUIRE OWNERS HIP RIGHTS IN THE STOCK EXCHANGE, WHICH HAVE A MARKET VALUE, AND THEY ALSO ACQUIRE THE BENEFITS OF LIMITED LIABILITY . THE SHAREHOLDERS IN A CORPORATISED STOCK EXCHANGE MAY BE A DIVERSE GROUP, AS MEMBERS M AY DECIDE TO RETAIN THEIR SHARES OR TO SELL THEM. DEMUTUALISATIO N HOWEVER, DOES NOT INSULATE THEM FROM COMPETITION. A STOCK EXCHANG E WHOSE MANAGEMENT DOES NOT EFFECTIVELY WORK TO MAINTAIN IT S POSITION IN THE MARKET MAY SOON BECOME A TAKE-OVER TARGET. 9.6 THE GROUP NOTED THAT THERE ARE TWO PARTS TO THI S TRANSITION. ONE, WHICH INVOLVES THE CHANGING THE VOLUNTARY NOT-FOR-P ROFIT CHARACTER OF THE ENTITY INTO A FOR-PROFIT ONE (IN SOME CASES INT O A CORPORATE BODY AS WELL) AND SECOND, IS THE PROCESS OF DELINKING OF OWNERSHIP OF THE ENTITY BY THE MEMBERS FROM THEIR TRADING RIGHTS . THE FIRST WOULD INVOLVE THE MANNER IN WHICH ASSETS WOULD BE TRANSFE RRED FROM THE EXISTING ENTITIES TO THE NEW CORPORATE ENTITY, WHER EVER DEMUTUALISATION HAS TO BE ACCOMPANIED BY CORPORATIS ATION AS IN THE CASE OF BSE, ASE AND MPSE. 9.7 THE SECOND WOULD INVOLVE THE ALLOCATION OF THES E ASSETS TO THE MEMBERS. ALL STOCK EXCHANGES, WITH THE EXCEPTION OF THE NSE, OTCEI AND ICSEI HAVE THE CONCEPT OF MEMBERSHIP CARDS FOR THEIR MEMBERS. THE TWIN RIGHTS OF TRADING AND AN UNDIVIDED INTERES T IN THE OWNERSHIP OF THE STOCK EXCHANGE ARE EMBEDDED IN THE MEMBERSHI P CARD OF A STOCK EXCHANGE. THE TRANSITION TO A DEMUTUALISED ST OCK EXCHANGE WOULD INVOLVE THE SEGREGATION OF THESE TWIN RIGHTS INTO TWO SEPARATE AND INDEPENDENT RIGHTS VIZ . A. THE RIGHT TO PARTICIPATE IN THE OWNERSHIP OF THE AS SETS OF THE STOCK EXCHANGE, AND B. THE RIGHT TO TRADE ON THE STOCK EXCHANGE . 9.8 THIS DECOUPLING OF THE TWO RIGHTS WOULD HAVE TO BE EFFECTED THROUGH THE CANCELLATION OF THE CARD AGAINST A CONS IDERATION OF CREATION OF TWO ASSETS OR TWO RIGHTS - ONE, AN INTE REST IN THE ASSETS OF THE STOCK EXCHANGE AND THE OTHER INTEREST IN THE TR ADING RIGHT. THE INTEREST IN THE ASSET IS CREATED BY ISSUANCE OF SHA RES IN THE NEW ENTITY IN LIEU OF THE CONSIDERATION OF EXTINGUISHMENT OF C ARDS CURRENTLY OWNED BY THE MEMBERS IN THE MUTUAL ENTITY . INTERNATIONALLY ALSO, STOCK EXCHANGES HAVE FOLLOWED THE SAME PROCEDURE FO R DEMUTUALISATION. THE MANNER IN WHICH THE INTEREST I N THE TRADING RIGHTS WOULD BE CREATED IS DISCUSSED IN PARAGRAPHS 9.20 TO 9.22 OF THIS REPORT. TATA SECURITIES LTD. ITA NO.3405/MUM./2007 5 9.9 AT THE POINT OF TIME, WHEN A TRADING RIGHT IS A CQUIRED, AND A SHARE IS ALLOTTED TO A MEMBER OF AN STOCK EXCHANGE BY VIR TUE OF WHICH HE ACQUIRES A MEMBERSHIP PRIVILEGE AGAINST THE EXTINGU ISHMENT OF THE PREVIOUS RIGHT OF MEMBERSHIP, NO TRANSFER OF ASSETS EFFECTIVELY TAKES PLACE AND NEITHER OF THE ACQUISITIONS SHOULD THEREF ORE BE DEEMED TO BE A TRANSFER WITHIN THE MEANING OF THE WORD IN THE INCOME TAX ACT. HOWEVER, AT THE POINT OF SALE OF ANY OF THESE TWO R IGHTS, CAPITAL GAINS TAX WOULD BE ATTRACTED. THIS WOULD ALSO IMPLY THAT THE COST OF ACQUISITION WOULD HAVE TO BE SPLIT AND VALUED . THE MANNER IN WHICH THIS COULD BE DONE HAS BEEN ELABORATED IN PARAGRAPH 9.22 OF THIS REPORT. SEGREGATION OF TRADING RIGHTS AND OWNERSHIP 9.19 FOR THE PURPOSE OF SEGREGATION OF OWNERSHIP AN D TRADING RIGHTS, THE GROUP EXAMINED THE PRESENT SYSTEMS OF MEMBERSHI P PREVAILING IN THE STOCK EXCHANGES IN THE COUNTRY. IT WAS NOTED TH AT EXCEPT FOR NSE, WHICH OFFERS TRADING RIGHTS AGAINST DEPOSITS, ALL O THER STOCK EXCHANGES HAVE THE CONCEPT OF MEMBERSHIP CARDS FOR THEIR MEMB ERS. IN SOME STOCK EXCHANGES E.G. BSE, THE TRADING RIGHT IS EXER CISED THROUGH THE OWNERSHIP OF A TRADING CARD, WHICH SUBJECT TO BSE'S APPROVAL CAN BE TRANSFERRED FOR A CONSIDERATION. CARDS CAN BE SOLD BY MEMBERS AND ALSO BY THE STOCK EXCHANGE WHEN NEW MEMBERS ARE INT RODUCED. 9.20 THE REPRESENTATIONS RECEIVED BY THE GROUP FROM THE STOCK EXCHANGES, BROKERS' ASSOCIATION AND INVESTORS' ASSO CIATION SUGGEST THAT THERE ARE SEVERAL ADVANTAGES IN THE DEPOSIT SY STEM AS OPPOSED TO THE CARD SYSTEM. THE MAJOR ADVANTAGES ARE:- I. THE DEPOSIT PROVIDES A VALUABLE SOURCE OF FUNDIN G FOR THE STOCK EXCHANGE, WHICH NEEDS TO MAKE LARGE INVESTMENTS IN TECHNOLOGY. II. THE DEPOSIT IS CONSIDERED AS PART OF THE DEPOSI T REQUIRED BY THE MEMBER FOR HIS TRADING OPERATIONS AS ALSO AS PART O F HIS 'NET WORTH' UNLIKE THE CARD SYSTEM WHERE THE AMOUNT INVESTED BY A MEMBER IN THE PURCHASE OF THE CARD IS NOT CONSIDERED FOR EITH ER PURPOSE. IT NEITHER FORMS A PART OF MEMBERS CAPITAL FOR THE PU RPOSE OF COMPUTING HIS BASE MINIMUM CAPITAL, NOR IS IT TAKEN INTO ACCO UNT FOR EXPOSURE NORMS. 9.21 THE GROUP NOTED FROM THE REPRESENTATIONS RECEI VED BY IT THAT THE STOCK EXCHANGES FAVOURED THE DEPOSIT SYSTEM AS OPPOSED TO THE CARD OR THE SEAT SYSTEM. THE GROUP THEREFORE RECOMM ENDS THAT- A) THE TRADING CARD SYSTEM BE REPLACED BY THE DEPOS IT SYSTEM WHEREIN THE MONEY DEPOSITED BY THE MEMBER TO OBTAIN TRADING RIGHTS ONLY, BE CONSIDERED AS DEPOSIT WITH THE STOCK EXCHANGE FOR T RADING PURPOSE . WHILE THE GROUP FAVORS THE DEPOSIT SYSTEM, IT WOULD LIKE TO LEAVE THE CHOICE OF ADOPTING EITHER THE CARD OR THE DEPOSIT S YSTEM TO THE STOCK EXCHANGES; AND B) THE FOLLOWING PROCEDURES BE ADOPTED IF THE DEPOS IT SYSTEM IS ACCEPTED BY AN STOCK EXCHANGE FOR THE PURPOSE OF SE GREGATION OF THE TRADING RIGHTS AND OWNERSHIP. AS AN ILLUSTRATION ON LY, SOME FIGURES HAVE BEEN ASSUMED. TATA SECURITIES LTD. ITA NO.3405/MUM./2007 6 MEMBERS OF AN STOCK EXCHANGE CURRENTLY OWN AN ASSET VIZ. A CARD WHOSE VALUE CAN BE ASSESSED ON TWO DIFFERENT PARAME TERS VIZ.:- I. THE MARKET VALUE OF THE CARD AS EVIDENCED BY THE AC TUAL TRANSACTIONS WHICH HAVE TAKEN PLACE IN RECENT YEARS . II. THE FAIR VALUE OF THE CARD DERIVED BY DIVIDING THE FAIR VALUE OF THE STOCK EXCHANGE BY THE NUMBER OF CARDS. THIS VALUE C AN BE DETERMINED BY USING SOME OF THE WELL-ESTABLISHED BA SES LIKE 'THE UNDERLYING ASSET' APPROACH, THE 'INCOME' APPROACH E TC. AND THE TASK CAN BE ENTRUSTED TO PROFESSIONAL VALUERS. III. BASED ON THE ABOVE, A VALUE OF THE CARD CAN BE DETE RMINED. THE VALUE OF THE CARD REPRESENTS THE AGGREGATE VALU E OF TWO INDEPENDENT RIGHTS OF THE HOLDER VIZ. (A) THE RIGHT TO A SHARE IN THE NET ASSETS AND GOOD WILL OF THE STOCK EXCHANGE AND (B) THE RIGHT TO TRADE ON THE STOCK EXCHANGE. SINCE TRADING RIGHTS ARE IN FUTURE TO BE MADE CONDI TIONAL ON THE PLACEMENT OF A DEPOSIT WITH THE STOCK EXCHANGE AND SUCH DEPOSIT WILL ALSO BE COLLECTED FROM NEW MEMBERS, THE AMOUNT OF S UCH DEPOSIT MAY BE CONSIDERED AS THE VALUE OF THE RIGHT TO TRAD E AND THE EXCESS OF THE FAIR VALUE OF THE CARD OVER THAT AMOUNT MAY BE CONSIDERED AS THE VALUE OF THE RIGHT TO SHARE IN THE NET ASSETS A ND GOODWILL OF THE STOCK EXCHANGE . ASSUMING PURELY FOR THE PURPOSE OF ILLUSTRATION, TH AT THE VALUE OF A CARD IS DETERMINED AT RS.125 LAKH AND THE AMOUNT OF DEPOSIT AT RS.75 LAKH THE VALUE OF THE CARD CAN BE APPORTIONED AS UN DER :- (A) VALUE OF SHARE IN NET ASSETS AND GOODWILL OF THE STOCK EXCHANGE RS.50 LAKH (B) VALUE OF TRADING RIGHTS RS. 75 LAKH RS.125 LAKH THE STOCK EXCHANGE WILL THEREFORE ISSUE TO EACH MEM BER, ON CANCELLATION OF THE CARD, SHARES, WHICH HAVE AN AGG REGATE VALUE OF RS.50 LAKH AND A DEPOSIT RECEIPT OF RS.75 LAKH. THE SHARES MAY BE ISSUED AT PAR OR AT PREMIUM AS MAY BE CONSIDERED AP PROPRIATE. IN THE BOOKS OF THE STOCK EXCHANGE, THE AGGREGATE V ALUE OF THE SHARES ISSUED AND DEPOSIT RECEIPTS ISSUED WILL REPR ESENT THE TOTAL CONSIDERATION. THE EXCESS OF TOTAL CONSIDERATION OV ER THE BOOK VALUE TATA SECURITIES LTD. ITA NO.3405/MUM./2007 7 OF THE NET ASSETS WILL REPRESENT GOODWILL AND WILL BE RECORDED AS SUCH. GOODWILL WILL HAVE TO BE WRITTEN OFF OVER A SPECIFI ED PERIOD SAY 20 YEARS. A TRADING MEMBER CAN LIQUIDATE A PART OF HIS INVEST MENT BY SELLING ALL OR PART OF THE SHARE CAPITAL. HOWEVER, SO LONG AS H E REMAINS A TRADING MEMBER HE HAS TO RETAIN THE DEPOSIT. IF THE MEMBER WISHES TO TERMINATE HIS MEMBERSHIP, H E CAN DEMAND REFUND OF THE DEPOSIT BUT IN ORDER TO ENSURE THE LI QUIDITY OF THE STOCK EXCHANGE, THERE SHOULD BE AN INITIAL 'LOCK-IN' PERI OD OF THREE YEARS AND THEREAFTER SUCH 'LOCK-IN' PERIOD AS THE STOCK E XCHANGE MAY STIPULATE TO PROVIDE ASSURANCE AGAINST NON-NOTIFIED CLAIMS. RELEVANT PORTION OF THE NOTIFICATION OF SEBI IN TH IS REGARD IS EXTRACTED BELOW FOR READY REFERENCE:- SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION MUMBAI, THE 20 TH MAY, 2005 SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI ORDER UNDER SECTION 4B (6) READ WITH SECTION 4B (7) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 IN THE MATTER OF THE BSE (CORPORATISATION AND DEMUTUALISATION) SC HEME, 2005. S. O. 684(E). 1.0 BSE (ALSO KNOWN AS THE STOCK EXC HANGE, MUMBAI) IS AN ASSOCIATION OF PERSONS AND A RECOGNISED STOCK EXCHANGE HAVING ITS PRINCIPAL PLACE OF BUSINESS AT PHIROZE JEEJEEBH OY TOWERS, DALAL STREET, FORT, MUMBAI 400 001. IT IS REQUIRED TO BE CORPORATISED AND DEMUTUALISED UNDER THE SECURITIES CONTRACTS (REGULA TION) ACT, 1956 (HEREINAFTER REFERRED TO AS THE SC(R)A). 3. INCORPORATION OF BOMBAY STOCK EXCHANGE LIMITED 3.1 THE FIRST SHAREHOLDERS SHALL INCORPORATE A PUBL IC COMPANY LIMITED BY SHARES UNDER SECTION 12 OF THE COMPANIES ACT, 19 56 IN THE NAME AND STYLE OF 'BOMBAY STOCK EXCHANGE LIMITED'. 3.2 THE FIRST SHAREHOLDERS SHALL EACH SUBSCRIBE TO AND PAY FOR 10,000 FULLY PAID-UP EQUITY SHARES OF THE FACE VALUE OF RE .1/- EACH FOR CASH AT PAR OF BOMBAY STOCK EXCHANGE LIMITED. 8. TRADING RIGHTS TATA SECURITIES LTD. ITA NO.3405/MUM./2007 8 8.1 A MEMBER OR A LIMITED TRADING MEMBER OF BSE, WH O IS REGISTERED AS A STOCK BROKER ON THE DAY PRECEDING THE DUE DATE SHALL BECOME A TRADING MEMBER OF THE CASH SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON THE DUE DATE; 8.2 A MEMBER WHO IS NOT REGISTERED AS A STOCK BROKE R ON THE DAY PRECEDING THE DUE DATE SHALL BECOME A TRADING MEMBE R OF THE CASH SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON BEING R EGISTERED AS A STOCK BROKER UNDER THE SEBI (STOCK BROKERS AND SUB- BROKERS) REGULATIONS, 1992 WITHIN 3 MONTHS FROM THE DUE DATE . 8.3 A TRADING MEMBER AND/OR A CLEARING MEMBER OF TH E DERIVATIVES SEGMENT OF BSE ON THE DAY PRECEDING THE DUE DATE SH ALL BECOME A TRADING MEMBER AND/OR A CLEARING MEMBER OF THE DERI VATIVES SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON THE DUE DATE. 8.4 AFTER THE DUE DATE, A PERSON DESIROUS OF BECOMI NG A TRADING MEMBER OF ANY SEGMENT OF BOMBAY STOCK EXCHANGE LIMI TED SHALL BE ADMITTED IF HE COMPLIES WITH REQUIREMENTS AND BRING S IN SPECIFIED FEES AND DEPOSITS AS SPECIFIED IN THE RULES, BYE-LAWS AN D REGULATIONS OF BOMBAY STOCK EXCHANGE LIMITED. 8.5 BOMBAY STOCK EXCHANGE LIMITED SHALL, FOR THE PU RPOSE OF ADMITTING ANY PERSON AS A TRADING MEMBER OF A SEGME NT, FOLLOW UNIFORM STANDARDS IN TERMS OF CAPITAL ADEQUACY, DEP OSITS, FEES ETC. IRRESPECTIVE OF MODE OF ACQUISITION OF TRADING RIGH T BY THAT PERSON: PROVIDED THAT DIFFERENT STANDARDS MAY BE FOLLOWED F OR ADMISSION OF A PERSON AS A TRADING MEMBER WHO HAS ACQUIRED TRADING RIGHT BY WAY OF TRANSMISSION ; PROVIDED FURTHER THAT DIFFERENT STANDARDS MAY BE FO LLOWED FOR ADMISSION OF TRADING MEMBERS IN DIFFERENT SEGMENTS. 8.6 A TRADING MEMBER MAY SURRENDER HIS MEMBERSHIP O F ANY SEGMENT TO BOMBAY STOCK EXCHANGE LIMITED IN THE MAN NER SPECIFIED IN THE RULES, BYE-LAWS AND REGULATIONS OF BOMBAY ST OCK EXCHANGE LIMITED 8.7 TRADING MEMBERS OF THE CASH SEGMENT OF BOMBAY S TOCK EXCHANGE LIMITED AND THE CLEARING MEMBERS OF THE DE RIVATIVES SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED SHALL CLEA R AND SETTLE TRADES RESPECTIVELY TILL THE CLEARING AND SETTLEMEN T FUNCTION IS TRANSFERRED TO A RECOGNIZED CLEARING CORPORATION UN DER CLAUSE 13.1 OF THIS SCHEME. 8.8 IRRESPECTIVE OF THE DATE OR MODE OF ACQUISITION OF TRADING RIGHT, THE TRADING MEMBERS IN A SEGMENT OF BOMBAY STOCK EX CHANGE LIMITED SHALL HAVE UNIFORM RIGHTS AND PRIVILEGES. TATA SECURITIES LTD. ITA NO.3405/MUM./2007 9 PROVIDED THAT BOMBAY STOCK EXCHANGE LIMITED MAY, WI TH THE PRIOR APPROVAL OF SEBI, GRANT ADDITIONAL PRIVILEGES TO TH OSE TRADING MEMBERS WHO WERE MEMBERS ON THE DAY PRECEDING THE D UE DATE. 8.9 TRADING MEMBERS OF BOMBAY STOCK EXCHANGE LIMITE D ON THE DUE DATE SHALL CONTINUE TO HAVE THE SAME RIGHTS AND PRI VILEGES IN RESPECT OF THEIR CLIENTS AND CONSTITUENTS AND OTHER MEMBERS ARISING OUT OF OR UNDER ANY ACT, OMISSION OR CONTRACT OR LAW, NOTIFIC ATION, ORDER, DIRECTION, ETC. AS HAD ACCRUED TO THEM WHILE BEING MEMBERS OR LIMITED TRADING MEMBERS OF BSE OR TRADING MEMBERS A ND OR CLEARING MEMBER OF DERIVATIVE SEGMENT OF BSE ON OR BEFORE TH E DUE DATE. 8.10 TRADING MEMBERS OF BOMBAY STOCK EXCHANGE LIMIT ED SHALL BE BOUND BY ALL OBLIGATIONS AND LIABILITIES TOWARDS TH EIR CLIENTS AND CONSTITUENTS, SEBI, BSE AND OTHER AUTHORITIES OR OT HER PERSONS ARISING OUT OF OR UNDER ANY ACT, OMISSION OR CONTRACT OR LA W, NOTIFICATION, ORDER, DIRECTION, ETC. WHILE BEING MEMBERS OR LIMIT ED TRADING MEMBERS OF BSE OR TRADING MEMBERS AND OR CLEARING M EMBERS OF DERIVATIVE SEGMENT OF BSE ON OR BEFORE THE DUE DATE . 25. FROM THE ABOVE, FOLLOWING CONCLUSIONS CAN BE DR AWN. I. BSE WHICH WAS A VOLUNTARY, NOT FOR PROFIT CHARACTER OF ENTITY, GOT CONVERTED INTO A FOR PROFIT AND CORPORATE ACTIVIT Y; II. BSE MEMBERSHIP CARD IS CANCELLED AND THE TWIN RIGHT S THAT A HOLDER OF BSE CARDHOLDER HAD GOT SEPARATED INTO THE FOLLOWING INDEPENDENT RIGHTS (A) OWNERSHIP RIGHTS AND (B) T RADING RIGHTS. III. THE PREVIOUS RIGHTS OF A BSE MEMBERSHIP CARDHOLDER GETS EXTINGUISHED AND IN LIEU THEREOF THE BSE MEMBER ACQ UIRES SHARES IN BSEL AND TRADING RIGHTS IN BSEL; IV. UNDER SECTION 47(XIIIA), SUCH EXTINGUISHMENT OF RIG HTS AND ACQUISITION OF SHARES AND TRADING RIGHTS IN BSEL IS NOT REGARDED AS TRANSFER. V. THAT COST OF ACQUISITION OF OWNERSHIP RIGHTS AND TR ADING RIGHTS WOULD HAVE TO BE SPLIT AND VALUED ON TRANSMISSION. VI. TRADING RIGHTS ARE BASED AS DEPOSIT SYSTEM AS OPPOS ED TO CARD SYSTEM; VII. THE TRADING CARD SYSTEM IS REPLACED BY THE DEPOSIT SYSTEM; VIII. THE MONEY DEPOSIT BY THE MEMBER TO OBTAIN TRADING R IGHTS, 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; TATA SECURITIES LTD. ITA NO.3405/MUM./2007 10 X. THE VALUE OF DEPOSIT PLACED TO OBTAIN TRADING RIGHT S 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 ASSESS EE, AS IT EXISTED WHILE IT WAS A BSE MEMBERSHIP CARDHOLDER, IS DIFFER ENT FROM THE ASSETS HELD BY THE ASSESSEE AFTER CORPORATIZATION A ND 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 MANA GEMENT OF THE STOCK EXCHANGE. THE ASSESSEE HAS BEEN GRANTED CERTA IN SHARES IN BSEL AT PAR. THE ASSESSEE HAS DISCLOSED THEM AS INV ESTMENT. RIGHTLY, THE ASSESSEE HAS NOT CLAIMED THAT THE SHARES ALLOTT ED IN BSEL WAS A BUSINESS AND COMMERCIAL RIGHT OF SIMILAR NATURE UND ER SECTION 32(1)(II) OF THE ACT. 28. COMING TO THE TRADING RIGHTS, THE REPORT OF THE GROUP ON CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHAN GE FIXED THE VALUE AS EQUIVALENT TO THE DEPOSIT REQUIREMENT. THE TRADING RIGHT IS A BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NATURE UN DER SECTION 32(1)(II) OF THE ACT. 29. THE BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR N ATURE 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 R IGHT IN HOLDING THAT NO DEPRECIATION CAN BE GRANTED ON THE WRITTEN DOWN VALUE OF THE BSE MEMBERSHIP CARD. AT BEST, THE CLAIM FOR DEPRECIATIO N CAN BE ON A TRADING RIGHT OF THE MEMBERS, WHICH IS NEWLY ACQUIR ED, WHICH ASPECT WE WILL DISCUSS HEREAFTER. 30. AS WE HAVE NOTICED, THE GROUP ON CORPORATISATIO N AND DEMUTUALIZATION OF STOCK EXCHANGES HAS SUGGESTED TH E MANNER OF VALUATION OF OWNERSHIP RIGHTS AND TRADING RIGHTS. I T WAS RECOMMENDED THAT THE VALUE OF TRADING RIGHTS BE FIXED AT THE AM OUNT OF DEPOSIT THAT WAS REQUIRED FOR ACQUIRING TRADING RIGHTS. THE VALU E OF THE BSE CARD TO THE EXTENT ALLOCABLE OR ATTRIBUTABLE TO OWNERSHIP R IGHTS, 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 O F ASSETS OF BSEL OR THROUGH SOME OTHER APPROVED METHOD. 31. COMING TO TRADING RIGHTS, WE FIND THAT THE VALU E 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 DE POSIT. THE ASSESSEE IS ENTITLED TO REFUND OF THE DEPOSIT. WHEN THE VALUE IS EQUAL TO A REFUNDABLE DEPOSIT, HOW CAN SUCH VALUE OF REFU NDABLE DEPOSIT BE DEPRECIATED WHEN THE VALUE IN REALITY DOES NOT COME DOWN. IF THE TATA SECURITIES LTD. ITA NO.3405/MUM./2007 11 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 ASSES SEE FOR DEDUCTION BY WAY OF DEPRECIATION. HENCE, NO DEPRECIATION CAN BE GRANTED ON THIS RIGHT. THUS, WE UPHOLD THE FINDING OF THE REVENUE A UTHORITIES. WE NOW DISCUSS THE IMPACT OF THE FOLLOWING SECTIONS:- 55(2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST OF ACQUISITION', (AB) IN RELATION TO A CAPITAL ASSET, BEING EQUITY S HARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXC HANGE IN INDIA UNDER A SCHEME FOR DEMUTUALISATION OR CORPORATISATI ON APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLIS HED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT , 1992, (15 OF 1992) SHALL BE THE COST OF ACQUISITION OF HIS ORIGI NAL MEMBERSHIP OF THE EXCHANGE. PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TR ADING OR CLEARING RIGHTS OF THE RECOGNISED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUALISATION OR CORPORATISATION, SHALL BE DEEMED TO BE NIL. 2(42)(H) IN THE CASE OF A CAPITAL ASSET, BEING TRADING OR C LEARING RIGHTS OF A RECOGNISED STOCK EXCHANGE IN INDIA ACQUIRED BY A PERSON PURSUANT TO DEMUTUALISATION OR CORPORATISATION OF T HE RECOGNISED STOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE (X III) OF SECTION 47, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE PE RSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IMMEDIATE LY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION. (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 I N CLAUSE (XIII) OF SECTION 47, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN IN DIA IMMEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION] 1 13C[(HB) IN THE CASE OF A CAPITAL ASSET, BEING ANY SPECIFIED SECURI TY OR SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED, DIRECTLY OR INDIREC TLY, BY THE EMPLOYER FREE OF COST OR AT CONCESSIONAL RATE TO HIS EMPLOYE ES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES), THE PERIOD SHALL BE RECKONE D FROM THE DATE OF ALLOTMENT OR TRANSFER OF SUCH SPECIFIED SECURITY OR SWEAT EQUITY SHARES. 47(XIII) ANY TRANSFER OF A CAPITAL ASSET OR INTANG IBLE ASSET BY A FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY A COMPANY IN THE BUSINESS CARRIED ON BY THE FIRM, OR ANY TRANSFER OF A CAPITAL ASSET TO A COMPANY IN THE COURSE OF DEMUTUALISATION OR CORPORA TISATION OF A RECOGNISED STOCK EXCHANGE IN INDIA AS A RESULT OF W HICH AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IS SUCCEEDED BY S UCH COMPANY :] PROVIDED THAT TATA SECURITIES LTD. ITA NO.3405/MUM./2007 12 (A) ALL THE ASSETS AND LIABILITIES OF THE FIRM [OR OF THE ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS] RELATING TO THE BUS INESS IMMEDIATELY BEFORE THE SUCCESSION BECOME THE ASSETS AND LIABILI TIES OF THE COMPANY; (B) ALL THE PARTNERS OF THE FIRM IMMEDIATELY BEFORE THE SUCCESSION BECOME THE SHAREHOLDERS OF THE COMPANY IN THE SAME PROPORTION IN WHICH THEIR CAPITAL ACCOUNTS STOOD IN THE BOOKS OF THE FIRM ON THE DATE OF THE SUCCESSION; (C) THE PARTNERS OF THE FIRM DO NOT RECEIVE ANY CON SIDERATION OR BENEFIT, DIRECTLY OR INDIRECTLY, IN ANY FORM OR MAN NER, OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; AND (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPA NY OF THE PARTNERS OF THE FIRM IS NOT LESS THAN FIFTY PER CENT OF THE TOTAL VOTING POWER IN THE COMPANY AND THEIR SHAREHOLDING CONTINUES TO BE AS SUCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSIO N; (E) THE DEMUTUALISATION OR CORPORATISATION OF A R ECOGNISED STOCK EXCHANGE IN INDIA IS CARRIED OUT IN ACCORDANCE WITH A SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVE D BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 199 2 (15 OF 1992);] 47(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 RIGHT S ACQUIRED BY SUCH MEMBER IN THAT RECOGNISED STOCK EXCHANGE IN ACCORDA NCE WITH A SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLIS HED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT , 1992 (15 OF 1992);] 32. ALL THESE SECTIONS DEAL WITH COMPUTATION OF CAP ITAL GAINS UNDER CHAPTER-IV(E) I.E., SECTION 45 TO 55A OF THE ACT. I N OUR CONSIDERED OPINION, THESE SECTIONS WHICH ARE FOR THE COMPUTATI ON OF CAPITAL GAINS, HAVE NO RELEVANCE ON THE ALLOWABILITY OF DEPRECIATI ON. 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 ASSESSIN G OFFICER AS CONFIRMED BY THE COMMISSIONER (APPEALS) WHEREIN DEP RECIATION ON MEMBERSHIP CARD HAS BEEN DENIED. 4. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBU NAL, WE UPHELD THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) , AND WE DISMISS THE GROUND RAISED BY THE ASSESSEE. 5. GROUNDS NO.2, 3 AND 4, READ AS FOLLOWS:- TATA SECURITIES LTD. ITA NO.3405/MUM./2007 13 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE PROTECTIVE ADDITION MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF THE DEMUTUALIZATION SCHEME OF THE BOMBAY STOCK EXCHGE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FAILING TO CONSIDER THAT NO OPPORTUNITY WHATSOEVER WAS GRAN TED BY THE ASSESSING OFFICER BEFORE MAKING THE SAID PROTECTIVE ADDITION. THE SAID ADDITION IS IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. 4. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW, THE APPELLANT SUBMITS THAT THE P ROTECTIVE ADDITION IS UNCALLED FOR AND IS REQUIRED TO BE DELETED. 6. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ISSUE ARISING OUT OF THESE GROUNDS IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL MUMBAI BENCH IN SINO SECURITIES PVT. LTD. (SUPRA), WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 36. AFTER HEARING BOTH THE PARTIES, WE FIND THAT T HE ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF MUMBAI C BENCH OF THE TRIBUNAL IN ITA NO.5538/MUM ./2009, FOR ASSESSMENT YEAR 2006-07, IN ACIT V/S M/S. OMNISCIEN T SECURITIES P. LTD., ORDER DATED 16 TH MARCH 2011, WHEREIN THE TRIBUNAL, VIDE PARA-10, DISMISSED THE GROUND RAISED BY THE REVENUE, WHICH R EADS AS FOLLOWS:- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ENTIRE CASE OF THE AO IS ON THE PREMISE TH AT IN THE EVENT OF SALE OF THE SHARES WHICH THE ASSESSEE ACQUIRED ON CORPORATIZATION AND DEMUTUALIZATION OF BSE AS A COMPANY, THE ASSESSEE WOULD TAKE THE BENEFIT O F THE PROVISIONS OF SECTION 55(2)(AB) OF THE ACT AND CLAI M THE COST OF ACQUISITION AT THE PRICE AT WHICH THE ASSES SEE ORIGINALLY PAID FOR ACQUIRING BSE CARD IGNORING THE DEPRECIATION ON THE BSE CARD WHICH THE ASSESSEE AVA ILED FROM THE PERIOD OF ACQUISITION OF THE BSE CARD TILL EXCHANGE OF SHARES FOR THE BSE CARD. THIS APPREHENS ION OF THE AO WHICH HAS BEEN THE BASIS OF PROTECTIVE ASSESSMENT MADE IN THE ORDER OF ASSESSMENT IS ERRON EOUS BECAUSE THE ASSESSEE HAS SOLD 6386 SHARES OF BSE LT D. OUT OF 10000 SHARES OF BEE LTD., WHICH IT HAD GOT O N CORPORATIZATION AND DEMUTUALIZATION OF THE BSE AS A LIMITED COMPANY, IN THE ASSESSMENT YEAR 2008-09. WH ILE COMPUTING CAPITAL GAIN ON SUCH TRANSFER THE ASSESSE E CALCULATED ITS COST OF ACQUISITION ON THE BASIS OF THE WRITTEN DOWN VALUE AND RE.1 WHICH HAD PAID PER SHAR E AT THE TIME OF ISSUE OF SHARES BY BSE LTD. THUS THE GRIEVANCE OF THE REVENUE AS PROJECTED BY THE AO IS FOUND TO BE NON-EXISTENT IN THIS CASE. WITH REGARD TO THE REMAINING SHARES OF BSE LTD. WHICH THE ASSESSEE HOL DS TATA SECURITIES LTD. ITA NO.3405/MUM./2007 14 THE QUESTION OF COMPUTATION OF CAPITAL GAIN WOULD CONTINUE TO BE THE SAME BASIS ON WHICH THE ASSESSEE HAS COMPUTED CAPITAL GAIN IN A.Y 2008-9. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUE NTLY GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 37. KEEPING THE AFORESAID FINDINGS OF THE TRIBUNAL IN VIEW, WE DISMISS THE GROUNDS RAISED BY THE REVENUE . 7. THE ASSESSEE ALSO RELIED ON THE DECISION OF MUMBAI C BENCH OF THE TRIBUNAL, IN THE CASE OF PRABHUDAS LILADHER PVT. LT D., ITA NO.6437 AND 6441/MUM./2009, FOR ASSESSMENT YEAR 2006-07, ORDER DATED 13 TH MAY 2011 8. CONSISTENT WITH THE VIEW TAKEN HEREIN ABOVE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE. 9. GROUNDS NO.5, 6, 7 AND 8, READ AS FOLLOWS:- 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS2,86,795/- ULS.14A. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THAT SECTION L4A(2) AND SECTION L4A(3) W ERE PROCEDURAL IN NATURE AND, THEREFORE, RETROSPECTIVE. 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONSEQUENTLY ERRED IN HOLDING THAT RULE 8D IS RETROSPECTIVE IN N ATURE. 8. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE EASE, THE APPELLANT SUBMITS THE ASSESSING OFFICER BE DIRECTED TO DELETE THE SAID ADDITION OF RS.2,86,795/-. 10. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE COMMISSIONER (APPEALS), WHILE DISPOSING OFF THIS ISSUE, FOLLOWED MUMBAI SPECIAL BENCH DECISION OF THE TRIBUNAL RENDERED IN ITO V/S DAGA C APITAL MANAGEMENT P. LTD., (2008) 119 TTJ (MUM.) 289 (SB). THE HON'BLE J URISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 3 28 ITR 081 (BOM.), HAS PARTLY REVERSED THE DECISION OF MUMBAI SPECIAL BENC H OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). UNDER THESE CIR CUMSTANCES, WE DEEM IT TATA SECURITIES LTD. ITA NO.3405/MUM./2007 15 APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR DENOVO ADJUDICATION IN LINE WITH THE PROPOSITIONS L AID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD. (SUPRA). THE ASSESSING OFFICER SHALL NOT APPLY RULE-8D, FOR THE IMPUGNED ASSESSMENT YEAR. CONSEQUENTLY, THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSES. 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.12.2011 SD/- B.R. MITTAL JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 28 TH DECEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, E BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI