DCIT, CIR-4(2), KOLKATA, Kolkata V. M/s R. M. Share Trading Pvt. Ltd., Kolkata

ITA 916/KOL/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6912 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 22-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANKAR HALDER
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion
• Section: 143(3); 142(1); 147; 148; 2

Judgement Text

1 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 916/KOL/2015 ASSESSMENT YEARS: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-4(2), KOLKATA. VS. M/S. R.M. SHARE TRADING PVT. LTD. (PAN: AABCR6331B) APPELLANT RESPONDENT FOR THE APPELLANT SHRI SHANKAR HALDER, JCIT, SR. DR FOR THE RESPONDENT SHRI SUBASH AGARWAL, ADVOCATE DATE OF HEARING 11.02.2019 DATE OF PRONOUNCEMENT 01.05.2019 ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL OF THE REVENUE ARISES OUT OF ORDER OF T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 2, KOLKATA FOR AY 2008-09 D ATED 27.02.2015. 2. THE SOLE ISSUE IN THIS REVENUES APPEAL IS AGAIN ST THE ACTION OF LD. CIT(A) IN TREATING THE ASSESSEES INCOME OF RS.1,87,17,838/- AS LONG T ERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. 3. BRIEFLY STATED THE FACTS AS NOTED BY THE AO IS T HAT THE ASSESSEE IS ENGAGED IN SHARE TRADING AND SHARE BROKING. ACCORDING TO AO, THE AS SESSEE HAD CLAIMED LONG TERM CAPITAL GAIN (LTCG) OF RS.1,87,17,838/- AS EXEMPT U/S. 10(3 8) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE AO COM PLETED THE ASSESSMENT U/S. 143(3) OF THE ACT AND ALLOWED THE CLAIM OF THE ASSESSEE. SUBSEQUE NTLY, THE AO FOUND THAT THE LTCG WAS EARNED BY ASSESSEE FROM SALE OF UNQUOTED SHARES OF BOMBAY STOCK EXCHANGE (BSE) AND STT TOO WAS NOT DEDUCTED ON IT SO, ACCORDING TO AO, THE ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING EXEMPTION. HENCE, THE CASE WAS REOPENED U /S. 147 OF THE ACT AND NOTICE U/S. 148 2 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 AND LATER 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. BEFORE THE AO, THE ASSESSEES CONTENTION WAS THAT THE ASSESSEE TRANSFE RRED ITS 4562 SHARES OUT OF THE 10,000 SHARES AT A TOTAL CONSIDERATION OF RS.2,37,22,400/- WHICH WAS IN ACCORDANCE WITH SEC. 47(XIIIA) OF THE ACT INSERTED BY THE FINANCE ACT, 2 003, W.E.F. 01.04.2004 WITH THE INTRODUCTION OF SECURITIES TRANSACTION TAX. THE HE ADING OF THE RELEVANT SECTION READS TRANSACTION NOT REGARDED AS TRANSFER WHEREIN IT I S STATED THAT NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS. THEREFO RE, ACCORDING TO ASSESSEE, THE CLAIM OF EXEMPTION FROM LTCG WAS CORRECT, BONAFIDE AND IN AC CORDANCE TO LAW. AND EVEN IF THE CLAIM WAS NOT MADE UNDER THE CORRECT PROVISION OF L AW THE ASSESSEE CANNOT BE DENIED THE CLAIM OF EXEMPTION ON SUCH GAINS. HOWEVER, ACCORDI NG TO AO, SEC. 45 RELATES TO THE DEFINITION OF CAPITAL ASSETS AND SEC. 47(XIIIA) DEA LS WITH 'THE TRANSACTIONS NOT REGARDED AS TRANSFER'. ACCORDING TO AO, SINCE THE ASSESSEE ITS ELF CLAIMED THAT THERE WAS NO TRANSFER OF CAPITAL ASSETS, SO QUESTION OF CAPITAL GAINS DOES N OT ARISE. AS THE SHARES WERE RECEIVED BY THE ASSESSEE FROM BSE, AND WERE SOLD OFF, THE DIFFE RENCE OF THE SELLING PRICE AND COST PRICE AMOUNTING TO RS 1,87,17,838/- NEED TO BE TAKEN AS B USINESS INCOME AND NOT CAPITAL GAIN. ACCORDINGLY, THE ASSESSEE WAS ISSUED A SHOW CAUSE N OTICE AS TO WHY THE TRANSACTION MAY NOT BE TAXED AS BUSINESS RECEIPT. ACCORDING TO AO, ASSE SSEE FAILED TO PROVIDE ANY NEW EXPLANATION, AND HENCE, THE AO TAXED IT AS BUSINESS INCOME. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO ALLOW ED THE ASSESSEES CLAIM BY RELYING ON ITAT MUMBAI BENCH DECISION IN ITA NO. 3118/M/2012 M /S. PARAG PARIKH FINANCIAL ADVISORY SERVICES LTD. VS. ITO DATED 29.01.2014 . AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR ASSAILING THE DECISION OF THE LD. CIT (A), WANTS US TO REVERSE THE ORDER OF THE LD. CIT(A) AND UPHOLD THE ORDER OF AO AND RELI ED UPON THE ORDER OF AO. PER CONTRA, THE LD. AR SUPPORTED THE ACTION OF THE LD. CIT(A) A ND DOES NOT WANT US TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ASSESSEE COMPANY, R. M. SHA RES TRADING PVT. LTD., IS ENGAGED IN 3 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 BUSINESS OF SHARE TRADING AND SHARE BROKING, AND HA VE ACQUIRED THE MEMBERSHIP CARD (CLG. NO. 594) OF BOMBAY STOCK EXCHANGE (BSE) FROM MR. RA TAN LAL DAMANI, THE DIRECTOR OF THE ABOVE SAID COMPANY, UNDER THE SCHEME OF CORPORA TIZATION WHICH IS APPROVED BY SEBI . WE NOTE THAT THE HISTORY OF THE CASE IS RELEVANT TO UNDERSTAND THE ISSUE AT HAND WHICH IS THAT ON 27.05.1987, RATAN LAL DAMANI BECAME THE MEMBER O F BOMBAY STOCK EXCHANGE (BSE) AT A COST OF RS. 1 CR. AND LATER ON 08.10.1998, THE INDIVIDUAL MEMBERSHIP OF RATAN LAL DAMANI WAS TRANSFERRED INTO CORPORATE MEMBERSHIP TO R M SHARES TRADING PVT. LTD. BSE DECIDED TO SEPARATE MEMBERSHIP RIGHTS AND TRADING R IGHTS OF ITS MEMBERS AND ACCORDINGLY, THE MEMBERSHIP RIGHTS HAS BEEN DEMUTUALISED AS PER THE SCHEME OF DEMUTUALIZATION AND HENCE ON 07.10.2006, BSE AGAVE THEIR MEMBERS A MEMB ERSHIP RIGHT TO PURCHASE 10,000 SHARES OF BSE @ RS. 1 PER SHARE. THUS M/S. R. M. T RADING PRIVATE LTD. HAS BEEN ALLOTTED 10,000 EQUITY SHARES @ RS.1 EACH OF BSE AT A TOTAL COST OF RS.10,000/- ONLY AT A RATE OF RS. 1/- PER SHARE. THEREAFTER ON 17.05.2007, BSE GAVE AN OPEN OFFER TO ALL ITS MEMBERS TO BUY BACK ITS EQUITY SHARES HELD BY EACH MEMBERS @ RS.5 200/- PER SHARE. IN RESPONSE TO THE ABOVE OFFER, MADE BY THE BSE, R. M. SHARES TRADING PVT. LTD. HAS APPLIED FOR 50% OF ITS SHARES I.E. 5000 SHARES UNDER THE BUY BACK SCHEME O F BSE AND THUS OFFERED 5000 SHARES FOR SALE TO BSE. HOWEVER THE BSE COULD ONLY ACCEPT 456 2 SHARES OUT OF 5000 SHARES APPLIED FOR BUY BACK. ACCORDING TO THE TERMS OF BUY BACK, R M SHARES TRADING PVT. LTD. RECEIVED RS 2,37,22,400/-(RS.5200 * 4562 SHARES). THE ASSESS EE COMPUTED THE LTCG AS UNDER;- 6. WE NOTE THAT ISSUE BEFORE US IS NO LONGER RES-I NTEGRA. THE CO-ORDINATE BENCH OF ITAT 4 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 MUMBAI DECISION IN ITA NO. 3118/M/2012 M/S. PARAG PARIKH FINANCIAL ADVISORY SERVICES LTD. VS. ITO DATED 29.01.2014, HAS ADJUDICATED AN I DENTICAL ISSUE, WHEREIN IT WAS HELD THAT SECTION 2(42A)(HA) IS RELEVANT FOR DECIDING THE POI NT IN ISSUE WHICH IS REPRODUCED AS UNDER: 2. DEFINITIONS IN THIS ACT, UNLESS THE CONTEXT OTH ERWISE REQUIRES,- (42A) 9 ['SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN 10[THIRTY-SIX] MONTHS IMMEDIATELY PRECEDING TH E DATE OF ITS TRANSFER10A :] 11[PROVIDED THAT IN THE CASE OF A SHARE HELD IN A C OMPANY 12[OR ANY OTHER SECURITY LISTED IN A RECOGNISED STOCK EXCHANGE IN INDIA OR A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963) OR A UNI T OF A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10] 13[OR A ZERO COUPON BOND], THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS 'THIRTY-SIX MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTITUTED.] 14[EXPLANATION 1].(I) IN DETERMINING THE PERIOD FO R WHICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE (HA) IN THE CASE OF A CAPITAL ASSET, BEING EQUITY S HARE OR SHARES IN A COMPANY ALLOTTED PURSUANT TO DEMUTUALIZATION OR CORPORATISATION OF A RECOGNIS ED STOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE (XIII) OF SECTION 47, THERE SHALL BE INCLUDE D THE PERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IM MEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION;] 7. THE LONG TERM CAPITAL ASSET HAS BEEN DEFINED UN DER SECTION 2(29A) OF THE ACT AS A CAPITAL ASSET WHICH IS NOT A SHORT TERM CAPITAL ASS ET . SO IN DETERMINING THE PERIOD FOR WHICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE THE PROVI SIONS OF SECTION 42A WILL BE APPLICABLE AND AFTER DETERMINING THE PERIOD OF HOLDING OF AN ASSET AS PER THE EXPLANATION 1 TO SECTION 42A, IF THE ASSET IS FOUND TO BE HELD BY AN ASSESSEE FOR NO T MORE THAN 36 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, THE SAME WILL F ALL IN THE DEFINITION OF SHORT TERM CAPITAL ASSET AND IF THE PERIOD IS MORE THAN 36 MONTHS THEN THE ASSET WILL FALL IN THE DEFINITION OF LONG TERM CAPITAL ASSET. AS PER THE SECTION 2(42A)( HA) SUPRA, FOR DETERMINING THE HOLDING PERIOD OF CAPITAL ASSET BEING EQUITY SHARES ALLOTTE D IN PURSUANCE TO DEMUTUALISATION OF A RECOGNISED STOCK EXCHANGE IN HAND, THE PERIOD FOR W HICH THE ASSESSEE WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE PRIOR TO SUCH DEMUTUALISA TION SHALL ALSO BE INCLUDED. HENCE, THE HOLDING PERIOD OF THE ASSET IS TO BE CALCULATED FRO M THE ACQUISITION OF DATE OF BSE CARD AND NOT FROM THE DATE OF CONVERSION OF BSE CARD INTO EQUITY SHARES. AS PER THE SECTION 55(2)(AB) OF THE ACT, THE COST OF ACQUISITION IN RE LATION TO EQUITY SHARES ALLOTTED TO A SHAREHOLDER UNDER A SCHEME OF DEMUTUALISATION SHALL BE THE COST OF ACQUISITION OF HIS 5 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 ORIGINAL MEMBERSHIP OF THE EXCHANGE. FOR THE SAKE O F CONVENIENCE SECTION 55 (2) (AB) IS REPRODUCED AS UNDER: 55.(2). [FOR THE PURPOSES OF SECTIONS 48 AND 49, ' COST OF ACQUISITION'96 , [(AB) IN RELATION TO A CAPITAL ASSET, BEING EQUITY SHARE OR SHARES AL LOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXCHANGE IN INDIA UNDER A SCHEME FOR 6 [DEMUTUALISA TION OR] CORPORATISATION APPROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992), SHA LL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF THE EXCHANGE:] 8. SO FROM THE ABOVE STATED EXPRESS PROVISIONS, IT IS CLEAR THAT THE COST OF ACQUISITION OF BSE CARD SHALL BE THE COST OF ACQUISITION OF BSE SHARES AND THE SHARES ARE DEEMED TO BE ACQUIRED ON THE DATE OF ACQUISITION OF BSE CARD A ND NOT FROM THE DATE OF THEIR CONVERSION. HENCE, THE DATE OF HOLDING/ACQUISITION OF AN ASSET BEING EQUITY SHARES ALLOTTED PURSUANT TO DEMUTUALISATION OR CORPORATISATION OF A RECOGNISED STOCK EXCHANGE WILL BE THE DATE OF ACQUISITION OF ORIGINAL BSE CARD AND WE NOTE THAT LD CIT(A) HAVE GIVEN RELIEF TO ASSESSEE BY FOLLOWING THE DECISION IN M/S. PARAG PARIKH FINA NCIAL ADVISORY SERVICES LTD. NO OTHER DECISION WAS CITED BEFORE US BY REVENUE, TO PERSUAD E US TO TO TAKE A DIFFERENT VIEW. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF M UMBAI TRIBUNAL IN M/S. PARAG PARIKH FINANCIAL ADVISORY SERVICES LTD.[SUPRA], THE LIS IS DECIDED IN FAVOUR OF THE ASSESSEE AND SO, WE CONFIRM THE ORDER OF LD CIT(A). 9. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 01/05/2019 SD/- SD/- (DR. A. L. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 ST MAY, 2019 JD.(SR.P.S.) 6 ITA NO. 916/KOL/2015 R.M. SHARE TRADING PVT. LTD, AY 2008-09 COPY OF THE ORDER FORWARDED TO: 1 APPELLANT DCIT, CIRCLE-4(2), KOLKATA 2 RESPONDENT M/S. R. M. SHARE TRADING PVT. LTD., 8, LYONS RANGE, 1 ST FLOOR, KOLKATA0700 001. 3 4 5 CIT(A)-2, KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR