ROSY BLUE SECURITIES P.LTD, MUMBAI V. ADDL CIT RG 4(2), MUMBAI

ITA 6710/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59837 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 21-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Capital asset; Depreciation; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI D.MANMOHAN (VICE PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.6710/MUM/2011 A.Y 2007-08 M/S. ROSY BLUE SECURITIES PVT. LTD., 154-C, MITTAL COURT, NARIMAN POINT, MUMBAI 400 021. PAN: AAACR 4082 Q VS. ADDL. COMMISSIONER OF I.T./, RANGE 4(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI V.V.SHASTRI. DATE OF HEARING: 15-02-2012. DATE OF PRONOUNCEMENT: 15-02-2012. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL ASSESSEE HAS RAISED VARIOUS GROUNDS WHICH INVOLVE TWO DISPUTES, NAMELY, (1) CONFIRMATION OF D ISALLOWANCE OF DEPRECIATION ON BSE MEMBERSHIP CARD AND (2) DISALLO WANCE OF CLAIM OF EXPENSES U/S.14A. 2. IN THIS CASE NOTICE WAS ISSUED THROUGH RPAD WHIC H HAS BEEN DULY RECEIVED BY THE ASSESSEE AND ACKNOWLEDGEMENT C ARD DULY RECEIPTED IS ON RECORD. HOWEVER, WE FIND FROM PERUS AL OF RECORDS THAT BOTH THE ISSUES ARE COVERED, THEREFORE, WE PROCEEDE D TO DECIDE THE APPEAL ON EX PARTE BASIS. ITA NO.6710 OF 2010 2 3. ISSUE NO.1: AFTER HEARING BOTH THE PARTIES WE FI ND THAT ASSESSEE HAS CLAIMED DEPRECIATION AMOUNTING TO RS.15,04,143/ - TOWARDS DEPRECIATION ON MEMBERSHIP RIGHTS WHICH WAS DISALLO WED BY THE AO BECAUSE BSE HAS BEEN DEMUTUALISED AND ASSETS WERE T AKEN OVER BY BSE LTD. W.E.F. 19-8-2005 AND AS PER THE SCHEME TRA DING MEMBERS MAY OR MAY NOT BE THE SHAREHOLDERS. ON DEMUTUALISAT ION THE ASSET IN THE FORM OF BSE CARD CEASED TO EXIST. THEREFORE, DE PRECIATION ACCORDING TO THE AO WAS NOT ALLOWABLE. 4. ON APPEAL, THE DECISION OF THE AO WAS CONFIRMED BY THE LD. CIT(A). 5. THE LD. DR POINTED OUT THAT THIS ISSUE IS SQUARE LY COVERED IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF SINO SECURITIES PVT. LTD. VS. ITO IN I.T.A.NO.6264-MUM-2 009 [COPY OF THE ORDER FILED]. 6. AFTER CONSIDERING THE RELEVANT MATERIAL ON RECOR D AND THE SUBMISSIONS OF THE LD. DR, WE FIND THAT THE TRIBUNA L IN THE CASE OF SINO SECURITIES PVT. LTD. VS. ITO IN I.T.A.NO.6264-MUM-2 009 HAS DISCUSSED THIS ISSUE IN DETAIL AND FOUND THAT AFTER DEMUTUALI SATION RIGHTS OF THE MEMBERS OF ERSTWHILE BSE WERE SEGREGATED INTO (A) R IGHT TO PARTICIPATE IN OWNERSHIP OF ASSETS OF THE STOCK EXCHANGE AND (B ) RIGHT TO TRADE AT STOCK EXCHANGE. THE TRIBUNAL OBSERVED THAT AS FAR A S RIGHT TO PARTICIPATE IN ASSETS IS CONCERNED, SAME IS THROUGH HOLDING OF THE SHARES AND, THEREFORE, NO QUESTION OF DEPRECIATION ARISES. IN RESPECT OF ITA NO.6710 OF 2010 3 TRADING RIGHTS IT WAS OBSERVED BY THE TRIBUNAL IN P ARAS 31 & 32 AS UNDER: 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 I S EQUAL TO A REFUNDABLE DEPOSIT, HOW CAN SUCH VALUE OF REFUNDABL E DEPOSIT BE DEPRECIATED WHEN THE VALUE IN REALITY DOES NOT COME DOWN. IF THE REFUNDABLE DEPOSIT IS DEDUCTED FROM THE VALUE, THEN THE PRESENT VALUE OF TRADING RIGHT IS NIL. UNDER THESE CIRCUMSTANCES, TH ERE IS NO VALUE TO THE TRADING IN COMMERCIAL RIGHT ENTITLING THE ASSESSEE FOR DEDUCTION BY WAY OF DEPRECIATION. HENCE, NO DEPRECIATION CAN BE GRAN TED ON THIS RIGHT. THUS, WE UPHOLD THE FINDING OF THE REVENUE AUTHORIT IES. WE NOW DISCUSS THE IMPACT OF THE FOLLOWING SECTIONS: 55(2) FOR THE PURPOSES OF SECTIONS 48 AND 49, COS T 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 CORPORATISATION APP ROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF FNDIA ACT, 199 2, (15 OF 1992) SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL ME MBERSHIP 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 SHAR EHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCH EME OF DEMUTUALISATION OR CORPORATISATION, SHALL BE DEEMED TO BE NIL. 2(42)(H) IN THE CASE OF A CAPITAL ASSET, BEING TRAD ING OR CLEARING RIGHTS OF A RECOGNISED STOCK EXCHANGE IN INDIA ACQUIRED BY A PERSON PURSUANT TO DEMUTUALISATION OR CORPORATISATION OF THE RECOGN ISED 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 MEMB ER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IMMEDIATELY PRIO R TO SUCH DEMUTUALISATION OR CORPORATISATION. 2 (42) (H)IN THE CASE OF A CAPITAL ASSET, BEING EQU ITY 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 INDUCED THE PERIOD FOR W HICH THE PERSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IM MEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION] 113C[(HB) (HA) IN THE CASE OF A CAPITAL ASSET, BEING ANY SPEC IFIED SECURITY OR SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED, DIRECTLY OR INDIRECTLY, BY THE EMPLOYER FREE OF COST OR AT CONCESSIONAL RATE TO HI S EMPLOYEES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES), THE PERIO D SHALL BE RECKONED FROM THE DATE OF ALLOTMENT OR TRANSFER OF SUCH SPECIFIED SECURITY OR SWEAT EQUITY SHARES. ITA NO.6710 OF 2010 4 47(XIII) ANY TRANSFER OF A CAPITAL ASSET OR INTANGI BLE 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 (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 MANNER, OTHE R THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; AND (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPAN Y OF THE PARTNERS OF THE FIRM IS NOT LESS THAN FIFTY PER CENT OF THE TOT AL VOTING POWER IN THE COMPANY AND THEIR SHAREHOLDING CONTINUES TO BE AS S UCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSION;. (E) THE DEMUTUALISATION OR CORPORATISATION OF A REC OGNISED 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 SECTI ON 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 OF 1992);] 47(XIIIA) ANY TRANSFER OF A CAPITAL ASSET BEING A M EMBERSHIP RIGHT HELD BY A MEMBER OF A RECOGNISED STOCK EXCHANGE IN INDIA FOR ACQUISITION OF SHARES AND TRADING OR CLEARING RIGHTS ACQUIRED BY S UCH MEMBER IN THAT RECOGNISED STOCK EXCHANGE IN ACCORDANCE WITH A SCHE ME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVE D BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTI ON 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (1 5 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. IN OUR CONSIDERED OPINION, SECTIONS WHICH ARE FOR THE COMPUTATION OF CAPITAL GAINS, HAVE NO RELEVANCE ON THE ALLOWABILITY OF DEPRECIATION. T HE 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 E FFECT OUR DECISION. THUS, WE UPHOLD THE ORDER THE ASSESSING OFFICER AS CONFIRMED BY THE COMMISSIONER (APPEALS) WHEREIN DEPRECIATION ON MEMB ERSHIP CARD HAS BEEN DENIED. THEREFORE, FOLLOWING THE ABOVE ORDER, WE DECIDE THI S ISSUE AGAINST THE ASSESSEE. ITA NO.6710 OF 2010 5 7. AS FAR AS ISSUE REGARDING DISALLOWANCE U/S.14A I S CONCERNED, SINCE IT HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [328 ITR 81] T HAT RULE 8D IS NOT APPLICABLE RETROSPECTIVELY AND ONLY A REASONABLE DI SALLOWANCE CAN BE MADE IN THE YEAR WHERE RULE 8D IS NOT APPLICABLE. T HEREFORE, FOLLOWING THIS DECISION WE SET ASIDE THE ORDER OF THE LD. CIT (A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO DECIDE THE REA SONABLE DISALLOWANCE IN TERMS OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 8. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5/2/2012. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 15/2/2012. P/-*