ITO WD 19(2)3, V. EXECUTORS OF THE ESTATE OF KESHAVDEV R GANERIWALA,

ITA 5011/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9344 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 17-10-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 03-07-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN SATHE
• Assessee Lawyers: S D SRIVASTAVA
• Keywords: Capital asset; Depreciation
• Section: 2(14); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI B.R. JAIN, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 5011/MUM/2003 (ASSESSMENT YEAR: 1996-97) INCOME-TAX OFFICER -19(2)-3, PIRAMAL CHAMBER, 3 RD FLOOR, PAREL, MUMBAI -400 012 VS EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA, 38, SHREE BUILDING, JUHU RD., SANTACRUZ (W), MUMBAI -400 054 PAN: AAAPG 7365 Y (APPELLANT) (RESPONDENT) APPELLANT-ASSESSEE BY : SHRI S.D. SRIVASTAVA RESPONDENT-REVENUE BY : SHRI ARUN SATHE DATE OF HEARING: 17.10.2012 DATE OF PRONOUNCEMENT: 23.11.2012 O R D E R PER VIVEK VARMA, AM: THE DEPARTMENT IS IN APPEAL AGAINST THE ORDER OF CIT(A)-X IX, MUMBAI, DATED 21.04.2003, WHEREIN, THE FOLLOWING GROUNDS OF APP EAL HAVE BEEN RAISED: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THE BOMBAY STOCK EXCHANGE CARD HELD BY THE ASSESSEE IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SEC.2(14) OF THE I.T. ACT, 1961 AND THAT THE SALE PROCEEDS THEREOF ARE NOT LIABLE TO TAX. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN DELETING ADDITION OF RS 2,48,39,500/- BEING LONG TERM CAPITAL GAIN ON SALE OF BOMBAY STOCK EXCHANGE CARD WITHOUT CONSIDERING THE PROVISIONS OF SEC. 47(IX) OF THE I.T. ACT, 1961 AND THE EXPLANATION THEREUNDER. 2. THE SOLITARY ISSUE IS WITH REGARD TO WHETHER TICKET OF BOMBAY STOCK EXCHANGE (SE) IS A CAPITAL ASSET OR NOT, WITHIN THE M EANING OF EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 2 SECTION 2(14) OF THE ACT AND WHETHER IT IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAIN UNDER THE PROVISIONS OF SECTION 47(XI) OF THE ACT. 3. THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE ASSESSEE, AN INDIVIDUAL, TRANSFERRED HIS RIGHT OF BOMBAY STOCK EXCHANGE (B SE) FOR RS 2.50 CRORES AND NO CAPITAL GAINS WERE OFFERED, AS IT WAS CLAIMED TH AT RIGHT OF MEMBERSHIP OF SE IS A PERSONAL RIGHT AND IS NOT A CAPITAL ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE ACT. THE ASSESSEE PLACED RELIANCE ON THE DECISIONS OF BOMBAY HIGH COURT IN THE CA SE OF SEJAL R DALAL VS STOCK EXCHANGE REPORTED IN 69 COMPANY CASES 709 AND OF THE COORDINATE BENCH OF MUMBAI ITAT IN THE CASE OF AC WT VS RAMDAS L. DALAL. THE AO WAS OF THE VIEW THAT IT WAS A CAPITAL TRANS FER AND WAS CHARGEABLE TO CAPITAL GAINS. THE AO, THEREFORE, INITIATED REAS SESSMENT PROCEEDINGS ON 30.03.1999 AND ON 31.03.1999, THE AO PROCE SSED THE RETURN U/S 143(1)(A), MAKING A PRIMA FACIE ADJUSTMENT OF RS. 2,48,39,500. THIS ADJUSTMENT WAS DELETED BY THE CIT(A), HOLDIN G THAT THIS BEING A CONTENTIOUS ISSUE, WAS BEYOND THE AMBIT OF SE CTION 143(1)(A). 4. THE AO, THEREAFTER, PROCEEDED ON REGULAR PROCEEDINGS AND PASSED AN ORDER U/S 143(3), HOLDING THE BSE CARD TO BE A CAPITAL ASSET . IN APPEAL BEFORE THE CIT(A), THE CIT(A) HELD IT NOT TO BE A CAPITAL ASSET. THE REVENUE WENT IN APPEAL BEFORE THE ITAT, WHERE, FOLLOWING CHENNAI SB IN THE CASE OF R.M. VALLIAPPAN, REPORTED IN 103 ITD 63, SUSTAINED THE ORDER OF THE AO. THE ASSESSEE WENT IN APPEAL U/S 2 60A BEFORE THE HONBLE BOMBAY HIGH COURT, WHO REMANDED BACK THE APPEA L TO BE HEARD DE NOVO . HENCE, THIS APPEAL. 5. ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE CIT (A) HAD RELIED ON THE DECISION OF STOCK EXCHANGE AHMEDABAD VS AC IT, REPORTED IN 248 ITR 209 (SC), WHEREIN, THE HONBLE SUPREME COURT A FTER REFERRING TO THE RULES OF STOCK EXCHANGE, AND HELD, THAT THE RIGHT OF EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 3 MEMBER OF THE STOCK EXCHANGE WAS NOT A PRIVATE ASSE T. IT WAS MERELY A PERSONAL PRIVILEGE GRANTED TO A MEMBER. IT WAS NON TR ANSFERABLE AND INCAPABLE OF ALIENATION BY THE MEMBER ON HIS LEGAL REP RESENTATIVES EXCEPT TO THE LIMITED EXTENT PROVIDED IN THE RULES AND SUBJECT TO FULFILLMENT OF CONDITIONS. THE NOMINATION WHEREVER PRO VIDED WAS NOT AUTOMATIC BUT HEDGED IN BY RULES. ON THE RIGHT OF NOM INATION VESTING IN THE STOCK EXCHANGE UNDER RULES, THAT BELONGED TO THE S TOCK EXCHANGE ABSOLUTELY. IN THE CASE OF DEATH OR DEFAULT OF A MEM BER, HIS RIGHT OF NOMINATION CEASED AND VESTED IN THE STOCK EXCHANGE. THE MEMBERSHIP RIGHT OR MEMBERSHIP CARD OF THE SAID MEMBER WAS NOT HIS PROPERTY AND THEREFORE COULD NOT BE ATTACHED U/S 281B AND SINCE N O AMOUNT ON ACCOUNT OF THE SAID MEMBER WAS DUE OR HELD BY THE ST OCK EXCHANGE, SECTION 226(3) COULD NOT BE INVOKED. TO ARRIVE AT THIS DECISION, THE HONBLE APEX COURT REFERRED TO EARLIER DECISIONS, IN THE CA SE OF OFFICIAL ASSIGNEE OF BOMBAY VS. KRP SHROFF 1932 AIR 186 (PC) AND V INAY BUBNA VS. STOCK EXCHANGE 97 COMPANY CASES 874 (SC), WHE REIN IT WAS HELD, THAT THE MEMBERSHIP OF THE STOCK EXCHANGE IS A PER SONAL PERMISSION FROM THE STOCK EXCHANGE TO EXERCISE THE RIGHTS AND PRIVILEGES ATTACHED THERETO. THE SAID RIGHT IS NOT A PRIVATE ASSET . 6. THE CIT(A), THEN RELYING UPON THE COORDINATE BENCH DE CISION IN THE CASE OF DCTI VS ASHWIN C SHAH, REPORTED IN 254 ITR 90 (AT) IN A BUNCH OF WEALTH TAX APPEALS, INCLUDING THE APPEAL OF THE ASS ESSEE HELD THAT MEMBERSHIP OF BSE IS MERELY A PERSONAL PRIVILEGE AND CANNOT AMOUNT TO PROPERTY OR INTEREST IN PROPERTY TO CONSTITUTE AS ASSET WITHIN THE MEANING OF SECTION 2(E) OF THE W.T. ACT, 1957, AND THEREFORE, HELD THAT NO WEALTH TAX IS PAYABLE IN RESPECT OF SUCH STO CK EXCHANGE CARD OF THE BSE, ALONG WITH OTHER CITATIONS PLACED BEFORE H IM, THE CIT(A), THUS HELD, THAT THE SAID RIGHT WAS NOT PROPERTY BE LONGING TO THE ASSESSEE, AND THEREFORE, NO CAPITAL GAIN IS EXIGIBLE AS IT DOE S NOT FALL WITHIN THE PRECINCT OF SECTION 2(14) OF THE ACT. THE CIT(A), T HEREFORE DELETED THE ADDITION OF RS. 2,48,39,500. EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 4 7. BEFORE US, THE DR PLACED HEAVY RELIANCE ON THE DECISION OF TECHNO SHARES AND STOCKS LTD. VS CIT, REPORTED IN 327 ITR 323, WHEREIN THE HONBLE SUPREME COURT HELD THAT THE TICKET OF THE STOCK EXCHANGE IS AN ASSET, ELIGIBLE FOR DEPRECIATION U/S 32. THE D R, THEREFORE, PLEADED THAT THE DECISION OF THE AO WAS IN LINE WITH THE EXISTING LAW AND IS SQUARELY COVERED BY THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES (SUPRA) . HE THEREFORE, PLEADED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND TH AT OF THE AO BE RESTORED. 8. THE AR, ON THE OTHER HAND SUBMITTED THAT THE ORDER OF THE CIT(A) WAS WELL FOUNDED AND THUS, IT SHOULD BE SUSTAINED. THE CORE ISSUE SOUGHT FOR OUR INTERPRETATION IS WHETHER BSE MEMBERSHIP CARD IS A PROPERTY/ASSET OR NOT AND IF IT IS AN ASSET, WHETHER ITS TRANSFER IS EXIGIBLE TO CAPITAL GAINS. 9. WE ARE PRIVY TO CERTAIN LAND MARK DECISIONS, WHICH WE H AVE TO TAKE IN HARMONY FOR COMING TO A DECISION. 10. FROM THE ABOVE SUBMISSIONS, AT THE OUTSET, WE HAVE TO DECIDE, WHETHER THE TICKET GIVEN AS A MEMBERSHIP CARD TO A M EMBER OF A STOCK EXCHANGE IS AN ASSET AND IF IT IS AN ASSET, WHO IS TH E OWNER THEREOF . 11. FROM PERUSAL OF THE DECISION OF STOCK EXCHANGE, AHMED ABAD VS ACIT, REPORTED IN (1999) 6 SCC 215, THE BASIC POINT AS DEC IDED WAS THAT, MEMBERSHIP CARD OF THE STOCK EXCHANGE DOES NOT R EPRESENT THE PROPERTY OF A MEMBER, BUT IS ONLY A PRIVILEGE GIVEN TO TH E MEMBER OF THE STOCK EXCHANGE, WHEREBY, THE MEMBER IS ABLE TO TRAN SACT BUSINESS ON THE FLOOR OF THE STOCK EXCHANGE. EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 5 12. WE HAVE GONE THROUGH THE DECISION OF SEJAL RIKECH D ALAL VS STOCK EXCHANGE, BOMBAY, REPORTED IN 69 COMPANY CASES 7 09, AND ALSO HONBLE BOMBAY HIGH COURT DELIVERING THE DECISION ON NON DEFAULTING CONTINUING MEMBER, AS A SPECIAL COURT IN ITS JUDGM ENT DATED 09.06.2011, IN THE CASE OF STOCK EXCHANGE VS CUSTO DIAN, HELD THAT THE STOCK EXCHANGE MEMBERSHIP IS A PERSONAL PRIVILE GE AND IS NOT ATTACHABLE AS A PROPERTY . WHEN WE INTERPRET THESE DECISIONS, ONLY ONE LOGICAL CONCLUSION PRECIPITATES, AND THAT IS, THE STOCK EXCH ANGE CARD IS NOT A PROPERTY IN THE HANDS OF THE MEMBER. 13. WE NOW FOCUS OUR ATTENTION ON THE LATEST DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES (SUPRA) , WHEREIN IT HAS BEEN HELD THAT STOCK EXCHANGE TICKET IS A DEPRECIABLE AS SET. ON PERUSING THE DECISION, WE FIND THAT THE HONBLE SUPREME CO URT IN THIS CASE, HAS RELIED ON THE DECISION OF STOCK EXCHANGE, AHMEDA BAD (SUPRA) , WHERE IT WAS HELD BY THE HONBLE SUPREME COURT THAT S TOCK EXCHANGE TICKET SHALL BE THE PROPERTY OF THE STOCK EXCH ANGE AND, IT WAS HELD, THAT RIGHT BELONGED TO THE STOCK EXCHANGE ABSOLUTELY . IT WAS FURTHER OBSERVED THAT IN CASE OF DEATH OR DEFAULT OF A MEMBER, HIS RIGHT OF NOMINATION IS CEASED AND VESTED IN THE STOCK EXC HANGE. THE MEMBERSHIP RIGHT OR MEMBERSHIP CARD OF THE SAID MEM BER WAS NOT HIS PROPERTY... 14. IT IS IMPORTANT TO GAUGE THE IMPUGNED QUESTION FROM TWO ANGLES, THAT, WHETHER IT IS AN ASSET, THE ANSWER HAS ALWAYS BEE N YES AND IT HAS NOW BEEN CATEGORICALLY HELD SO IN THE CASE OF TECHNO SHA RES (SUPRA) AND WHOSE LIEN LAY THE SAID ASSET, THE ANSWER TO THIS QUESTION HAS BEEN GIVEN FIRST BY THE HONBLE SUPREME COURT IN THE CASE OF S TOCK EXCHANGE, AHMEDAGAD (SUPRA) AND THEN BY THE HONBLE BOMBAY HIGH COURT SITTING AS A SPECIAL COURT IN THE CASE OF STOCK EXC HANGE VS CUSTODIAN. IN BOTH THESE CASES IT HAS BEEN HELD THAT THE MEMBER OF TH E EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 6 STOCK EXCHANGE IS NOT OWNER OF THE MEMBERSHIP TICKE T AND THEREFORE, IT IS NOT AN ATTACHABLE PROPERTY. 15. WE FIND THAT EVEN THE HONBLE SUPREME COURT IN TECHNO SHARES (SUPRA) HAS REFERRED TO THE MEMBERSHIP TICKET ONLY AS A LICENCE OR AKIN TO LICENSE OR A RIGHT . 16. THEREFORE, WE CONCLUDE THAT THE LICENCE WHICH IS OF A DEPRECIABLE NATURE, WHERE EVEN THE TRANSACTION FOR TRANSFER CAN ONLY BE DONE THROUGH BY THE LAWS OF THE STOCK EXCHANGE CAN IN NO CIRCUMSTAN CE BE SAID TO CAPITAL ASSET EXIGIBLE TO CAPITAL GAINS IN THE HANDS OF THE MEMBER OF THE STOCK EXCHANGE, WHO TRADES ON THE FLOOR OF THE EXCHANGE. THEREFORE, IT IS THE STOCK EXCHANGE, WHO IS THE OWNER. THIS ANSWERS THE SECOND LIMB OF THE QUESTION. 17. THE ONLY POINT FOR ADJUDICATION IS WHETHER AS P ER SECTION 47(XI), IT IS A CAPITAL ASSET. WE FIND THAT CLAUSE (XI) WAS INSERTE D BY THE FINANACE ACT, 1997, W.E.F. 1.4.1998. SINCE THIS CLAUSE WAS NOT THERE IN THE RELEVANT PERIOD, I.E. ASSESSMENT YEAR 1996-97, THE AMENDMENT SO BROUGHT I N TO RECOGNIZE THE MEMBERSHIP CARD OF A STOCK EXCHANGE TO BE A CAPITAL ASSET, CANNOT COME TO AID THE DEPARTMENT FOR THE RELEVANT ASSESSMENT YEAR . 18. IN THE LIGHT OF OUR OBSERVATIONS HEREINABOVE , WE SUSTAIN THE ORDER OF THE CIT(A), AND DISMISS THE APPEAL FILED BY THE DEPARTM ENT. 19. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 3/11/2012. SD/- (B.R JAIN) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 23/11/2012 COPY TO:- EXECUTORS OF THE ESTATE OF KESHAVDEV R. GANERIWALA ITA NO.5011/MUM/2003 7 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XIX MUMBAI. 4) THE CIT, CITY -XIX, MUMBAI, 5) THE D.R. J BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN