DCIT CIR 4(2), MUMBAI V. OMNISCIENT SECURITIES P. LTD, MUMBAI

ITA 5538/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8062 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: KIRAN S MEHTA
• Keywords: Capital asset; Depreciation; Cost of acquisition; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI RAJENDRA SIN GH (A.M) ITA NO.5538/MUM/2009(A.Y. 2006-07) THE ACIT, CIR.4(2), ROOM NO.642, 6 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. M/S. OMNISCIENT SECURITIES PVT. LTD., 1002/3/4, 10 TH FLOOR, PJ TOWERS, DALAL STREET, MUMBAI 400 001. PAN: AAACT 7330D (RESPONDENT) APPELLANT BY : SHRI SHRAVAN KUMAR RESPONDENT BY : SHRI KIRAN S. MEHTA ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER DATED 8/7/2009 OF CIT(A)-4, MUMBAI RELATING TO ASSESSMENT YEAR 2006-07. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS . 1,09,75,494/- MADE ON ACCOUNT OF PROTECTIVE ADDITION ON BSE CARD. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE PROVISION OF SECTI ON 41(1) AND 38(IV) OF THE INCOME TAX ACT. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF STOCK BROKING AND SHARE TRADING. THE ASESSEE WAS A MEMBE R OF THE BOCK STOCK EXCHANGE(BSE). TILL A.Y. 2005-06 THE ASSESSEE WAS CLAIMING DEPRECIATION ON BSE CARD. THE ASSESSEE HAS ORIGINALLY ACQUIRED TH E BSE CARD FOR A SUM OF RS. 1,30,00,000/- . THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION OF BSE CARD AND WAS ALLOWED DEPRECIATION. THE WDV OF THE BSE CARD AS ON ITA NO.5538/MUM/2009(A.Y. 2006-07) 2 1/4/2005 WAS RS.20,24,505.61. DURING THE PREVIOUS YEAR CONSEQUENT TO CORPORATISATION AND DEMUTUALIZATION, THE BSE BECOME A LIMITED COMPANY I.E., BSE LTD. THE MEMBERS OF THE ERSTWHILE BSE WE RE GIVEN SHARES IN BSE(LIMITED COMPANY) IN CONSIDERATION OF THEIR SURR ENDERING THE BSE CARD (ERSTWHILE MEMBERSHIP). BY VIRTUE OF HOLDING SUCH SHARES AND COMPLYING WITH CERTAIN OTHER CONDITIONS MEMBERS HAD TRADING R IGHTS IN THE BSE(LIMITED COMPANY). 3. THE ASSESSEE DURING THE PREVIOUS YEAR DID NOT CL AIM DEPRECIATION OF BSE CARD BECAUSE THE BSE CARD GOT CONVERTED INTO SH ARES ISSUED BY THE STOCK EXCHANGE (BSE A LIMITED COMPANY). SECTION 55 (2)(AB) PROVIDES AS FOLLOWS: SEC. 55: MEANING OF ADJUSTED, COST OF IMPROV EMENT AND COST OF ACQUISITION. (1) (2)FOR THE PURPOSE OF SEC.48 AND 49, COST OF ACQ UISITION (A). (AA).. ( AB ) IN RELATION TO A CAPITAL ASSET, BEING EQUITY SHAR E OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXC HANGE IN INDIA UNDER A SCHEME FOR [DEMUTUALISATION OR] CORPORATISATION APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTAB LISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF I NDIA ACT, 1992 (15 OF 1992), SHALL BE THE COST OF ACQUISITION OF H IS ORIGINAL MEMBERSHIP OF THE EXCHANGE:] [ PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TRADING 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 ;] 4. ACCORDING TO THE AO BECAUSE OF THE AFORESAID PRO VISIONS IN THE EVENT THE ASSESSEE SELLS THE SHARES OF BSE LTD. IT WOULD CLAIM THE COST OF ACQUISITION OF THE SHARES AT RS. 1,30,00,000/-, WHE REAS THE ASSESSEE HAS ALREADY AVAILED THE BENEFIT OF DEPRECIATION TO THE EXTENT OF RS. 1,09,75,494/-( ITA NO.5538/MUM/2009(A.Y. 2006-07) 3 RS. 1,30,00,000 RS. 20,24,506). ACCORDING TO THE AO, THEREFORE, THE ASSESSEE HAD RECEIVED A BENEFIT TO THE EXTENT OF RS .1,09,75,494/- IN THE FORM OF RECOVERY OF DEPRECIATION ALREADY ALLOWED ON THE BSE CARD WHICH WOULD BE TAXABLE UNDER SECTION 41(1)(A) OF THE ACT. ALTERNA TIVELY THE AO WAS ALSO OF THE VIEW THAT THE BENEFIT RECEIVED BY THE ASSESSEE IS TAXABLE UNDER SECTION 28(1)(IV) OF THE ACT. 5. THE AO WAS OF THE VIEW THAT THE DEPRECIATION WA S ALLOWED TO THE ASSESSE ONLY BECAUSE THE ORDERS OF THE ITAT IN ASSE SSEES OWN CASE AND THE REVENUE IS OF THE VIEW THAT DEPRECIATION CANNOT BE ALLOWED ON BSE CARD AND FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT BY THE REVENUE WAS YET TO BE ADJUDICATED. ACCORDING TO THE AO IF DEPRECIA TION ULTIMATELY HELD TO BE NOT ALLOWABLE OF BSE CARD THEN THE DEPRECIATION DIS ALLOWED IN THE PAST IN THE CASE OF ASSESSEE ON A PROTECTIVE BASIS WOULD BECOME SUBSTANTIVE. IN CASE DEPRECIATION IS HELD TO BE ALLOWABLE ON BSE CARD TH EN THE ADDITION MADE ON A PROTECTIVE BASIS IN THIS ASSESSMENT OF RS.1,09,75 ,494/- WOULD BECOME SUBSTANTIVE ADDITION. ON THESE LINES THE AO MADE P ROTECTIVE ADDITION OF RS. 1,09,75,494/-. 6. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT T HE ORIGINAL COST OF BSE MEMBERSHIP CARD WAS RS. 1,30,00,000/- AND THE DEPRE CIATION WAS CLAIMED SINCE 1999-2000 WITH REFERENCE TO THIS COST. DURIN G THE PREVIOUS YEAR, THE ASSESSEE WAS ALLOTTED 10000 SHARES OF BSE LTD. IN T ERMS OF SEBIS SCHEME FOR CORPORATISATION AND DEMUTUALISATION OF BSE. TH E ASSESSEE GOT UNDER THE SCHEME 10000 SHARES OF BSE LTD. AND TRADING RIGHTS. 10000 SHARES OF BSE LTD. WERE ALLOTTED TO THE ASSESSEE AT THE RATE OF R E.1/- EACH AND THE SHARES WERE OBTAINED BY PAYING RS. 10,000/-. THUS THE COST OF THE SHARES OF THE APPELLANT WAS RS. 10,000 + RS.20,24,505/- BEING THE WRITTEN DOWN VALUE OF THE BSE CARD AS PER I.T. ACT. THE ASSESSEE SUBMITT ED THAT THE LEARNED AOS ITA NO.5538/MUM/2009(A.Y. 2006-07) 4 VIEW THAT IT WOULD GET THE BENEFIT OF DEPRECIATION ON BSE CARD AS ALLOWED BY ITAT OF RS. 1,09,75,465/- IN EARLIER YEARS AND ON T HE OTHER HAND, THE COST OF BSE SHARES WOULD BE ORIGINAL COST OF BSE CARD AT RS . 1,30,00,000/- AND THUS THE ASSESSEE WOULD GET A DOUBLE BENEFIT IS NOT CORRECT, AS THE ASSESSEEE HAS SOLD THE PART OF THE SHARES, I.E. 6386 SHARE AN D HAS TAKEN THE COST ONLY AT RS. 12,99,235/- I.E. PROPORTIONATE TO I.T. WRITT EN DOWN VALUE OF THE CARD + 10,000/- AND DECLARED LONG TERM CAPITAL GAIN OF RS .3,17,66,801/- BY TAKING THE COST OF 6386 SHARES AT RS. 12,99,235/- A ND INDEXING THE SAME AND THUS IT IS VERY CLEAR THAT THE ASSESSEEE HAS NO T TAKEN THE COST OF BSE SHARES AT THE ORIGINAL COST OF RS.1,30,00,000/-. T HE ASSESSEE ENCLOSED A COPY OF COMPUTATION FILED WITH THE RETURN OF INCOME FOR A.Y 2008-09. 7. THE CIT(A) HELD AS FOLLOWS: 1.3 I HAVE GONE THROUGH THE ORDER OF THE AO AND SU BMISSION OF THE APPELLANT. THE AOS APPREHENSION THAT THE APPELLAN T WOULD GET DOUBLE BENEFIT IS FOUND TO BE NOT CORRECT IN VIEW OF THE A PPELLANTS CONDUCT DURING A.Y.2008-09 WHILE SELLING 6386 SHARES OF BSE LTD. AS AND WHEN THE BALANCE AMOUNT OF SHARES WOULD BE SOLD, TH E LONG TERM CAPITAL GAIN WOULD BE CALCULATED ON THE BASIS OF TH E IT WRITTEN DOWN VALUE AND THE COST OF RE.1/- PER EACH SHARES. UND ER THE CIRCUMSTANCES, THE PROTECTIVE ADDITION OF RS. 1,09, 75,494/- IS FOUND TO BE WITHOUT ANY JUSTIFICATION. THE PROTECTIVE ADDIT ION OF RS.1,09,75,494/- IS DELETED. 8. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS PREFERRED GROUND NO.1 BEFORE THE TRIBUNAL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. D. R RELIED ON THE ORDER OF THE AO. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). ITA NO.5538/MUM/2009(A.Y. 2006-07) 5 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ENTIRE CASE OF THE AO IS ON THE PREMISE THAT IN THE EVENT OF SALE OF THE SHARES WHICH THE ASSESSEE ACQUIRED ON CORPORATIZATION AND DEMUTU ALIZATION OF BSE AS A COMPANY, THE ASSESSEE WOULD TAKE THE BENEFIT OF THE PROVISIONS OF SECTION 55(2)(AB) OF THE ACT AND CLAIM THE COST OF ACQUISIT ION AT THE PRICE AT WHICH THE ASSESSEE ORIGINALLY PAID FOR ACQUIRING BSE CARD IGN ORING THE DEPRECIATION ON THE BSE CARD WHICH THE ASSESSEE AVAILED FROM THE PE RIOD OF ACQUISITION OF THE BSE CARD TILL EXCHANGE OF SHARES FOR THE BSE CA RD. THIS APPREHENSION OF THE AO WHICH HAS BEEN THE BASIS OF PROTECTIVE AS SESSMENT MADE IN THE ORDER OF ASSESSMENT IS ERRONEOUS BECAUSE THE ASSESS EE HAS SOLD 6386 SHARES OF BSE LTD. OUT OF 10000 SHARES OF BEE LTD., WHICH IT HAD GOT ON CORPORATIZATION AND DEMUTUALIZATION OF THE BSE AS A LIMITED COMPANY, IN THE ASSESSMENT YEAR 2008-09. WHILE COMPUTING CAPITAL G AIN ON SUCH TRANSFER THE ASSESSEE CALCULATED ITS COST OF ACQUISITION ON THE BASIS OF THE WRITTEN DOWN VALUE AND RE.1 WHICH HAD PAID PER SHARE AT THE TIME OF ISSUE OF SHARES BY BSE LTD. THUS THE GRIEVANCE OF THE REVENUE AS P ROJECTED BY THE AO IS FOUND TO BE NON-EXISTENT IN THIS CASE. WITH REGARD TO THE REMAINING SHARES OF BSE LTD. WHICH THE ASSESSEE HOLDS THE QUESTION OF C OMPUTATION OF CAPITAL GAIN WOULD CONTINUE TO BE THE SAME BASIS ON WHICH T HE ASSESSEE HAS COMPUTED CAPITAL GAIN IN A.Y 2008-9. IN VIEW OF TH E ABOVE WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDIT ION MADE BY THE AO. THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERE NCE. CONSEQUENTLY GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 11. GROUND NO.2 RAISED BY THE REVENUE IS WITH REGAR D TO NON-DEDUCTION OF TAX AT SOURCE IN RESPECT OF PAYMENT TO LEASE LINE C HARGES BY THE ASSESSEE TO THE STOCK EXCHANGE. THE AO ON THE PRESUMPTION THAT THE LEASE LINE CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE WAS IN T HE NATURE OF A FEES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED WAS O F THE VIEW THAT THE ITA NO.5538/MUM/2009(A.Y. 2006-07) 6 ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENT TO THE STOCK EXCHANGE. SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE THE EXPENDITURE ON ACCOUNT OF LEASE LINE CHARGES DEBITE D BY THE ASSESSEE IN THE P&L ACCOUNT WAS HELD TO BE NOT DEDUCTIBLE IN COMPUT ING THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 40(A)(IA) OF TH E ACT. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT LEASE LINE CHARGES AR E NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND DELETED THE ADDITION MAD E BY THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED G ROUND NO.2 BEFORE THE TRIBUNAL. 12. AT THE TIME OF HEARING IT WAS AGREED BY BOTH TH E PARTIES THAT THE ISSUE AS TO WHETHER LEASE LINE CHARGES IS IN THE NATURE O F FEES FOR PROFESSIONAL AND TECHNICAL SERVICES RENDERED AND AS TO WHETHER PROV ISIONS OF SECTION 194J OF THE ACT WOULD APPLY AND CONSEQUENTLY DISALLOWANCE C OULD BE MADE FOR NON DEDUCTION OF TAX AT SOURCE UNDER SECTION 40(A)(IA) OF THE ACT COULD BE MADE HAS ALREADY BEEN DECIDED BY THIS TRIBUNAL IN THE CA SE OF DCIT VS. ANGEL BROKING LTD. (2010) 35 SOT 457 (MUM). THE TRIBUNAL IN THE AFORESAID DECISION HAS HELD THAT LEASE LINE CHARGES ARE NOT I N THE NATURE OF FEES FOR TECHNICAL SERVICES RENDERED SO AS TO ATTRACT THE PR OVISIONS OF SECTION 194J OF THE ACT. IN VIEW OF THE ABOVE WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION MADE BY THE AO. CONSE QUENTLY GROUND NO.2 RAISED BY THE REVENUE IS ALSO DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH DAY OF MARCH, 2011. SD/- SD/- (RAJENDRA SINGH) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NO.5538/MUM/2009(A.Y. 2006-07) 7 MUMBAI, DATED. 16 TH MARCH.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RC BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5538/MUM/2009(A.Y. 2006-07) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 9/3/2011 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 10/3/2011 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER