Income Tax Appellate Tribunal - Mumbai
Executors Of The Estate Of Keshavdev R ... vs Department Of Income Tax on 17 October, 2012
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, Vs Executors of the Estate of
rd
Piramal Chamber, 3 Floor, Keshavdev R. Ganeriwala,
Parel, 38, Shree Building, Juhu
Mumbai -400 012 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
ORDER
PER VIVEK VARMA, AM:
The department is in appeal against the order of CIT(A)-XIX, Mumbai, dated 21.04.2003, wherein, the following grounds of appeal 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 meaning of 2 Executors of the Estate of Keshavdev R. Ganeriwala ITA No.5011/Mum/2003 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 (BSE) for Rs 2.50 crores and no capital gains were offered, as it was claimed that 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 case 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 ACWT vs Ramdas L. Dalal. The AO was of the view that it was a capital transfer and was chargeable to capital gains. The AO, therefore, initiated reassessment proceedings on 30.03.1999 and on 31.03.1999, the AO processed 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), holding that this being a contentious issue, was beyond the ambit of section 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 260A before the Hon'ble Bombay High Court, who remanded back the appeal 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 ACIT, reported in 248 ITR 209 (SC), wherein, the Hon'ble Supreme Court after referring to the rules of Stock Exchange, and held, "that the right of 3 Executors of the Estate of Keshavdev R. Ganeriwala ITA No.5011/Mum/2003 member of the stock exchange was not a private asset. It was merely a personal privilege granted to a member. It was non transferable and incapable of alienation by the member on his legal representatives except to the limited extent provided in the rules and subject to fulfillment of conditions. The nomination wherever provided was not automatic but hedged in by rules. On the right of nomination vesting in the stock exchange under rules, that belonged to the stock exchange absolutely. In the case of death or default of a member, 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 no amount on account of the said member was due or held by the stock exchange, section 226(3) could not be invoked". To arrive at this decision, the Hon'ble Apex court referred to earlier decisions, in the case of official Assignee of Bombay Vs. KRP Shroff 1932 AIR 186 (PC) and Vinay Bubna vs. Stock Exchange 97 Company Cases 874 (SC), wherein it was held, "that the membership of the stock exchange is a personal 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 decision 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 assessee 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 Stock Exchange card of the BSE, along with other citations placed before him, the CIT(A), thus held, that the said right was not property belonging to the assessee, and therefore, no capital gain is exigible as it does not fall within the precinct of section 2(14) of the Act. The CIT(A), therefore deleted the addition of Rs. 2,48,39,500.
4 Executors of the Estate of Keshavdev R. Ganeriwala ITA No.5011/Mum/2003
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 Hon'ble Supreme Court held that the ticket of the Stock exchange is an asset, eligible for depreciation u/s 32. The DR, therefore, pleaded that the decision of the AO was in line with the existing law and is squarely covered by the decision of the Hon'ble Supreme Court in the case of Techno Shares (supra). He therefore, pleaded that the order of the CIT(A) be set aside and that 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 have 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 member of a Stock Exchange is an asset and if it is an asset, who is the owner thereof.
11. From perusal of the decision of Stock Exchange, Ahmedabad vs ACIT, reported in (1999) 6 SCC 215, the basic point as decided was that, membership card of the stock exchange does not represent the property of a member, but is only a privilege given to the member of the stock exchange, whereby, the member is able to transact business on the floor of the Stock Exchange.
5 Executors of the Estate of Keshavdev R. Ganeriwala ITA No.5011/Mum/2003
12. We have gone through the decision of Sejal Rikech Dalal vs Stock Exchange, Bombay, reported in 69 Company Cases 709, and also Hon'ble Bombay High Court delivering the decision on non defaulting continuing member, as a Special Court in its judgment dated 09.06.2011, in the case of Stock Exchange vs Custodian, held that "the stock exchange membership is a personal privilege and is not attachable as a property". When we interpret these decisions, only one logical conclusion precipitates, and that is, the Stock Exchange card is not a "property" in the hands of the member.
13. We now focus our attention on the latest decision of the Hon'ble Supreme Court in the case of Techno Shares (supra), wherein it has been held that Stock Exchange ticket is a depreciable asset. On perusing the decision, we find that the Hon'ble Supreme Court in this case, has relied on the decision of Stock Exchange, Ahmedabad (supra), where it was held by the Hon'ble Supreme Court that Stock Exchange ticket shall be the property of the Stock Exchange 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 exchange. The membership right or membership card of the said member 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 been yes and it has now been categorically held so in the case of Techno Shares (supra) and whose lien lay the said asset, the answer to this question has been given first by the Hon'ble Supreme Court in the case of Stock Exchange, Ahmedagad (supra) and then by the Hon'ble Bombay High Court sitting as a Special Court in the case of Stock Exchange vs Custodian. In both these cases it has been held that the member of the 6 Executors of the Estate of Keshavdev R. Ganeriwala ITA No.5011/Mum/2003 Stock Exchange is not owner of the membership ticket and therefore, it is not an attachable property.
15. We find that even the Hon'ble 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 circumstance 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 per section 47(xi), it is a capital asset. We find that clause (xi) was inserted 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 in 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 department.
19. In the result, the appeal filed by the department is dismissed.
Order pronounced in the open Court on this day of 23/11/2012.
Sd/- Sd/-
(B.R JAIN) (VIVEK VARMA)
ACCOUTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 23/11/2012
Copy to:-
7 Executors of the Estate of Keshavdev R. Ganeriwala
ITA No.5011/Mum/2003
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