Income Tax Appellate Tribunal - Delhi
Jagan Nath Sayal vs Assistant Commissioner Of Gift-Tax on 8 November, 1999
Equivalent citations: [2000]72ITD1A(DELHI)
ORDER
T.V. Rajagopala Rao, President
1. This is a Special bench case involving following important questions of law :-
(1) Whether the share in Delhi Stock Exchange constitutes wealth and, if so, how to value the same ?
(2) Whether the membership card entitling a person to transact business after entering the trading circle in the Exchange Building at New Delhi is wealth and, if so, what is the proper method of valuation to be adopted ? ' (3) Whether the share of Delhi Stock Exchange or membership of Delhi Stock Exchange is transferable ?
(4) Whether the gift of Delhi Stock Exchange Card or the share of Delhi Stock Exchange is valid under law and whether it can be treated as a perquisite and how to value the said gift for purposes of gift-tax ?
The question referred to the Special Bench is :-
What would be the composite value of the Ticket and Membership rights held by the assessees in M/s. Delhi Stock Exchange ?
In the appeals which have specifically come up before the Special Bench, we are concerned with the assessment years 1991-92 and 1992-93. For the assessment year 1991 -92, the AO had valued the Ticket (right to trad e after entering the Stock Exchange premises) at Rs. 25 lakhs in the case of Shri V.N. Agarwalla and for the assessment year 1992-93, the AO had valued the same at Rs. 40 lakhs in the case of Shri Jagan Nath Sayal. The Commissioner of Income-tax (Appeals) reduced the value of Ticket to Rs. 16 lakhs in Shri V.N. Agarwalla's case for assessment year 1991-92 and to Rs. 24 lakhs in the case of Shri Jagan Nath Sayal for the assessment year 1992-93. Both the Assessing Officer as well as the Commissioner (Appeals) gave exhaustive reasons in their orders and both of them held that Delhi Stock Exchange share and membership rights are independent and distinct rights and those rights are liable to be valued separately. Before the Special Bench, several Interveners sought permission to address arguments in support of the assessees' contention, since their cases are also of similar nature and involving similar issue. We have allowed them to argue as Interveners. The Hon'ble Supreme Court in Saraswati Industrial Syndicate Ltd. v. CIT [1999] 237 ITR 1/103 Taxman 395 had explained the purpose of granting permission to the Intervener. At page of the Head Note of the Report, the Supreme Court had explained the purpose for granting permission to the Intervener as follows :-
The only purpose of granting an intervention application is to entitle the Intervener to address arguments in support of one or the other side. Having heard the arguments, we have decided in the asscssce's favour. The Interveners may take advantage of that order.
Except taking advantage of the order, if any, passed in favour of the assessee, the intervener has no other separate right. Therefore, apropos the main question, we have allowed the regular Advocate appearing for the assessees in the case and also the Advocates engaged by the Interveners fully, but some of the Interveners who include persons who sought permission to argue their own cases wanted to submit peculiarities in some of their cases, which we did not allow to argue in view of the above restriction imposed upon the Interveners by the Hon'ble Supreme Court. We have heard Shri O.S. Bajpai, learned Advocate for the assessees. We have also heard the Advocates appearing for the Intervenors, as listed out in the Cause Title of this order at page 2. On behalf of the Revenue, we have heard the Special Standing Counsel Shri Rajendra.
2. On behalloi the assessees, there are lour paper, books filed and We choose to mention the contents of the paper book as and when we feel relevant at appropriate places instead of discussing each and every page, which we feel would not serve any purpose and make the understanding of the order more cumbersome. In paper book No. 1, the learned counsel for the assessee, Shri O.S. Bajpai give the following synopsis and listed out the propositions sought to be made by him as well as give the judgments in support of his propositions. Firstly, he argued thai membership of the Stock Exchange is only a personal permission granted by the Stock Exchange to a share broker to transact through the exchange. He also contended that the membership of the stock exchange is not a property or an asset under Section 2(e) of the Wealth-tax Act, (hereinafter called as WT Act). He further contended that the membership of Stock Exchange is inalienable and conversely speaking, what is not freely alienable or transferable generally is a personal right. Therefore, it constitutes a personal right. He also contended that the permission to use the asset without granting exclusive possession constitutes a licensory right and not any right or interest in the property. He relied upon the order delivered by the Bombay Bench of the Tribunal in Asstt. CIT v. Shri Ram Das L. Dalal [WT Appeal Nos. 1682 to 1685 (Bom.) of 1991 dated 28-1-1993], a copy of which is provided at Vol. 2 at pages 23 to 27 of the paper book. Before the Bombay Bench, heavy reliance was placed upon the case of Regal R. Dalal v. Stock Exchange [W.P. No. 2084 of 1989]. Inter alia, the Bombay High Court while deciding the case before them is purported to have held the following:-
In order to decide whether there is any property in the membership of the Stock Exchange, it is necessary to refer to Rules relating to membership of the Stock Exchange. Under Rule 5, the membership shall constitute a personal permission from the exchange to exercise the rights and privileges attached thereto subject to the Rule, Bye-laws and Regulations of the Exchange. The membership, therefore, is not a transferable rights. It is only a personal permission granted by the Stock Exchange to an individual member. This is brought out further by Rule 6 which stated that the right of membership is inalienable. The membership rules give to a member a right of nomination which shall be personal and non-transferable. This right under Rule 11 can be exercised by a member of not less than 7 years standing who desires to resign. He may in turn nominate a member as set out in Rule 11. In the case of deceased member, under Rule 9, on his death, his right of nomination ceases and vests in the Exchange. There is, therefore, no property in membership.
On the above quoted judgment, it is sought to be argued by Shri Bajpai that Rules 5 and 6 framed by the Bombay Stock Exchange (BSE for short) have been considered by the High Court and it had been held that the membership is not a transferable right. It is only a personal permission granted by the Stock Exchange to a share-broker to transact. through the Exchange. Therefore, he ultimately sought to argue that, the right to membership or the Stock Exchange cannot be treated to be "Property" of "Asset" within the meaning of Section 2(e) ol the WT Act. He also sought to rely upon another Bombay High Court decision rendered in Mrs. Sejal Rikeen Dalai v. Stock Exchange AIR 1991 Bom. 30, photocopy of which is provided at pages 162 to 167 of paper book Vol. III. On the basis of the said judgment, the proposition that the membership of the stock exchange constitutes a personal permission from the exchange to exercise the rights and privileges attached to it subject to bye-laws and rules and regulations of the Stock Exchange and that it is not a transferable right, is sought to be made out. It is contended that the order of the Bombay Bench in Shri Ram Das L. Dalal's case (supra) is based on the ratio laid down by the Bombay High Court in Mrs. Sejal Rikeen Dalal's case (supra). The learned counsel for the assessee specifically relied upon paras 10 and 11 in the Bombay High Court judgment in the case of Mrs. Sejal Rikeen Dalai (supra). Paras 10 and 11 of the Bombay High Court decision are the following :-
10. In order to decide whether there is any property in the membership of the Stock Exchange, it is necessary to refer to Rules relating to membership of the stock exchange. Under Rule 5, the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the rules, Bye-laws and Regulations of the Exchange. The membership, therefore, is not a transferable right. It is only a personal permission granted by the Stock Exchange to an individual member. This is brought out further by Rule 6, which states that the right of membership is inalienable. The membership rules give to a member a right of nomination which shall be personal and non-transferable. This right under Rule 1 i can be exercised by a member of not less than 7 years standing who desires to resign. He may in turn nominate a member as set out in Rule 11. In the case of a deceased member, under Rule 9 on his death, his right of nomination ceases and vests in the Exchange. There is, therefore, no property in membership.
11. Under Rule 11(b), however, "The legal representatives of a deceased member or his heirs or the person mentioned in Appendix-C to these Rules may with the sanction of the Governing Board nominate any person eligible under these Rules for admission to membership of the exchange as a candidate for admission in place of the deceased member." The nomination does not, however, secure automatically membership of the Stock Exchange. Rule 28 provides, "The election of all new members (whether they shall have been nominated or not) shall be by ballot and a candidate shall be deemed duly elected if approved by a majority of not less than two-third of the above votes cast at a meeting of the Governing Board at which not less than one-half of the total number of the members of the Governing Board are present in addition to the Government Nominee (if any) attending the meeting." Rule 28, therefore, makes it clear that-even persons who have been nominated as per the prescribed rules will have to be elected by the Governing Board by the requisite majority before they can become members.
Again the same authority is cited for the proposition that there is no property in the membership of Stock Exchange, that under Rule 5, the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the Rules, Bye-laws and Regulations of the Exchange. The membership, therefore, is not a transferable right. It is only a personal right. Shri Bajpai contended that Rule 43 of the Delhi Stock Exchange (which is hereinafter called as "DSE" for short) clearly provides that any member may cease to be a member by death. This provision is analogous to the provisions contained in corresponding BSE Rules. The learned counsel highlights Rule 28 of the BSE to make it clear that even persons who have been nominated as per the prescribed rules will have to be elected by the Governing Board by the requisite majority before they can become members. The third judgment relied on by the learned counsel for the assessee is again a Bombay High Court judgment in Vinay Bubna v. Stock Exchange of Mumbai [1988] 15 SCR 328 provided at pages 10 to 22 of paper book, Vol. II. He relied upon paras 15 and 16 of the judgment of the Bombay High Court which arc as follows :-
According to us, the petitioner's challenge to the impugned Rules 16 and 43 is based on a very wrong presumption that the membership card of a share broker is his personal property. We say so because Rule 5 itself provides that the membership is only a personal permission given by the Exchange to the share broker to exercise the rights and privileges, attached thereto, subject to the Rules, Bye-laws and Regulations of the Exchange. It is, therefore, clear that it is only a permission given to the share broker to transact through the Exchange. It is not a personal property at all. It is further significant to note that the aforesaid right to hold a permission card has been circumvented and restricted by Rules 6, 7, 9, 53 and 54. After going through all the aforesaid rules and particularly Rule 54, which declares that a member's right of membership shall finally vest in the Exchange immediately after he is declared a defaulter, it is crystal clear that the membership card of a share broker is not at all a personal property of the share broker. It is only a personal privilege conferred by the Stock Exchange on the share broker. According to us, as has been rightly urged on behalf of the Stock Exchange, all the rules, including the impugned Rule 16, operate and stand to benefit the petitioner. In the absence of these rules, in particular Rule 16, the petitioner would perhaps not get any benefit. The functioning of the Exchange is made smooth and orderly in accordance with the said rules, so that proper settlements are facilitated and there is no chain of defaults affecting thousands of innocent investors and, consequently, the whole securities market.
16. We do not agree with the second contention of the petitioner that Rules 16 and 43 are contrary to the Law of Insolvency and, therefore, the said rules were illegal. Before the Privy Council, in the case of Official Assignee of Bombay v. K.R.P. Shroff AIR 1932 PC 186, similar contention was raised and the Court has negatived the contention that if the effect of the rules be that the proceeds of sale of the insolvent's card do not ensure for the benefit of the general body of his creditors, the rules are contrary to Law of Insolvency and, separately, to the provisions of Section 12 of the Transfer of Property Act, 1882. The Court held that considering the nature and character of the Association and the Rules, a defaulting member who is expelled from the Association no interest in his card remains in himself and none that can pass to his assignee whether his expulsion does or does not take place prior to the commencement of his insolvency. The Court further held that it is difficult to see how the assumption of membership involves at any stage the transfer of any property on any condition whatever. The Court observed : "It is impossible in their Lordships" judgment to describe the insolvent status of membership of the Association in language which, however, tortured, could bring it within the terms of the section" (Section 12, Transfer of Property Act).
It is contended that the Rules and Bye-laws of the Stock Exchange being of legislative nature, have to be interpreted without adding or subtracting from the language used therein. The assessee's counsel also relied upon the judgment of the Privy Council in the case of Official Assignee of Bombay v. K.R.P. Shroff AIR 1932 PC 186. In that judgment, their Lordships is claimed to have made a full survey of the salient provisions of the constitution deed and rules of the association in order that the real nature and the status of its members might thereby be disclosed. In the light of the Privy Council judgment in K.R.P Shroff's case (supra), it is argued that in the case of DSE, the status is that of an "Association of Persons (Trust)". It is a voluntary association resembling a Members' Club, it is formed to facilitate its members to transact their business with one and another according to an honourable practice. As observed by the Privy Council, in order to obtain its ends, the organisation has made its membership to be a personal thing, incapable of uncontrolled transfer; expulsion from membership must normally follow default or misconduct; upon expulsion, interests of the defaulting members in the property and the asset must cease. All these necessities, which are characteristic to any member club have been carefully provided mutatis mutandis by the DSE as well. The Members of the Association are not interested in the 'hall' or any other properties or assets of the exchange which continue to remain their collective property, although held on their account but without any right of any member or majority of members to have any right to realisation for individual benefit. Only if and when all the members would agree to cut an end to the Association, they, after its debts have been satisfied, will be entitled to have a division amongst themselves of what remains. It is the remoteness of the individual interest which provides an effective reasons for forfeiture or abandonment of all interests following expulsion, resignation or death. The learned counsel for the assessee wants to get partial support even from the Gujarat High Court decision reported in stock Exchange v. Asstt. CIT [1998] 231 ITR 906, wherein it is held that the membership of Stock Exchange is a personal right or personal permission granted by the Stock Exchange. However, so far as the right to nominate is concerned, the learned counsel submitted that the ratio laid down by the Gujarat High Court in that case does not apply, as similar right to nominate was not recognised by the DSE by its Bye-laws and, therefore, in that aspect of the matter, the ratio of the Gujarat High Court is clearly distinguishable and not applicable.
3. The learned counsel for the assessee relied on the judgment of the Delhi High Court, namely CWT v. Smt. Promila Bali [1983] 141 ITR 942/[1982] 11 Taxman 160 and CGT v. Dr. (Kaviraj) Khajan Chand [1990] 182 ITR 469 in support of the proposition that what is not freely transferable constitutes merely a personal right. He also argued that if an interest in immovable property entitling the transferee to enjoyment was created, it was a lease if permission to use land without exclusive possession was alone granted, a licence was the legal effect and he cited Khali! Ahmed Bashir Ahmed v. Tufel Hussein Samasbhai Sarangpurwala AIR 1988 SC 184 in support of this proposition. He further argued that in the present case no exclusive possession is granted to any member either for the 'hall' or for any other property of the Exchange. The permission to use the hall is merely a personal permission to conduct business and is, therefore, a mere licensary right in the eyes of law which does not constitute any right or interest in the property. He further submitted that simply because certain rights or privileges are attached even to the personal permission, they do not convert it into an 'asset' or 'property' as was already held by the Privy Council as well as Bombay High Court and also the Gujarat High Court already adverted to above. He further contended that a member of a Club cannot claim any interest or right in the property of the Club. His right or privilege is limited to the use of the facilities provided by it. Similarly, a guest of a hotel or a restaurant having booked a room or a table does not acquire a right or interest in the property of a Hotel or restaurant, his right is limited to the use of such facility as he has paid for. Modern Hotels provide facilities to conduct business activities as well. They provide conference halls for business meetings, telecom and computer facilities and so on. One cannot say that they provide for a right to do any business as such.
4. The learned counsel for the assessee continued to submit that the main object of DSE is to promote and regulate business of exchange of stocks in shares etc. and with a view thereto, to establish and conduct stock exchange in Delhi and elsewhere for conduct of such business, it is essential to set up a hall. The word 'hall' is defined in Article i(xviii) as follows :-
hall' shall mean the place provided by the Association where the Stock Exchange business is done by members of the Exchange during the business session Thus, hall is only a place. No member of the Exchange has exclusive possession thereof and no member has any right: of ownership or any other interest in the hall or in any other property of the Exchange. The learned counsel argued that what is to be valued is only a share in the Stock Exchange and not the rights attached to that share. Similarly, it is argued that membership is not a source in itself, but only a permission to go and earn income. It only provides an access to the source and it is not a lucrative source.
5. Explaining the ambit of business conducted in a Stock Exchange by a member, the learned counsel submitted the following. The right to do business is a fundamental right, a birth right of a citizen of our free society. The Constitution of India guarantees the right, but does not create it. It is no doubt true that it can put some reasonable restrictions on the right to do business in the larger interests of the society. All this does not mean that a right to trade can be created statutorily or even contractually. Choice as to a trade or profession or choice to indulge in the activities of a trade or profession after making a choice for it, or to remain inert without its pursuit, is wholly personal. It cannot be forced or hoisted on a person. Provision of a facility for doing a business or profession by an organisation run by an Association of persons cannot be equated and confused for the right to do business. Even after having become entitled to avail of a facility, one may not do business. The provision a facility carries with it the mere right for its use. The provision by itself does not yield any profit or loss as ownership of any property or asset would normally do. Membership of a Stock Exchange being a personal permission acquired on the basis of personal qualifications does not create any property or asset, nor does it create any right or interest in any property or asset. It is merely a personal permission.
6. The learned counsel for the assessee then took us through the Rules of DSE. According to him, they are in pari materia with those of BSE, except in the matter of right to nomination. He drew our attention to Rule 34 of DSE which provided that, membership shall not be transferable except as provided by these rules. He submitted that no Rules, laws or bye-laws provided for any transfer of membership. He stated that copy of Articles of Association of DSE are provided at paper book Vol. 1 and bye-laws of DSE were provided at pages 4 to 64A of Vol. 3 of the paper book. He submitted that one has to acquire the membership after fulfilling the conditions of eligibility as prescribed under Rule 25 in accordance with the procedure to be followed as per Rule 26. Absolute discretion lies with the Board of Directors to accept or reject the application. He adverted to Rule 27, which provides that the Board of Directors may, at any time, after the date of admission cancel the admission and expel a member in the circumstances stated therein. Rule 43 provides for cessation of membership automatically in the following five events :
(i) by resignation,
(ii) by death,
(iii) by expulsion in accordance with the provision's herein contained or under the Bye-laws and Regulations,
(iv) by being declared a defaulter in accordance with the Rules, Bye-laws and Regulations.
(v) If a Corporate Member commits an act of insolvency resulting in a winding up action and the appointment of a Provisional Liquidator, or Official Liquidator or Receiver of the Corporate Member being appointed."
He adverted to Rule 45 which provides that a member's right of membership shall lapse and vest in the Exchange immediately he is declared a defaulter. On the declaration of default, he shall at once cease to be a member of the Exchange and as such ceases to enjoy any of the rights and privileges of membership but the rights of his creditor-members against him shall remain unimpaired. He drew our attention to Rule 26(b)(i) of DSE which states that an applicant shall submit with his application one share script alongwith its relative transfer deed in respect of the share of the association acquired by him and one transfer deed duly filled and completed by him as a seller in respect of the same together with a declaration pledging his share against any future claim of the Association or its members. Thus, the share in the Association gets encumbered and is not freely transferable. Rule 25(1) provides eligibility conditions to become a member. Important amongst the conditions are that he should be more than 21 years of age, he should possess a minimum qualification of matriculation or an equivalent examination. This condition can be relaxed with the prior concurrence of the Central Govt. in a case of an individual who succeeds to the established business of a deceased member or a retiring member or in any other deserving case. Since the bye-laws themselves are filed in the form of a Paper Book, we can usefully refer to it for other conditions to be fulfilled for becoming a member instead of quoting them in extensio. Rule 26(2) prescribes the personal qualification for membership. Inter-alia, he contends that before admitting as a member the condition to be fulfilled is that he has worked for not less than two years as a partner with, or as an authorised assistant or authorised clerk or remisier or apprentice to a member, that he should agree to work for a minimum period of two years as a partner or representative member with another member and to enter into bargain on the floor of the Stock Exchange not in his town name, but in the name of such other member. Rule 26 of the Articles of Association of DSE prescribes the procedure for enrolment as a new member. We have gone through the bye-laws and since there are several conditions to be fulfilled, we feel that it is quite unnecessary to extract all of them. As and when necessary, we can as well refer to the Articles of Association themselves. It is submitted with reference to Rules 25 and 26 of the DSE that mere acquisition of a share of DSE does not make a person a member of the Stock Exchange. He should first of all satisfy the eligibility conditions, secondly he should have personal qualification and, thirdly, he must lollow the statutory procedure laid down for the purpose of acquiring the membership. Rule 31 makes provision to form a partnership. According to the said Rule, no partnership shall be formed except between two or more members of the Exchange. Proviso to that Rule lays down that a member may take his father/mother, son or sons or brothers or brother's son or sons who are otherwise in all respect eligible for membership as partner or partners without their acquiring individual membership of the Stock Exchange and the qualification share already held by such member would be considered sufficient to qualify the constituent member as member of the Exchange. Shri Bajpai pointed out that three significant points emerge from out of the provisions allowing formation of partnership :
(1) Close relations is eligible for membership in all respects, provided that he possesses all the qualifications which are required for becoming a member, (2) the only concession provided is that such a close relation would not be required to acquire individual share or individual membership, and (3) on the death of the person who holds the share, the membership of the Exchange shall cease under Rule 43.
Rule 43 does not make any distinction between a person who has formed a partnership or who is doing business in his individual capacity. Transfer of share is also discretionary. In this connection, our attention is drawn to Rule 18 which does not speak of complete prohibition on transfer of membership. On the contrary, it empowers the Board of Directors to decline even the transfer or transmission of shares of any person if they are of the opinion that such transfer or transmission shall not be conducive to the interest and objects of the Stock Exchange. Rule 18 further provides that the Board shall not register any transfer of any share/shares to any person other than a member of the Stock Exchange or a candidate for membership who has been duly elected as eligible for membership under the provisions of Article 25. The Board may refuse to register outright transfer of share(s) to an existing member or may impose such condition in respect of any such last mentioned transfer as they may deem fit. The learned counsel for the assessee submitted that there is a clear distinction between a shareholder or a member. According to him, the Memorandum of Articles of Association of DSE made a clear distinction between the two categories of persons. In the Articles of Association, the share capital and the acquisition of shares had been dealt with in Articles 4 to 22 and the membership of the Stock Exchange had been dealt with in Articles 23 onwards. He pointed out that it is significant that Article 97 restricted voting right to the members of the Stock Exchange and it is not extended to the shareholders who are not members of the Stock Exchange. Rule 86 specifically provides that there shall always be deemed to exist a paramount, continuing and floating lien and first charge in favour of the Association on the share or shares and on securities lodged in cash or otherwise by any member of the Exchange for payment of his liabilities towards the Association or members of the Exchange in respect of business done with other members of the Exchange and for the fuliilment of all commitments made by or on behalf of such member al any time during the continuance of his membership. Under Rule 87, the Board is empowered to dispose of the share and/or security which is subject to the lien or charge as per Rule 86 and distribute the proceeds amongst the claimants. Here again Shri Bajpai wanted us to specifically note that the Article refers only to the sale of share and securities and not the membership.
7. For the assessment years 1991-92 and 1992-93, DSE was treated as an AOP (Trust) by the Revenue. In order to prove that, the assessee placed a copy of the assessment order dated 8-12-1993 under Section 143(3) of the Income-tax Act at pages 40 and 41 of the paper book, Vol. II. Column 5 of the assessment order clearly shows status of DSE as having been shown as AOP (Trust). In that order, the condition stipulated for the claim of exemption under Section 11 was specifically held to have been satisfied and accordingly the claim of exemption under Section 11 was accepted and the income of DSE was assessed at Nil. The learned counsel submitted that the question for consideration is that when the DSE is exempt under Section 11, whether the shares of the members of such Exchange is also exempt. Section 5(1)(i) of the WT Act provides that wealth-tax shall not be payable by an assessee in respect of certain assets which includes any property under trust or other legal obligation for any public purpose of a charitable or religious nature. It is asserted that the DSE holds the property for public purpose of a charitable nature and as such, the members of the Association will enjoy exemption from assessment under Rule 16 of Schedule III read with Section 4(1)(b) of the WT Act. Section 4(1)(b) of WT Act provides that in computing the net wealth of the assessee who is a partner in a firm or a member of an Association of Persons, there shall be included, as belonging to that assessee, the value of his interest in the assets of the association determined in the manner laid down in Schedule III. Rule 16 of Schedule III provides for computation of net wealth of the firm or an Association and its allocation among the partners or members. Clauses (i) and (ii) of Rule 16 prescribe the methodology for computation of the value of interest of a partner or a member. According to Clause (i), that portion of the net wealth of the firm or association as is equal to the amount contributed by its partners or members, shall be allocated amongst them in the proportion of their capital contribution. According to Clause (ii), the residue is allocated in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution and in the absence of any such agreement, in the profit-sharing ratio. Sum total of amounts allocated in this manner under Clauses (i) and (ii) is treated as value of interest of the partner or member. He further argued that proviso to Rule 16 provides that while determining the net wealth of the firm or association for the purpose of this Rule, the exemption provided in Sub-sections (1) and (1A) of Section 5 are not lobo taken into account. Therefore, the first step is to compute the value of interest inclusive oJ the value of assets which are exempt. The second step for calculating the exemption is provided in the Explanation below Rule 16. Clause (b) of the Explanation provides that for the purpose of Rule 16 that where net wealth of the firm or association computed in accordance with this rule includes value of any assets which are exempt under Sub-sections (1) and (1A) of Section 5, the value of interest of a partner or a member shall be deemed to include the value of his proportionate share in the said assets and the exemption as contained in Sub-sections (1) and (1 A) of Section 5 shall apply to him accordingly. Since, in the present case all the assets held by DSE are exempt under Section 11, by virtue of provisions of Section 5(1)(i) read with Rule 16, the entire value of the share of the member shall be exempt. He next contended that the status of the DSE as an Association of Persons (Trust) cannot be disputed. In this connection, he had set out the definition of 'persons' given in Section 2(31) of the Income-tax Act and our specific attention is drawn to Clause (v) of Sub-section (31) of Section 2 in which it is stated that "an Association of persons or a body of individuals, whether incorporated or not". He drew our attention to Form No. 2 prescribed under Rule 12(1)(i) of the Income-tax Rules, 1962, according to which 16 categories of status are recognized and they are all set out. Among them 'Association of Persons (Trust)' is identified as "08". Thus, Shri Bajpai argued that 'Association of Persons (Trust)' is one of the status statutorily prescribed under Rule 12(1)(z), Rule 12(1 A), Rule 12(1)(b)(iii) and Rule l2(1)(c) of the said Rules.Then, he argued that the word 'person' is not defined in the WT Act. However, the charging Section 3(1) includes individual, Hindu undivided family and a company. Section 21-A of the WT Act provides an exemption to the general rule of exemption provided in Section 5(1)(z). If the conditions prescribed in Clauses (i), (ii) and (iii) of Section 21A are not satisfied no exemption is allowed. However, in this case all the conditions are satisfied and the DSE as can be seen from the assessment order passed against DSE referred to above. Under Section 21AA of WT Act, it is clear that a company or a co-operative society or a society registered under the Societies Registration Act, 1860 are also treated as Association of Persons under the WT Act. However, Section 21AA makes a distinction in the case of those Association of Persons which are other than 'a company', 'a co-operative society' or 'a registered society' where the shares are indeterminate. It is contended that a company whether incorporated or not is treated basically to be an "Association of Persons" under the WT Act and it is further reiterated that an "association of persons" incorporate under the Companies Act or under the Co-operative Societies Act or under Registration of Societies Act or under any other law for the time being in force, which hold property under trust or under other legal obligation for public purposes of charitable or religious nature are exempt under the WT Act by virtue of Section 5(1)(i) of the WT Act so long as they do not fall within the mischief of Section 21A or 2.1 AA. it is slated that under Article 1(1) of the Articles of Association of DSE, the 'company' or 'association' means an association of persons formed by 11 persons, whose names are listed out in para 11 of the Memo of Arguments. He further stated that on 23rd day of May, 1947, it was incorporated under the Companies Act for carrying out a public purpose of chari table nature. The words used in Section 5(1)(i) are "any public purpose of a charitable or religious nature in India". The term "public purpose" is wide enough. While "public purpose" as such is not defined, but "charitable purpose" is defined in Section 2(15) of the Income-tax Act, according to which it includes relief to the poor, education, medical relief and the advancement of any other object of general public utility. The two phrases, viz., "public purposes" and "general public utility" overlap each other. The objects of DSE squarely fall within the definition of 'public purpose of charitable nature' and/or "charitable purpose having general public utility". It is contended that this aspect of the matter has been duly examined by the department year after year and accordingly, they have granted total exemption under Section 11 of the Income-tax Act to the DSE. As part of its objects. DSE provides the facility for conduct of share-broking business. The share-broking business facility provided by the DSE should not be confused and mixed up with the conduct of business of share-broking done by the individual members. Provision oi this facility by itself did not produce any profit or loss to the members. Having become a member, one may not do any business, or he may suffer loss as well as he may make profit. Individual activities of members are distinct and separate from the provisions of facility and control and management of proper conduct of share-broking business by the Stock Exchange. According to the assessee's counsel, the three essentials for creation of an association very much exist among the member/shareholders of the DSE. Initially certain persons joined hands to form an association for public purpose. They settled an amount and the same persons who constituted the Board of Directors acted as trustees to manage the fund. They discharged their responsibilities of carrying out the object of association of persons. They utilised its income for promotion of the object and continued to hold the fund and properties of the trust for fulfilment of the object. A public trust is different from a private one. The provisions of Indian Trust Act apply only to a private trust. As held by the Hon'ble Supreme Court in CIT v. Tolly gunge Club Ltd. [1977] 107 ITR 776, a company can be formed for charitable purposes. It is also equally well-settled that a business can be held under trust or under legal obligation. Conduct of the business may be incidental to the fulfilment of the object of the trust. He also contended that the Directors of the DSE can enjoy dual capacity - both as Directors as well as Trustees. In this connection, Shri Bajpai, learned Advocate for the assessee cited the Delhi High Court decision in CIT v. Mridu Hari Dalmia [1982] 133 ITR 550/8 Taxman 138, in which the Hon'ble High Court held that the common law recognises different capacities but not different personalities. Their Lordships quoted with approval a passage from Salmond's Jurisprudence, 12th Edn. page 304, para 65. Which is as follows :
English Law recognizes many different, capacities in which a man may act. Often he has power to do an act in an official or representative capacity when he would have no power to do the act in his private capacity or on his own account. All sorts of difficult questions arise out of these distinctions : for instance, whether a person on a particular occasion was acting as trustee for fund A or a trustee for B; whether a director has the powers and duties of a trustee; whether an executor has turned into a trustee and so on. These troubles need not concern us here; the only point to be noticed is that the mere fact that a man has two or more capacities does not give him the power to enter into legal transaction with himself. Double capacity does not connote double personality. For instance, at common low, a man could not sue himself, or contract with himself, or convey property to himself; and it made no difference that he was acting on each side in a different capacity. So rigorous was the rule that, if the same party appeared on both sides of a contract, even though accompanied by different parties in each case, the whole contract was void. In many cases the rule worked hardship and its consequences had to be mitigated.
It is submitted by the learned counsel that the Delhi High Court decision was followed by the Kerala High Court in CIT v. K.T. Mathew [1998] 233 ITR 770. Therefore, the learned counsel argued that the Directors of DSE can act legally in two capacities; (a) as Directors of the company performing their obligations as directors and (b) as trustees performing their functions for holding the property under trust and legal obligation. It is contended that for getting exemption under Section 11 of the Income-tax Act or under Section 5(1)(i) of the Wealth-tax Act, it is not necessary that the company should be registered under Section 25 of the Companies Act. It is significant, argues the learned counsel for the assessee, that the basic requirements of Section 11 of the Income-tax Act and Section 25 of the Companies Act are similar. The learned counsel submitted that though the grant of licence to a company under Section 25 of the Companies Act, 195 6, does prima facie show that the assessee has come into existence for a charitable or any other useful object, the mere issue of such a licence cannot be taken to be conclusive for the purpose of Section 2(15) of the Income-tax Act. He referred to the following judgments:-
CIT v. Ootacamund Gymkhana Club [1977] 110 ITR 392 (Mad.) Madras Kirana Merchants Association v. CIT [1978] 111 ITR 156 (Mad.) It is next contended that it is not open to the Department to dispute the status of DSE in the assessments of its members. The status of DSE determined in its assessment under Section 143(3) is conclusive and binding on both, namely, the Department as well as the Exchange. What has been determined after consideration of all relevant facts and circumstances and what was settled over years, cannot be disputed or disregarded merely on the ground that it does not suit the Department now in the cases of its members. It is also contended that it is not open to the Tribunal to disregard the status finally determined by the Assessing Officer from year to year after due consideration of all the facts and circumstances, particularly when that question is not the subject-matter of appeal before the Tribunal. DSE is not a party to the appeal proceedings. Their status is not an issue for adjudication before the Tribunal. DSE did not raise any grievance as to its status as determined by the AO in his assessment order passed under Section 143(3) and no such grievance is pending before the Tribunal. The Tribunal cannot assume jurisdiction suo motu over a matter which relates to a third party which is not before the Tribunal. The Tribunal cannot reopen such a matter which is not the subject-matter of appeal and for which no grievance has been raised by the concerned party in the relevant proceedings and stand concluded. It is not open to the Tribunal to adjudicate or give a finding on the question which is not in dispute and which does not form the subject-matter of appeal before it. The learned counsel cited the authority of Indira Balakrishna v. CIT [1956] 30 ITR 320, 327 (Bom.), which is affirmed in CITv. Indira Balakrishna [1960] 39 ITR 546 (SC); M.R.M. Periannan Chettiar v. CIT [1960] 39 ITR 159 (Mad.); Pokhraj Hirachand v. CIT [1 963] 49 ITR 293 (Bom.); J.B. Greaves v. CFI [1963] 49 ITR 107 (Bom); Pathikonda Balasubba Setty v. CIT [1965] 65 ITR 252 (Mys.); PR. Mukherjee v. CIT [1979] 116 ITR 554 (Cal.). The learned counsel sought to propound another proposition saying that where the controversy is precisely limited to a narrower compass. The Tribunal is not competent to so widen it as to traverse beyond the subject-matter which was in dispute before the Income-tax authorities. In support of this proposition, he cited R.L. Bajgharia v. ITO [1977] 107 ITR 347 (Cal.); ITO v. R.L. Rajgharia [1979] 119 ITR 872 (Cal.). It is argued that the Tribunal can deal with only that part of the order of the first appellate authority which has been made subject-matter of attack in the appeal before it. However, in this case, not only the question does not form subject-matter of appeal, but the matter relates to a third party which is not before the Tribunal and he had no grievance with regard to its status. It is also argued that it is not open to the Tribunal to disregard or dispute the matter on its own which stands concluded, particularly when the decision is taken by the Department after due consideration of all the relevant facts and circumstances and in accordance with relevant provisions of law.
The learned counsel for the assessee further contended that under Section 5(1)(i) of the Wealth-tax Act read with Rule 16, Proviso Explanation (b) of the Wealth-tax Rules, the members of the Stock Exchange should not be considered as having had any value. Section 5 of Wealth-tax Act deals with cases of exemption from Wealth-tax. Section 5(1)(i) is as follows :-
'Subject to the provisions of Sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee-
(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India :
Provided that nothing contained in this clause shall apply to any property forming part of any business, not being a business referred to in Clause (a) or Clause (b) of Sub-section (4A) of Section 11 of the Income-tax Act in respect of which separate books of account are maintained or a business carried on by an institution, fund or trust referred to in Clause (23B) or Clause (23C) of Section 10 of that Act.
Rule 16 with Explanations (a), (b) & (c) of Schedule III to Wealth-tax Act is as follows :
16. The net wealth of the firm or association of persons on the valuation date shall first be determined as if it were the assessee and, thereafter--
(i) that portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them;
(ii) The residue of the net wealth of the firm or association shall be allocated amongst the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share the profits, and the sum total of amounts so allocated to a partner or member under Clause (i) and Clause (ii) shall be treated as the value of the interest of that partner or member in the firm or association :
Provided that in determining the net wealth of the firm or association for the purposes of this rule, no account shall be taken of the exceptions in Sub-sections (1) & (1A) of Section 5.
Explanation-For the purposes of this Rule-
(a) Where the net wealth of the firm or association computed in accordance with this Rule includes the value of any assets located outside India, the value of the interest of any partner or member in the assets located in India shall be determined having regard to the proportion which the value of assets located in India diminished by the debts relating to those assets bears to the net wealth of the firm or association;
(b) Where the net wealth of the firm or association computed in accordance with this rule includes the value of any assets which are exempt from inclusion in the net wealth under Sub-sections (1) and (1A) of Section 5, the value of the interest or a partner or member shall be deemed to include the value of his proportionate share in the said assets and, the provisions of Sub-sections (1) and (1A) of Section 5 shall apply to him accordingly;
(c) where the net wealth of the firm or association computed in accordance with this rule includes the value of any assets relcried to in Sub-section (2) of Section 5, the value of the. interest, of a partner or member shall be deemed to include the value of his proportionate share in the said assets and the provisions of Sub-section (2) of Section 5 shall apply to him accordingly.
The argument advanced on behalf of the assessee is that DSE is a trust formed for charitable purposes and was granted exemption under Section 11 and, therefore, assuming without admitting that membership is to be valued and considered part of the wealth of the assessee, still by virtue of proviso (b) under the Explanation under Rule 16, membership should not be considered to bear any value, since it is an exempted asset in the hands of the shareholder. Thus, at least from 1-4-1989, which is the effective date from which Schedule III was introduced in Wealth-tax Act, there is no controversy over this position of law. Explaining the position further, whether the exemption under Section 5(1)(i) applies to the trust or applies to beneficiary under the trust also, the learned counsel contended that the legal position is made very clear and beyond reasonable doubt by the learned Authors Chaturvedi & Pilhisaria, 4th Edn. vol. 8, as under :
A perusal of the definition in Section 2(m) shows that it does not bring in the exemption contained in Section 5. The determination of the net wealth of the firm for purposes of the then Rule 2 will, therefore, not take into account the exemptions contained in Section 5. It has to be noticed that Section 5 in terms applies to an assessee. A firm is not an assessee and, in the absence of a provision in the then Rule 2 to the effect that in calculating the net wealth of a firm exemptions under Section 5 have to be granted treating it as an assessee, these exemptions cannot be taken notice of in determining the net wealth of a firm. Thus, at the stage when the net wealth of a firm is determined for being allocated to the partners constituting it, exemptions contained in Section 5(1) do not enter the computation. (Narsibhai Patel v. CWT [1981] 127 ITR 633, 638, 638-39 (MP); Also see CWT v. I Butchi Krishna [1979] 119 ITR 8 (Ori); CWT v. Prem Narain Praveen Kumar [1991] 187 ITR 539, 540 (Cal.); CWT v. Subhash Chand Sud [1991] 191 ITR 64, 67 (HP)" (Page 187 of 4th Edn. Vol. 8 of Chaturvedi & Pithisaria).
Our attention is also drawn to the decision of the Hon'ble Supreme Court in the case of CWT v. Vasudeo V. Dempo [1992] 196 ITR 216, 218, 219 (SC) in which case their Lordships were considering the rights of the spouses in Goa who were considered to constitute A.O.P. and they were considering whether each of the members of the AOP is entitled to exemption provided under Section 5 of the Wealth-tax Act. They held that each of the spouses married under the Portuguese Civil Code is entitled to deduction under Section 5 separately. Therefore, the case of the learned counsel for the assessee was that even in a case where membership was considered to be having value, it should not be added while computing the wealth of the members of the Stock Exchange. It should be considered to be beneficiaries under the trust as per the above exposition of law. In this connection, the learned counsel for the assesses contended that DSE has always heen filing its status in Form No. 2 of the Income-tax Rules as AOP (Trust), 0.8. Lastly, it is contended that Section 16A of the Wealth-tax Act is mandatory and failure to comply with the said provision results in an error of jurisdiction and the said error cannot be considered to be a curable defect which can be corrected with the consent of the party affected. In support of this contention, reliance is placed upon Karan Singh v. Chaman Paswan AIR 1954 SC 340. It is contended before us that the word "may" appearing in Section 16A should be interpreted as "shall" Reliance is also placed upon [1973] 91 ITR 1 (st.) at para 35 at pages 20 & 21 for the CBDT circular and also on the Punjab & Haryana High Court decision in Raj Paul Oswal v. CWT [1988] 171 ITR 489/[1987] 35 Taxman 509 for the proposition that WTO was bound to refer the question of valuation to the Valuation Officer when the difference between the returned value and the assessed value is more than the prescribed limits under the statute, it is contended for the assessee that question of valuation under Rule 20 of Schedule III is a mandatory provision since there is no other specific rule prescribing the way in which the right of membership or the share of Stock Exchange should be valued. On the other hand, it is said that share is inalienable and once the asset is inalienable and membership is not transferable, Rule 20(3) of Schedule III to Wealth-tax Act should be invoked for the purpose of valuation. It is contended that when the share/membership is not saleable in open market, in the absence of CBDT circular laying down guidelines, how to compute the value of impugned asset and what would be the intention of the Legislature for purpose of valuation of such an asset, is to be resolved in view of the Hon'ble Supreme Court's decision in CIT v. B.C. Srinivas Setty [1981] 128 ITR 294/5 Taxman 1 (SC), in which it is held that there should be a taxing provision as well as machinery provision. If either of these provisions fail to apply, then the intendment must be taken that the asset in question is not intended by the legislature to be taxed at all.
8. We have also heard Shri K. Sampath, the Learned Advocate appearing for some of the Intervenors. In a bid to distinguish the decision of the Gujarat High Court in Stock Exchange's case (supra) on which heavy reliance was placed upon by the learned Standing Counsel, Shri Rajendra for the department, Shri K. Sampath contended that the said decision was rendered under Section 28IB of the Income-tax Act read with Section 60 of the Civil Procedure Code, 1908. In the Head Note of the decision, the following is held :
Membership of a Stock Exchange also called "scats" is bought and sold on the basis of the right to nomination which brings in the successor member in the place of the member who sells his "seat". The proviso to Section 60(1) of the Civil Procedure Code. 1908, enumerates the items which will not be liable to attachment or sale. The word "saleable" in Section 60 would mean saleable by auction at a compulsory sale under the Second Schedule to the Income-tax Act, 1961 and cannot be conlined to transfers inter vivus. The Rules of the Stock Exchange do forbid transler by the member of his membership and the right to nomination, but these are clearly transfers inter vivos which are prohibited and not compulsory sales under' the statutory provisions. It cannot, therefore, be said that the property right in a member's card cannot be attached.
Shri Sampath submitted that in the Articles of Association of DSE also right of Nomination was not given to any member and this is an important factor which distinguishes the Gujarat High Court decision from the facts on hand.
9. The propositions and arguments advanced by Shri Bajpai dated 15-3-1999 at pages 1 to 61 of paper book No. 1 filed on behalf of the assessee are made part of the record. The learned Special Standing Counsel Shri Rajendra also filed written arguments on 30-3-1999 in 16 typed pages and it is also made part of the record (part of the departmental paper book). First he attached the argument of the learned counsel for the assessee Shri Bajpai and his proposition that since the Stock Exchange ticket had no value as it is a personal privilege/permission to be granted and it was inalienable and was a licence and, therefore, this personal privilege had no market value and as such, it is not an 'asset' within the ineaning of Section 2(e) of the Wealth-tax Act. He argued that the Bombay High Court's decision in Mrs. Sejal Rikeen Dalal's case (supra) cited in support of the proposition that the Stock Exchange ticket has no market value is quite distinguishable on facts and the ratio of that decision does not apply or does not lay down anything in support of the assessee's contention in this case. Shri Rajendra in a bid to point out the distinguishing features of that case vis-a-vis this case requested us to note that in the case before the Bombay High Court, Smt. Sejal R. Dalal, Daughter-in-law of the deceased, a defaulter, was claiming a right to be elected as Member of the Stock Exchange and the Board of Directors of the Stock Exchange had rejected her application. Similarly, in Virtay Bubna's case (supra) and K.R.P. Shroff's case (supra) were cases of insolvency. In all the cases heavily relied upon by the assessee's counsel, there was no question of valuation of a running business as is the case in the present appeals before us. Moreover, each of the three judgments relied on by the asscssee in its lavour were delivered in different contexts. In Mrs. Sejal Rikeen Dalal's case (supra) her father-in-law Pradip Harkisondas Dalai was a member of the Stock Exchange, Bombay. He died in an Air crash at Ahmedabad on 19-10-1988. On 16-2-1988, the petitioner Nos. 2 to 4 nominated Mrs. Sejal for being made a member of the Stock Exchange, Bombay and accordingly she applied by an application dated 15-12-1988 for membership of the Stock Exchange Bombay, supported by her nomination. Her application was duly seconded by two members of the Stock Exchange as per requisite rules. On 2-3-1989 the Stock Exchange addressed a letter to her enquiring whether her father-in-law Late Pradip Harkisondas Dalai had made any payment in respect of the outstanding liabilities of M/s. Harkisondas Laxmidas. The Stock Exchange also sought details regarding the constitution of the firm ol M/s. Harakshah which was a client of M/s. Harkisondas Laxmidas and whether dues were required to be paid by M/s. Harakshah to M/s. Harkisondas Laxmidas. At a meeting of the governing board of the Stock Exchange, Bombay, held on 19-5-1989 the application of Mrs. Sejal R. Dalal for transfer of membership was considered and as required by Rule 28 of the Rules of the Stock Exchange, a ballot was taken in which two members of the Governing Board voted in favour of admitting Mrs. Sejal as a member, while 15 members voted against admitting her as a member of the Stock Exchange. As a result, it was decided by a majority of 15:2 not to admit Mrs. Sejal as a member of the Stock Exchange. By their letter dated 24-5-1989, the Stock Exchange informed Mrs. Sejal about the rejection of her application by the governing board of the Stock Exchange. A Writ Petition was filed challenging the authority of the Governing Board of the Stock Exchange not to grant membership to Mrs. Sejal. Her Lordship had duly considered Rule 4 of the Securities Contracts (Regulation) Act, 1956 to know the main objects of the Stock Exchange and she was pleased to find from the said Rule that the main object of the Stock Exchange was "To support and protect in the public interest the character and status of brokers and dealers and to further the interests both of brokers and dealers and of the public interested in securities, to assist, regulate and control in the public interest dealings in securities, to ensure fair dealing, to maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices and just and equitable principles of trade and business, to discourage and to suppress malpractices, to settle disputes and to decide all questions of usage, custom or courtesy in the conduct of trade and business. "Keeping all the aims and objectives sought to be achieved by the Stock Exchange, Her Lordships examined the legality of the rejection of the application of Mrs. Sejal to become a member of the Stock Exchange in place of her father-in-law. At page 34, it is held as follows :-
The members may consider these persons as the best and most qualified to decide on the suitability of a new candidate for membership. If a Governing Board in exercise of its discretion, decides that the person is unsuitable, its decision cannot be levelled as arbitrary or unreasonable simply because it is in the exercise of its discretion. It would also be incorrect to call such discretion as unguided. Such discretion is required to be exercised bearing in mind the aims and objects of the organisation. Of course, if the decision is not bona fide, or is based on ill-informed prejudice, it can be challenged as a mala fide exercise of discretion. In the absence of any material which points to a mala fide exercise of discretion, the exercise of discretion is not per se bad in law. A decision of the Governing Board arrived at bona fide not to grant, membership to a candidate is not violative of Article 19(1)(g). The right to regulate admission to a professional body including a right to reject unsuitable persons, is a reasonable restriction on the right to carry on a profession or trade. Such Restriction may be necessary in the interest of professional standards, for ensuring probity of conduct and in public interest.
In Vinay Bubna 's case (supra), the facts, as l'ar as relevant are that, one Y, a share broker, was a member of the Mumbai Stock Exchange and he carried on business in the firm named "YM" until he was declared as a defaulter by the Stock Exchange. The petitioner had dealings of sale and purchase of shares with the said share broker. 'Y' failed to pay the dues to the petitioner. In an arbitration petition, a Court Receiver was appointed in respect of certain items, including office premises of 'Y' but no relief was granted in respect of the membership card of 'Y'. The petitioner made a grievance in appeal filed against the said order passed by the Single Judge and prayed before the Appeal Court that a Court Receiver should have been appointed in respect of membership card of the share broker also. The Appeal Court disposed of the petitioner's appeal after recording the statement on behalf of the Stock Exchange that it shall not apply any amount received by it as consideration on nomination of the membership to any person falling in the same category for the purpose of priorities as the appellant under Rule 16 of the Mumbai Stock Exchange Rules till the Award of the Arbitrator was received. According to Rule 16, the first priority was towards dues to the Stock Exchange/Clearing House. The petitioner requested the Stock Exchange to amend the rules so as to enable him to realise the dues to him from the defaulter member out of the sale proceeds of his membership card on par with the Stock Exchange. As he did not succeed in his attempts, he filed a Writ Petition contending that (i) the membership card of a share broker is his private/personal property and if it is sold by the Stock Exchange, the consideration received from the said sale should be applied in accordance with Rules 16 and 43 and (ii) the discretion vested by the said Rules on the Stock Exchange to allocate the said sale consideration in the order of priorities stipulated in the said Rules was bad in law and arbitrary and, therefore, violative of Articles 14 and 19(1)(g) of the Constitution. The petitioner sought a writ of mandamus or a direction in the nature of writ of mandamus, directing the Stock Exchange to amend/alter/delete the impugned Rules 16 and 43. On the fulcrum of the above facts, the Bombay High Court thoroughly examined Rules 16, 43 and other Rules of the Mumbai Stock Exchange and it also considered the right of the petition to amend those rules as prayed for in the Writ Petition. Their Lordships held the following as per the Head Note :
Rule 16 provides for the power to be exercised by the Governing Board, its right of nomination in respect of membership vesting in the Exchange, the consideration received therefor and it specifies how the consideration shall be applied in the order of priority prescribed therein. The first priority is for the dues of Exchange and Clearing House to be paid by the former member whose right of membership would vest in the Exchange, it is but natural that the Exchange would recover as the first charge its dues from the consideration of sale of membership card and there is nothing unusual, illegal or wrong in doing so. The second priority prescribed in the said rule is to clear the liabilities of the share broker, relating to his contracts and, therefore, the Board would apply the balance of consideration for the debts, liabilities, obligations and claims arising out of any contracts made by such former member. This rule further provides and very fairly that if the amount available would be insufficient to pay and satisfy all such debts, liabilities, obligations and claims in full, they shall be paid and satisfied proportionately or on the basis of pro rata. Hence, there is no illegality or arbitrariness in the rule. This rule is totally based on equitable consideration and it provides for the second priority and in case of insufficiency of funds the proportionate satisfaction of the claims. The third Clause in Rule 16 has also taken care to provide for a situation where funds are surplus. It is significant to note that the distribution of surplus funds is not left to the Governing Board alone but the decision in that respect is required to be taken by the general meeting. The general meeting would decide in what manner the surplus should be disposed of or applied. Even in this part of Rule 16 nothing is illegal, wrong and arbitrary. Every care is taken in the entire Rule 16 that the consideration received from the sale of the membership card of a share broker is allocated on just and fair basis of priorities.
Rule 43 provides for lien on security. The security provided by a member/share broker is subjected to a first and paramount lien for any sum due to the Exchange or to the Clearing House. The very purpose of getting security from a member/share broker is to ensure fulfilment of all his engagements, obligations and liabilities arising out of or incidental to any bargains, dealings, transactions and contracts made by the member. If no such lien on the security is provided for, the transaction would very often create insecurity in the minds of the people who enter into contracts with such member of the Stock Exchange. This provision creates confidence in the members of the public. Hence, there is nothing wrong in this provision whereby the first lien on the security of the member is retained by the Stock Exchange. The underlying principle of both these rules is nothing but fairness and justness in the dealings and transactions entered into by the share broker with the member of the public. In the absence of these provisions it is likely that public would suffer at the hands of defaulting members and, consequently, lose trust and confidence in the Stock Exchange through which all the transactions take place. It is equally significant to note that by these provisions even the share brokers get an opportunity to clear their debts, liabilities and obligations and keep their image clear and continue to maintain public confidence. Hence these rules are also in the interest of the share brokers. Therefore, there is no reason to hold that these rules are arbitrary or illegal."
Their Lordships explained clearly the intendment of Rule 16 as well as Rule 43 and how they achieved sqcial objective of being just and fair to all the investing public and the claims against the defaulter. Ultimately, Their Lordships held that there was no need to amend either Rule 16 or Rule 43 of the Mumbai Stock Exchange Rules. In Vinay Bubna's case (supra) nowhere it is held that the Stock Exchange Card had no value or it is not an asset. What was considered in Vinay Bubna's case (supra) is which of the competing claims between the claim of the client or the claim of a kin of the deceased member should get precedence.
10. In the decision in K.R.P. Shroff's case (supra) which was provided in Paper Book Vol. IV, filed on behalf of the assessee, the following Head Note of the decision brings out the real point of controversy and the decision thereon :
The result in the case of a member of the Bombay Native Share and Stock Brokers' Association who has lost his membership for being a defaulter clearly enough is that he loses all interest both in the property of the Association and in his card. In such a case no interest is reserved in the defaulter's card except to members of the Association who have suffered by his lapse, or to the Association itself. This is the result of Rules 1.8, 56, 57 and 62. The defaulting member himself has no interest in the result of the sale provided for under these rules nor can be required a sale to be made. The rules are therefor the benefit of his "exchange creditors" and are doubtless enforceable at their instance.
In the case of a defaulting member who is expelled from the Association no interest in his card remains in himself and so none can pass to his assignee whether his expulsion does or does not take place prior to the commencement of his insolvency. Section 12. T.P. Act has no application to the card of a member of the Association.
Therefore, according to the learned Standing Counsel for the department, none of the three cases on which heavy reliance was placed by the assessee, come to his rescue or support the propositions sought to be canvassed on his behalf. We agree with the contention of the learned Standing Counsel that in all these three cases, there is no question of valuation of a running business, as is the case involved in the facts of the appeals before us. We also agree that the judgments are delivered in different contexts. The question whether a person is entitled to become a member also naturally or whether any conditions are to be fulfilled is quite different from the question whether stock exchange/card/membership is an asset or not. In fact this important distinction is to be borne in mind while holding that the cited decisions are distinguishable and do not deal with the real point in controversy.
11. Next it is sought to be impressed upon us that the rules of DSE are entirely different from BSE and they provided a vested right to a member to carry on business as a stock broker. Once he became a member, he could not be ousted unless some contingency arose as mentioned in Rule 43. The Memorandum and Articles of Association of DSE, as amended up to 31-10-1991, was found provided at pages 137 to 186 of Paper Book. Vol. II. Rule 43 lists out the occasions on which the termination of membership takes place. They are :
(i) by resignation
(ii) by death
(iii) by expulsion in accordance with the provisions herein contained or under the Bye-laws and Regulations.
(iv) by being declared a defaulter in accordance with the Rules, Bye-laws and Regulations.
(v) If a Corporate member commits an act of insolvency resulting in a winding up action and the appointment of a Provisional Liquidator, or official Liquidator or Receiver of the Corporate Member being appointed.
Rule 44(e), inter alia, deals with the termination of a Corporate Member, Rule 44(e) is as follows :-
On the winding up or insolvency of a Corporate Member or the appointment of the Official Liquidator, or a Provisional Liquidator or Receiver, the Corporate Member or such Official Liquidator, Provisional Liquidator or Receiver shall not be entitled to carry on business of a broker or contribute as a Member of the Stock Exchange and the rights attached to the Stock Exchange ticket/share of such Corporate Member shall be automatically suspended and deemed to be surrendered to the Board of Directors. The Board of Directors may thereafter, in exercise of the Rules and Regulations of the Stock Exchange/the Company, seal such share(s) and realise the proceeds for satisfaction of any dues of such Corporate Member, if a defaulter, in accordance with the Rules and Bye-laws and Regulations. Upon the compliance of the procedures and sale of the shares by the Board of Directors, the balance proceeds after satisfaction of any dues to the defaulter member of the Stock Exchange and its members, would be handed over to the Provisional Liquidator/Official Liquidator/ Receiver. Such a transferee on sale would be bound by the terms and conditions of the Articles of Association and the Rules and Regulations and the Bye-laws also.
Rule 44(d) reads as follows :-
On the death of a member, his legal representatives, authorised assistants and remisiers, if any, shall communicate due intimation thereof to the Board of Directors in writing.
It is argued that Bombay Stock Exchange Rules will not apply to DSE. Even otherwise, the Bombay decisions were distinguishable, as held by the Bombay Bench 'E' in V.N. Contol v. WTO [1994] 50 ITD 386. The Bombay Bench "E" of the Tribunal is directly confronted with the question similar to one under consideration in the case of V.N. Cantol (supra). The Tribunal went into the question whether membership card of Stock Exchange held by the assessee in BSE was property under Section 2(e) of the W.T. Act and whether its value should be added as assessee's net wealth. Answering the question in affirmative, the learned Bench held the following, as per the Head Note of the decision :-
A perusal of the rules of the Bombay Stock Exchange clearly showed that the assessee's argument that the membership of stock exchange was akin to membership of such professional bodies as the Institute of Chartered Accounts and Medical Association, was without basis. By no dint of imagination could it be said that a Chartered Accountant can nominate a person unless he or she possesses certain additional qualification. If the educational qualification is possessed by such incumbent person then it is not necessary for anybody to select or elect such persons by vote or some other methods. He becomes automatically a member, if he so desires, as in the case of an advocate or a Chartered Accountant or a doctor, whereas to become a member of Stock Exchange a person can be selected or if he so desires, he can select an outsider. Not only that, even the legal heirs of a deceased person can select, by virtue of the deceased member's right, a certain person to be a successor-member. In the case of a doctor or an advocate or a Chartered Accountant, no legal heirs gets such power or authority to select anyone. One becomes the member of the Bar Council or a chartered accountant or a doctor only because of certain qualifications prescribed by the relevant bodies.
The word 'property' has been widened so as to include even non-transferable assets. As far as the membership right of a Stock Exchange is concerned, it can be sold and the consideration received can be utilised in the manner prescribed in the Rules, Bye-laws and Regulations of the relevant Stock Exchange. Under these circumstances, the stand of the assessee that membership could not be treated as a property under Section 2(e) could not be accepted."
The learned Standing Counsel drew our pointed attention to Section 2(e) of the W.T. Act which defines 'assets'. The definition of assets which governs up to the assessment year 1992-93, includes property of every description, movable or immovable. Even if an asset was non-transferable and could not be sold in open market, but if it still bears value, the WTO should ignore all restrictions upon its transferability and assume that, there is an open market. In this connection, our attention is drawn to the following case law:-
(i) Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 (SC)
(ii) Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC)
(iii) CWT v. Vidur V. Patel [1995] 215 ITR 30/79 Taxman 288 (Bom.)
(iv) CWT v. Miss Sudha P. Patel [1992] 196 ITR 8 (Bom.)
(v) CWT v. H.H. Smt. Rajkuverba [1972] 86 ITR 783 (Mys.)
(vi) CWT v. Smt. RaniKaniz Abid [1974] 93 ITR 332 (All.)
(vii) Parmanandbhai Patel v. CWT [1989] 177 ITR 339 (MP).
On the basis of the above decisions, he urged that the definition of 'asset' was so wide that even a personal privilege/permission granted by the Slock Exchange to a member to carry on business as slock broker was an 'asset' and, therefore, assessable in the hands of the stock broker under the W.T. Act and the submission to the contrary made by Shri Bajpai was legally untenable. It was next argued that under the rules of DSE, membership of Stock Exchange vests in a member the right to carry on business as a stock broker and there was no question of the Stock Exchange debarring the member from carrying on the business. It is only in the unlikely event of stock broker becoming defaulter or uncertain event of death that his membership can be terminated. Even then under Rule 21, the person becoming entitled to the share has the right to get himself registered as a share holder or in the alternative, he is entitled to make transfer to outsider. The learned Standing Counsel relies upon Rules 16, 17, 18, 21, 22, 24, 25, 31, 34 which, according to him, clearly envisage transfer of the ticket/membership held by a person in DSE. Those relevant rules on which he seeks to rely upon as stated above are furnished as under:-
Rule 16 : The instrument of transfer of any share in the company shall be executed both by the transferor and the transferee and the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of the shareholders in respect thereof. Each signature to such transfer shall be duly attested by the signatures of one responsible person who shall add his address.
Rule 17 is the following :
Share of the company shall be transferred in the form prescribed under the Companies Act, 1956 or in such other form as may be prescribed from time to time under the law applicable to the company.
The Share Transfer Form prescribed under Section 108(1A) of the Companies Act was also prescribed under the DSE in Rule 17. Rule 18 is the following:
The Board of Directors may decline to register the transfer or transmission of shares of any person if in their opinion such transfer or transmission shall not be conducive to the interests and objects of the Stock Exchange. The Board shall not register any transfer of any share/shares to any person other than a member of the Stock Exchange or a candidate for membership who has been duly elected as eligible for membership under the provisions of Article 25 and the Board may refuse to register any transfer of share/shares to an existing member or may impose such condition in respect of any such last mentioned transfer as they may deem fit.
Rule 21 is as follows :
Any person becoming entitled to a share in consequence of the death or insolvency of a share-holder of the Company shall upon such evidence being produced as may be required by the Directors have the right to be registered as share-holder in respect of the said share or instead of being registered himself he will be entitled to make such transfer of the shares as the deceased or insolvent person himself could have done provided he is otherwise qualilied to be so registered under these Articles.
Rule 22 is as follows :
Unless otherwise decided by the Directors, only such heirs, executors, or administrators of a deceased holder of a share shall be recognised by the Company as having any title to the share as may produce a Succession Certificate, probate or letter of administration granted by a Competent Court to such persons in respect of the said share or shares and as may be otherwise qualified to be so registered under these Articles. Such heir/heirs, executors, administrators of a deceased holder of a share or shares may nominate anyone or more or them for transmission of such share/shares to his/their name/names.
Upto Rule 22, the share in the Stock Exchange only is deall with. Rule 24 deals with membership of the Stock Exchange. Rule 24 is as follows :
24. All those individuals and firms who are members of the Exchange on the date of adoption of these Articles shall ipso-facto be deemed to lave been elected as members of the Exchange under these presents and they shall be bound to comply with all such requirements as may be necessary under these presents, or under the Securities Contracts (Regulation) Act, 1956 and the Rules framed there under. Notifications or Orders issued by the Central Government from time to time in that behalf or as may be laid down by the Board under these presents for the continuance of membership, subject to the following conditions:-
Membership of the Stock exchange shall be open only to an individual who shall be a Member of the Company and eligible to become and continue to be a member of the recognised Stock Exchange under the Securities Contracts (Regulation) Rules, 1957.
Provided that the above share of the Company may be got registered by such individual in his own name singly or in his name jointly with any one else being his wife, son, father, daughter, or in their absence, any other person whom such individual wants to make his heir, provided such other jurisdiction gives a declaration to the Association that he shall have no claim whatsoever in such shares during the lifetime or such individual remains a member of the Association, except however, that after the demise of such individual he shall be deemed to be the registered share-holder of such shares by survivorship.
And provided that such of the members as were admitted to provisional membership holding one share and on payment of cash deposit of Rs. 3,500 in lieu of another share under the previous provision shall be permitted to continue as provisional members only up to 8th June, 1963 after which date they shall cease to have any rights even as provisional members, unless they acquire the second share and become members of the Stock Exchange in accordance with the above condition.
Provided further that a Corporate Member complying with the provisions of Rule 8(4) of the Securities Contracts (Regulation) Rules, 1957, shall be eligible 1o become and continue to be a Member of the Stock Exchange.
Provided further that the following Corporations/Companies or Institutions shall be included as Members of the Stock Exchange with or without holding a share of the Exchange as may be decided by the Board of Directors :-
(a) The Industrial Finance Corporation, established under the Industrial Finance Corporation Act, 1948 (15 of 1948);
(b) The Industrial Development Bank of India, established under1 the Industrial Development Bank Act, 1964 (18 of 1964);
(c) The Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956 (31 of 1956);
(d) The General Insurance Corporation of India, established under the General Insurance Corporation (Nationalisation) Act, 1972 (57 of 1972);
(e) The Unit Trust of India, established under the Unit. Trust of India Act, 1963 (52 of 1963);
(f) the Industrial Credit and Investment Corporation of India, a company registered under the Companies Act, 1956 (1 of 1956);
(g) the subsidiaries of any of the Corporations or Companies specified in (a) to (f) and any subsidiary of the State Bank of India or any Nationalised Bank set up for providing merchant banking services, buying and selling securities and other similar activities."
Rule 25 prescribes the eligibility criteria to become a Member as follows :-
25(1) No person shall be eligible to be elected as a member if :-
(a) he is less than twenty-one years of age;
(b) he has not possessed a minimum educational qualification of matriculation or an equivalent examination: Provided that the Board of directors may waive compliance with the foregoing conditions with the prior concurrence of the Central Government when an individual succeeds to the established business of deceased or retiring member or in any other deserving case;
(c) he is not a citizen of India, provided that the Board of Directors may in suitable cases relax this condition with the prior approval of the Central Government;
(d) he has been adjudged bankrupt or a receiving order in bankruptcy has been made against him or he has been proved to be insolvent even though he has obtained his final discharge;
(c) he has compounded with his creditors unless he has paid sixteen annas in the rupee;
(f) he has been convicted of an offence involving fraud or dishonesty;
(g) he is engaged as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability unless he undertakes on admission to sever his connection with such business;
(h) deleted;
(i) he has been at any time expelled or declared a defaulter by any other Stock Exchange;
(j) he has been previously refused admission to membership unless a period of one year has elapsed since the date of such rejection;
(k) in case of a Corporate Member, it shall furnish its Memorandum and Articles or Association and/or constitution and/or Rules & Regulations and bye-laws, if any, along with Board Resolution(s) electing to be a Corporate Member and appointing named Director(s)/ authorised representative(s) to act, engage and deal on behalf of such Corporate Member on the Stock Exchange as also furnish the specimen signature of such Dircctor(s)/ authorised representative(s).
But provided further that such a Body Corporate has not committed an act of insolvency, or an act for which such Body Corporate is liable to be wound up under the provisions of law, nor has a provisional Liquidator or Receiver or Official Liquidator been appointed of such Body Corporate.
If the abovementioned events happen, the Board of Directors shall suspend the right of the Corporate Member to trade on the Stock Exchange either directly or indirectly or through the named authorised representative(s)/Director(s).
Provided further that the eligibility conditions and/or disabilities and/ or liabilities in relation to individual members or firms would apply to the Director(s)/authorised representative(s) of the Body Corporate as in nominated/appointed to act, engage and deal on the Stock Exchange on behalf of the Corporate Member.
(2) No person eligible for admission as a member under Sub-rule (1) shall be admitted as a member unless :-
(a) he has worked for not less than two years as a partner with, or as an authorised assistant or authorised clerk or remisier or apprentice to a member; or
(b) he agrees to work for a minimum period of two years as a partner or representative member with another member and to enter into bargains on the floor of the Stock Exchange not in his own name but in the name of such other member; or
(c) he succeeds to the established business of a deceased or retiring member who is his father, uncle, brother or any other person who is, in the opinion of the Board of Directors, a close relative;
Provided that the Board of Directors, may waive compliance with any of the foregoing conditions if the person seeking admission is in respect of means, position, integrity, knowledge and experience of business in securities, considered by it to be otherwise qualified for membership.
(3) No person who is a member at the time of adoption of these Articles or subsequently admitted as a member shall continue as such, if :-
(a) he ceases to be a citizen of India.
Provided that nothing herein shall affect those who are not citizens of India but are admitted under the provisions of Clause (b) of Sub-rule (1) of this rule, subject to their complying with all other requirements of this rule;
(b) he is adjudged bankrupt or a receiving order in bankruptcy is made against him or he is proved to be insolvent;
(c) he is convicted of an offence involving fraud or dishonesty;
(d) deleted;
(e) deleted;
(f) he engages either as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability, provided that:
(i) the Board of Directors may, for reasons to be recorded in writing, permit a member to engage himself as principal or employee in any such business, if the member in question ceases to carry on business on the Stock Exchange either as an individual or as a partner in a firm;
(ii) in the case of those members who are under the rules in force at the time of application to the Central Government for recognition permitted to engage in any such business and are actually so engaged, a period of 3 years from the date of the grant of recognition shall be allowed for severing their connection with any such business.
(4) A company as defined in the Companies Act 1 of 1956, shall not be eligible to be elected as a Member unless it complies with the provisions of Rule 8 (4) of the Securities Contracts (Regulation) Rules, 1957.
(5) Where any member of the Stock Exchange is a firm, the provisions of these Articles shall, so far as they can apply to the admission or continuation of any partner in such firm."
Rule 26 lays down the procedure as to how a new Member can be admitted. Rule 30 is as follows :
A Member can trade either in his own name or in the firm's name, if he is a partner therein, with another member or members of the Exchange subject to the conditions laid in these presents.
Rule 31 is as follows :
No partnership shall be formed except between two or more members of the Exchange.
Provided, however, that a member may take his father/mother, son or sons, wife/husband or daughter or daughters sons or son's son or brother or brother's son or sons, who are otherwise in all respect eligible for membership as partner or partners without their acquiring individual membership of the Stock Exchange and the qualification share already held by such member would be considered sufficient to qualify the constituent member as member of the Exchange.
And provided further, a declaration shall have been given by all the partner members of the firm concerned to the effect that they are the partners of the said firm and that they shall be jointly and severally responsible to meet the obligations and commitments made by the said firm with other members of the Exchange. And further provided that if at any time the Constitution is changed such changes shall be intimated to the Exchange forthwith."
Rule 32 prescribes that a fee of Rs. 50 shall be paid by the members concerned for recognition of their partnership by the Exchange. Rule 33 prohibits a person becoming a partner in more than one partnership firm. Rule 34 states that membership shall not be transferable except as provided by the Rules. Rule 45 states that a member's right of membership shall lapse and vest in the Exchange immediately he is declared as a defaulter. On the declaration of default, he shall at once cease to be a member of the Exchange and as such cease to enjoy any of the rights and privileges of membership, but the rights of his creditor members against him shall remain unimpaired. The DSE has acquired and taken over as going concerns the activities, functions and business of the Delhi Stocks & Shares Exchange Ltd. and the Delhi Stock & Share Broker's Association Ltd. and has acquired all assets and liabilities, rights and duties of the said two companies and with a view thereto adopted following Agreement, namely, (1) An agreement of Amalgamation made between the Delhi Stock Exchange Association Ltd. on the first part and the company of the second part and (2) an agreement of Amalgamation made between Delhi Stock & Share Brokers Association Ltd. on the first part and the company on the second part, being the agreement referred to in Clause 3(1) of the Memorandum of Association and the Directors shall carry the same into effect with full powers nevertheless at any time and from time to time to agree to any modification thereof subject to the provisions of Section 99 of the Indian Companies Act, 1913. The authorised share capital of the DSE was Rs. 8,00,000 divided into 400 shares of Rs. 2000 each.
12. The learned Standing Counsel continuing his arguments submitted that under Section 2(e) of the WT Act "asset" was defined to include property of every description, even though such asset was not transferable and should not be sold in the open market. For valuing the said type of asset, the WTO should ignore such restriction and assume that there is an open market. In Ahmed G.H. A riff's case (supra) the Hon'ble Supreme Court was dealing with the question whether a person who has a right to aliquot share of net income in properties of a Wakf, is liable for wealth-tax on the value of the share. In the Head Note of the decision, the facts as well as ratio of that decision can be gathered :
The right of a beneficiary to receive an aliquot share of the net income of properties comprised in Wakf-Alal-Aulad created by a Muslim governed by the Hanafi School of Mohamedan Law is 'property' and is covered by the definition of "assets" in Section 2(e) of the Wealth-tax Act, 1957 and the capitalised value of the right is assessable to wealth-tax. This would be so even if the aliquot share of the income was intended merely for the maintenance and support of the beneficiary. Such a right is not a mere "annuity".
Property" is a term of the widest import and, subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy.
Therefore, though there are conditions prescribed for transferability of share/membership of Stock exchange and though certain qualifications are prescribed, but still the asset itself has got value and, therefore, in the view of Ahmed G.H. Ariff's case (supra) it should be held to be property under Section 2(e) of the WT Act. In this connection, the learned Standing Counsel contended that the reliance on the Delhi High Court decision in CWT v. Smt. Promila Bali's case (supra) is misplaced, because in the facts of that case Mrs. Promila had a lease-hold plot whose transfer was banned for 10 years and, therefore, the Delhi High Court held that the value of the plot be taken as the premium/price paid by Promila and not, the market value. Similar was the position with reference to Dr. Kaviraj Khajan Chand's case (supra). Equally the decisions in CWT v. Trustees of H.E.H. the Nizam's Wedding Gifts Trust [1995] 216 ITR 232 (AP), CWT v. Prince Muffakkam Jah Bahadur [1990] 186 ITR 421 (AP), CWT v. H.H. Maharani Sharimisthadevi Holkar [1988] 174 ITR 459 (MP) are all distinguishable. It is submitted that the Bombay Bench decision in V.N. Cantol's case (supra) is correctly decided and, according to the instructions gathered by the learned Standing Counsel no reference was asked against that decision to the High Court and the decision of the Tribunal has become final. The learned Standing Counsel heavily relied upon the Gujarat High Court decision in Stock Exchange's case (supra) wherein it was held that membership of Stock Exchange for more than seven years giving membership right to nominate successor was right which could be sold and had economic value. The learned Standing Counsel also brought to our notice the Hon'ble Supreme Court's decision in Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235,wherein it is categorically held that Delhi Stock Exchange is not a charitable institution and it is entitled to declare dividends to its share-holders and also it is not entitled to exemption under Section 11 of the Income-tax Act. The learned Standing Counsel also relied upon the decision of the Hon'ble Supreme Court in CWT v. U. C. Mehtab [1998] 231 ITR 501, in which the Supreme Court was considering whether right to compensation under West Bengal Estates Acquisition Act, 1953, constituted an 'asset' within the meaning of Section 2(e) of the WT Act. Their Lordships held as per the Head Note as follows :-
Therefore, the right to compensation under the West Bengal Estates Acquisition Act, 1953, constitutes an 'asset' within the meaning of Section 2(e) of the Wealth-tax Act, 1957, though such compensation under the West Bengal Estates Acquisition Act had neither been determined nor paid.
The value of the assessee's right to receive compensation can only be the 'present' value (ie., the value as on the valuation date of the amount) that may be determined and paid as compensation in future. It can not be equal to the amount of compensation payable under the Acquisition Act. The present value of the future compensation will, therefore, have to be determined on a consideration of all relevant aspects that may be put forward before the competent authority.
The learned Standing Counsel submitted that DSE has only 379 equity shareholders out of total 400 shareholders. He submitted that share can be transferred only to a member of Stock Exchange or a candidate for membership of stock exchange who has been duly elected as eligible for membership by board of Directors of the Stock Exchange (See Rule 18, vide Rule 103 (XIV) Proviso). As no dividend can be declared by the Stock Exchange, share of DSE is held only to become/remain member of the Stock Exchange (colloquially called Ticket). Ticket has scarcity value as it is a key to gold mine. Shares of value of thousands of crores are transacted daily, earning brokerage of 1-2% to the brokers. Thus, collectively 379/400 share brokers every day earn brokerage running into lakhs of rupees. Further, share brokers on their own also buy and sell shares. Thus, Ticket of the Stock Exchange has value depending upon the volum e of the business in the respective Stock Exchanges. Details of sale prices of Bombay and Delhi Stock Exchange tickets have been furnished in two paper books filed by the Department and are also given in the assessment orders as well as CIT(A)'s order.
13. Shri Rajendra submitted that a perusal of Rules 21, 22, 24, 31 and 34 of DSE shows that share and consequently membership of Stock Exchange is not a personal privilege and is not extinguished with the member fading out. Under Rule 21, in case of death or insolvency of the shareholder, the person entitled to share, has the right to be registered as shareholder and is further entitled to make such transfer. Read with Rule 18, share can be transferred only to a member of Stock Exchange or person eligible for membership who has been duly elected. Thus, an heir of a deceased member has the right to get share transferred in his name, of course he has to satisfy the qualifying conditions as per Rule 25, namely, that he is major and is a matriculate. Even the educational qualifications can be waived when the heir is succeeding to the established business of the deceased. Similarly, an outsider to whom share is transferred by the heir of the deceased, he is entitled to become member of the Stock Exchange, subject to satisfying the minimum conditions prescribed under Rule 25 which can also be waived. Thus, it is clear that even in the case of death or insolvency of a share-broker, his share and his right to transact business in the Stock Exchange does not lapse. Under proviso to Article 24, the share-broker is given wide field to choose his associates as also his heir. He can get his share registered jointly with his wife, son, father, daughter or any other person whom he wants to make his heir. Thus, outsiders can be co-opted as joint shareholder, who had the right to operate on the Stock Exchange. After the share-broker's death, such joint shareholder will be deemed to be registered share-holder by survivorship. Under Article 31, the shareholder has right to enter into partnership with any number of his near relations, who are all enumerated in the said Article, without their acquiring individual membership of the Exchange and the qualifying share of DSE. Such relations/partners will become constituent members of the Stock Exchange. There is no bar on transfer of shares and resulting membership of the Stock Exchange. Rules 16 and 17 lay down the procedure and prescribe Form for share transfer. Thus, the only restriction imposed by Rule 34 is that "membership shall not be transferable, except as provided by these rules." Thus, it contemplates transfer of membership of Stock Exchange. Under Article 89, registered holder of a share is treated as its absolute owner. In case of sale of a member's share by DSE to enforce its lien, residue after satisfying member's liabilities would be paid to such shareholder/his legal representatives. Share-holding and membership of Stock Exchange (Ticket) exist side by side. One cannot exist without the other. Shri Rajendra submitted that thus, the rules of DSE are different from the rules of BSE. Under the rules of DSE, a member of Stock Exchange once admitted as a member acquires a vested right to carry on business as a share-broker. The shares of DSE which carry with them right to carry on trade as stock broker, are not trade in the Stock Exchange, like shares of other companies. If they were so trade, they would not have scarcity value. It is because of restrictions on its transfer that it has scarcity value. It is incorrect to argue that there is total ban on transfer of share of DSE which carries with it right to acquire Ticket. It is further contended that in the case of Stock Exchange (supra), the Gujarat High Court held that membership of Stock Exchange for more than 7 years gives a member a right to nominate successor and such right to sell had economic value and in the facts of that case, the membership right (of the deceased member in that case) had been sold for Rs. 27 lakhs. The Gujarat High Court at page 917 noted corresponding provisions of Ahmedabad Stock Exchange where shares were at par with those of BSE, in respect of being privilege not orally alienable, having right of nomination etc. and held (at page 920) that the right to nomination, even if hedges and restricts is free marketability, bears economic value and there is element of wealth in that right. The Gujrat High Court referred to value of Ticket in New York and London Slock Exchanges. The Gujarat High Court had distinguished K.R.P. shroff's case (supra). Their Lordships held, commenting upon the i acts of the Privy Council's case that it was rendered in the context of a defaulting member. The Gujarat High Court found that the defaulting member lost all inlerest, both in the property of the Association and in his card and in thai context the Privy Council held that there was no interest reserved in the del aultcr's card, except to the members of the Association who had usuffered by the lapse of the defaulter. However, in the facts before us, we are not concerned with the case of a member who is a defaulter. The Gujarat High Court also distinguished the Bombay High Court decision in Mrs. Sejal Rikeen Dalal's case (supra) at page 925 of the reported case. The Gujarat High Court held, commenting upon Mrs. Sejal Rikeen Dalal's case (supra) that in that case right of membership was being asserted as a fundamental right under Article 19(1)(g) of the Constitution of India and the petitioner, who was nominated for membership of the Stock Exchange, but did not get elected by securing the requisite majority of votes of the Governing Board in the election by ballot. The petitioner before the High Court failed on the ground that the decision of the Governing Board aurived at bona fide for not granting membership to the petitioner did not violate the fundamental right guaranteed by Article 19(1)(g) of the Constitution.
14. Opposing the contention of the learned counsel for the assessce that in the Income-tax assessment of DSE, assessment was made in the status of "0.8" (which corresponds to AOP (Trust) and that exemption under Section 11 of the Income-tax Act had been allowed to DSE and, therefore, property held by the DSE was exempt under Section 5(1)(r) of Wealth-tax Act and under Section 5(4) of Wealth-tax Act share of member in AOP's assets was exempt and, therefore, under Rule 16 of Schedule III, mem bet's share held in DSE was exempt from wealth-tax, Shri Rajendra submitted that the status of DSE had since been corrected by the Assessing Officer to Limited Company after giving notice to DSE, to which no objection was raised by DSE. DSEis a company incorporated on23-5-1947 andhad been assessed as limited company since then. Only recently the company clainied its status as "0.8" which was repeated in Income-tax order without applying mind on the presumption that its income was exempt under Section 11 of the Income-tax Act, which usually applied to Trusts. This is supported by an Affidavit of Shri V.N. Agarwala dated 17-10-1988 filed before the Special Bench. The affidavit of Shri V.N. Agarwala filed in IT A No. 41.15 (Del.)/95 is provided at pages 1 and 2 of paper book Vol. III filed on behalf of the assessee. Inter alia, following averments were made in the said Affidavit:-
2. That the aforesaid company fulfils the conditions laid down under Section 11 of the Income-tax Act, 1961 and its income has been held as exempt as a charitable institution. A copy of the assessment order in the case of the said company for the assessment, year 1991-92 is enclosed, placed al page 40 of the paper book No. 2.
3. That in Column No. 5 of the assessment order for the assessment year 1991-92 referred to above, the Assessing Officer has mentioned the status as AOP (Trusts). This is apparently done owing to the impression on the part of the Assessing Officer that since the income of the company is exempt under Section 11 of the Income-tax Act, 1961, its status is analogous to that of an AOP (Trust).
4. That the aforesaid company satisfies conditions laid down under Section 25 of the Companies Act, 1956, though it has not so far got itself registered under that section.
Under the Wealth-tax Act, neither AOP nor Public Limited Company is assessable. No wealth-tax assessment of DSE was ever made, nor any return under Wealth-tax Act was filed by DSE. DSE, by no stretch of imagination, is an AOP. DSE was formed to regulate business of Stock Exchange and not to carry on business individually or collectively with its Members. The Hon'ble Supreme Court in Indira Balakrishna's case (supra) held that an Association of Persons is formed with the object to produce income, profits or gains and to share the said income between menbers of the Association of Persons. The mode of forming Association is to earn income by their joint efforts and in order to distribute the same among themselves. However, all the ingredients are missing in the case of DSE DSE is only a regulatory body. It is not carrying on any business as was noted by the Hon'ble Supreme Court in its own case in Delhi Stock exchange Association Ltd. 's (supra), from which Head Note was already quoted in the prior paras of the order. Thus, DSE is not carrying on any business, but shareholders of the DSE are carrying on their own individual businesses. However, the shareholders of the DSE neither carry on any business collectively nor DSE carries on business collectively with its shareholders. Thus, it is inconceivable to postulate the formation of AOP between DSE on one hand and its members on the other. DSE is a limited company and is a juristic entity. Its shareholders have no right in the assets of the DSE, Therefore, Section 4(1)(b) of the Wealth-tax Act is not applicable. Section 4(1)(b) is as follows :-
4(1): In computing the nat wealth-
(b) of an assessee who is a partner in a firm or a member of an Association of Persons (not being a co-operative housing society), there shall be included, as belonging to that assessee, the value of his interest in the assets of the firm or association determined in the manner laid down in Schedule-III.
proviso is not applicable and hence not extracted. Since DSE is not a Trust, Section 5(1)(i) of Wealth-tax Act is not applicable to it. Section 4(4) of Wealth-tax Act also is not applicable, which is in the following terms :-
Nothing contained in Clause (a) of Sub-section (1) shall apply to any such transfer as is referred to therein made by an individual before the 1st day of April, 1956 and the value of any assets so transferred shall not be included in the computation of his net wealth.
Relying upon CWT v. Meattles (P.) Ltd. [1985] 156 ITR 569/[1984] 17 Taxman 73 (Delhi), it was urged that assessing DSE as AOP(Trusts) (since corrected) did not work an estoppel while considering wealth-tax. The Delhi High Court held that the principle of estoppel has no applicability to successive assessments. There is no estoppel against a statute and when the Revenue was taken mistaken view of statutory provisions in Income-tax assessment, it is not estopped from taking corrective view in wealth-tax assessment. In the Head Note of the decision, the following ratio is laid down :
Decisions arrived at in one assessment year are binding neither on the assessee nor on the Revenue in respect of subsequent assessment years. The principle of estoppel has no applicability to successive assessments. The Revenue authorities are not bound by any contention or admission or decision taken up in one assessment when the same issue comes up for decision in a different assessment.
There is not estoppel against a statute. Where the Revenue authorities take a particular view of the statutory provisions in the Income-tax assessment and later on realise that it was a mistaken view, they cannot be estopped from taking a correct view of the statutory provisions later on.
According to us, this is a correct view of law.
Countering the argument that since the question of valuation was not referred by the WTO to the Valuation Officer under Section 16A read with Rule 3B of the Wealth-tax Rules, it vitiates the whole assessment and the whole assessment is liable to be struck down, it was submitted, relying on CIT(A)'s orders, that no value was given to the Ticket of the Stock exchange and it was not admitted to be an asset held by the assessee in its wealth-tax return and, therefore, Clause (b)(t) of Section 16A(1) of the Wealth-tax Act did not apply, because the said provision reads as under:-
(b) in any other case, if the Assessing Officer is of opinion :
(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or....
Rule 3B of the Wealth-tax Rules is as under :
3B : The percentage of the value of the asset as returned and the amount referred to in Sub-clauses (i) of Clause (b) of Sub-section (1) of Section 16A shall, respectively, be 33 1/3 per cent and Rs. 50,000.
Therefore, it is obvious that if the returned value is less than 33 1/3% of the assessed value of the asset, then only valuation should be referred to the Valuation Cell under Section 16A. If the asset is not declared at all as having of no value, question of referring it under Section 16A to the Valuation Officer docs not arise. Shri Rajendra alternatively, urged that even if it is held that reference to the Valuation Officer should have been made, then absence of reference should be considered to be a procedural irregularity and reliance was placed upon the latest decision of the jurisdictional High Court in Sarabjit Singh v. CIT [1998] 234 ITR 641 (Delhi). Their Lordships of the Delhi High Court were considering the provisions of Section 144B and effect of its contravention or violation. They held that Section 144B is only a procedural provision and an assessment order passed by ignoring the said provision is not a nullity. Following ratio is laid down as part of the Head Note of the decision at page 641 :
An assessment order passed without complying with the provisions of Section 144B of the Income-tax Act, 1961, cannot be regarded as a valid order but it cannot follow as a necessary corollary that such an order passed without following the procedural requirements must be regarded as a nullity. Non-compliance with the procedural law is merely a procedural irregularity, which can be cured unlike the defect of inherent lack of jurisdiction in an authority to pass an order which will be a nullity.
Therefore, Section 144B is only a procedural provision and an assessment order passed by ignoring the said provision cannot be regarded as null and void."
This has been the view consistently held by the Courts including the Hon'ble Supreme Court in Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC). In the instant case, the Assessing Officer under the Wealth-tax Act all along had the jurisdiction. Even after referring to the Valuation Officer under Section 16A of Wealth-tax Act, he alone will pass the assessment order after receiving the Valuation Officer's report. The jurisdiction to dispose of the assessment always stays with the Assessing Officer. Therefore, non-reference to the Valuation Officer, at best, is only a procedural irregularity.
15. The learned counsel for the assessee Shri Bajpai had cited Raj Paul Oswal v. CWT [1988] 171 ITR 489/[1987] 35 Taxman 509 (Punj. & Har.). Raj Paul Oswal delivered by the Punjab & Haryana High Court for the proposition that a reference to the Valuation Officer under Section 16A is mandatory. In the said decision, what are the consequences of non-reference to the valuation Officer were not further clarified. Similarly is the situation in Raja Baldeodas Birla Sanlatikosh v. CWT [199l] 189 ITR 613, 617 (Cal.) and CWT v. Smt. Manorma Devi Birla [1993] 199 ITR 250/ [1992] 64 Taxman 256,258 (Cal.) In those cases, it was clearly held that non-reference to the Valuation Officer is only a procedural irregularity which could be set right by the IT AT.
16. The learned counsel for the assessee in his arguments complained that principles of natural justice were not complied with in the case of Shri Jagannath Syal, as the said assessee was not confronted with the material available with the department for valuing the Ticket (right to trade in Stock Exchange). The submission is wrong in fact. Relevant material was already confronted with Shri Syal. in this connection, reliance was placed on the Annexure to the assessment order in the case of Shri Jagannath Syal where detailed reasons alongwith material were given for valuing the Ticket at Rs. 40 lakhs. While filing an appeal before the Commissioner (Appeals), no grievance was made about the lack of opportunity given by the Assessing Officer. The Commissioner (Appeals) in turn in para f 2 of his orders in the case of Shri Jagannath Syal justified the basis for valuing the Ticket at Rs. 24 lakhs, following his order in M.G. Bajaj as also valuing DSE's share at Rs. 3,72, f 90 as disclosed by Shiv Kumar Goyal (Copy of the appellate order in M.G. Bajaj is annexed as Annexure RA which is made part of the departmental paper book filed before us). On a perusal of the CIT(A)'s order dated 28-1 f -1994 in the case of Shri M.G. Bajaj, it is seen that in that case the Assessing Officer had invoked Section 4(1)(a) of the Gift-tax Act and estimated the fair market value of the share gifted at Rs. 25 lakhs. In appeal, the CIT(A) held that the correct section to be applied in Section 6(1) of the Gift-tax Act as per which value of the property gifted is to be determined in the manner laid down in Schedule II of the Gift-tax Act. He further stated that Schedule II in turn states that the value of such property gifted will be determined in accordance with the provisions of Schedule III to the Wealth-tax Act. The learned counsel for the assessee had argued that the definition of 'equity share' as laid down in Rule 2(3) of Schedule III of the Wealth-tax Act as per which equity share means a share in the share capital of the company other than a preference share is to be adopted and it is to be valued accordingly. The CIT(A) held, after due discussion, at the close of para 3 of his orders, as follows :-
From the facts as they appear Shri Akash Bajaj was not only gifted a share by his father but also received membership right to DSE which has also been certified by the General Manager of the DSE Association Ltd. vide his letter dated 26-7-1994 filed before me to the effect that Shri Akash Bajaj was admitted as a member of the DSE vide the meeting of the Board of Directors held on 24-4-1990 when the share certificate No. 70 of DSE held by Shri M.G. Bajaj, appellant was transferred in his favour.
Thus, he repelled the contention of the appellant before him that what the appellant transferred was merely a share in DSE and not the membership of the DSE Ltd. The CIT(A) has dealt with the valuation of the share/ membership of the DSE at para 7 of his orders. Since this is important to be appreciated, it is extracted as under :-
The next question which arises is as to what should be the fair market value of the share/ticket alongwith the membership of stock exchange which was gifted by the appellant to his son ? In this connection the reports received from the Assessing Officer as well as the Annexure attached to the impugned assessment order have dwelt on the market trends. There is one instance of one Mr. M,M. Rode who sold his ticket in 1991 for a consideration of Rs. 13.5 lakhs and declared this value in his return of income. There are other parlies who have sold their tickets for values ranging from 2.50 lakhs to Rs. 4 lakhs. It is also a well known Fact that the stock exchange is a market which is most sensitive to the various factors like the number of sellers and purchasers. In such a situation the fact that most of the additional shares in the hands of original share members of stock exchange were transferred at fixed price of Rs. 2 lakhs appears to be an artificial price adopted by the members of Stock Exchange. The Company DSE Association Ltd. has charged stamp duty during the assessment years 1991-92 and 1992-93 at fixed rate of 1/2% at Rs. 2 lakhs which was raised suddenly to Rs. 12,500 from assessment year 1993-94 which works out to 1/2% of Rs. 25 lakhs. The market value of a ticket depends on the turnover in the stock exchange. The turnover and the market sentiments are duty reflected in the value of sensex. If the value of the ticket which is a function of the value of Sensex is worked out for assessment year 1991-92 the same would work out to more than Rs. 25 lakhs in the relevant period. Moreover there are various reports in the newspapers and magazines/journals that the price on which the shares have exchanged hands during some of the preceding months is about Rs. 1 crore. After the scam broke out in assessment year 1993-94, the price of shares of stock exchange all over the country went up which fact shows how sensitive the share market is. A backward extrapolation of the price would show that the prices of shares in assessment year 1991-92 should not be less than Rs. 25 lakhs as reported by the Assessing Officer because in the relevant year there was a distinct bullish trend reflected by the movement of Sensex. The data collected about the rate of auction of tickets in Bombay Stock Exchange shows that on 21-9-1991, 26-10-1991 and 31-10-1991, the value for which a ticket was auctioned was Rs. 55 lakhs, Rs. 72 lakhs and Rs. 30 lakhs respectively. On the other hand, M.M. Rode sold his ticket of Delhi Stock Exchange in assessment year 1991-92 at Rs. 13.5 lakhs. Available figures, however, suggest that there is a difference of more than two times between declared price to the Stock Exchange and sale price by auction. Further, the price of any share in the stock exchange is usually a multiple of earning which multiple is around 8 to 10 world wide and around 20 in India. This share of the Delhi Stock Exchange has normal earning of Rs. 2 to Rs. 4 lakhs per year. Taking the average multiple of 8, the value of the DSE ticket should vary between Rs. 16 to Rs. 32 lakhs. It would be most fair and reasonable, therefore, to adopt the fair market value of the gifted share/ticket in question at a minimum of Rs. 16 lakhs. The Assessing Officer is directed to assess the appellant accordingly.
17, On 30-3-1999 on behalf of the assessee, a certificate dated 6-11-1997 given by the Company Secretary of DSE was filed certifying the consideration amount of share/ticket of the DSE as under :-
Date Consideration amount 25-2-1991 Rs. 2.5 lakhs " 31-3-1992 Rs. 4 lakhs 31-3-1993 Rs. 4 lakhs 31-3-1994 Rs. 25 lakhs 31-3-1995 Rs. 25 lakhs
In view of the above material, the contention that principles of natural justice were violated and no opportunity was ever given to the assessee to state his objections about the valuation of the ticket/membership of DSE is without any foundation. There is no ground of appeal in that regard taken before the Tribunal. It was argued by Shri Bajpai that value of membership ticket cannot be estimated under Section 20(1) of Schedule III of Wealth-tax Act. The learned Standing Counsel seriously countered this argument by submitting that value of the ticket has rightly been estimated under Section 20(1) read with Rule 21 (by ignoring restrictions) as elaborately discussed in para 10 at page 18 of the CWT(A)'s consolidated order in Appeal Nos. 143,208 etc. annexed as Annexure RB and in para 11 of the CWT(A)'s order in Jagannath Syal. The order of the CWT(A) disposing of a bunch of appeals, namely, 143, 208, 220, 240, 241, 242, 248, 259/94-95 and 61, 62, 104, 109, 111, 115, 192, 281, 276, 278, 335, 336, 346/ 95-96, are marked as Annexure RB and made part of the departmental paper book. Before the said CWT(A) also a contention was raised that the share of DSE is to be valued as per Rule 11 of Schedule III to the Wealth-tax Act in keeping with the decision of the Hon'ble Supreme Court in the case of Bharat Hari Singhania v. CWT [1994] 207 ITR 1 /73 Taxman 3. It was submitted that the trading right is not a separate and distinct right and is embedded in the value of the share itself and as such, such right cannot be separately valued. Reliance is placed upon para 10 of the CWT(A)'s order. In that order the CWT(A) held that the share in DSE is a separate and distinct right from membership right to transact business as stock broker in DSE and both of them should be separately valued. It was argued before him that the share cannot be transferred freely in the market and separate valuation of the share is not justifiable. Countering the said argument, the learned CIT(A) in para 10 held the following :-
So far as the question or restriction of transfer of share holding is concerned, the same is not an absolute restriction, inasmuch as the transfers are being permitted by the Stock Exchange to a person qualified to become a member of the stock exchange. This factor does not, therefore, inhibit determination of fair market value of this right under Rule 20 of Schedule III of the Wealth-tax Act.
For the same reasons, the learned CWT(A) rejected the contention which was raised before him that the value will have to be determined by the CBDT under Rule 20(3) as the same is not saleable in the open market. The membership right will automatically get transferred when the share holding is changed with the approval of the Stock Exchange and as such, it cannot be said that the right is not saleable in the open market. Ultimately, he held that membership right has to be valued separately under Rule 20(1) of Schedule III of Wealth-tax Act. To this value, the value of the share has to be added which has to be determined under Rule 11 of Schedule III in accordance with the decision of the Hon'ble Supreme Court in the case of Bharat Hari Singhania (supra). Thus, the CIT(A) held that the total value of share-holding as determined in Rule 11 and the membership right as determined in Rule 20(1) will have to be taken for the purposes of valuation of the asset under the Wealth-tax Act. The CIT(A) further held that he had already determined the value of membership right for the assessment year 1991 -92 at Rs. 16 lakhs on the basis of taking average income of a share-broker at Rs. 2 lakhs per annum and multiplying the same by a factor of 8 for determining the value. Similarly, for the assessment year 1992-93, he estimated the average annual income of a share-broker at Rs. 3 lakhs and determined the value of the membership right at Rs. 24 lakhs. The value of the shareholding under Rule 11 as had been submitted by the appellants to be Rs. 2,85,510 in the assessment year 1991-92 and Rs. 3,72,190 for the assessment year 1992-93 and, thus, the total value of the asset comes to Rs. 16 lakhs plus Rs. 2,85,510 = Rs. 18,85,510 for assessment year 1991-92 and Rs. 27,72,190 for assessment year 1992-93 (Rs. 24 lakhs + Rs. 3,72,190).
18. It was contended by the Standing Counsel for the Revenue that Rule 20(2) and Appendix III did not apply as it applies only when reference has been made to the Valuation Officer. It is also contended by the Standing Counsel that Section 16A did not apply as the impugned asset (Ticket) was not returned in the wealth-tax return by the assessee. He further contended that Rule 20(3) applies only when Rule 20(1) did not apply and in the facts of this case, Rule 20(1) did apply as it was saleable. The learned Standing Counsel further contended that value of the Ticket did not vary with the volume of holder's business. Ticket commands a particular market price because of its potentiality to generate income. Whether "A" is exploiting the potential fully or not is not relevant so far as market value of ticket is concerned. It is the law of supply and demand that determines the market price. He also contended that the fact that "A" is fully exploiting ticket's potentiality and is earning lakhs of rupees every day, while "B" is not so enterprising, would affect goodwill of their respective businesses and not the market price of the ticket. Thus, the market price of share (and consequent ticket) of BSE is much higher than of DSE and similar is the position regarding share/ticket of smaller stock exchanges like Kanpur, Ludhiana, etc.
19. It was also submitted that the assessee's reliance on CWT v. U.C. Mahatab [1970] 78 ITR 214 (Cal.) before the CWT(A) was no longer valid as the Supreme Court has since over-ruled the said Calcutta decision in CWT v. U.C. Mehatab [1998] 231 ITR 501 (SC) by holding that right to receive compensation constitutes an asset through such value was not determined on valuation date. The Hon'ble Supreme Court followed its earlier decision in CWT v. Smt. Anjamli Khan [1991] 187 ITR 345 (SC); observation in CIT v. Vidya Charan [1996] 220 ITR 78 (All.) at page 82, where it was held that intangible rights cannot be regarded as 'assets' is no longer good law, after the aforesaid Supreme Court's decisions and also rulings above-mentioned. Hence Shri Sampath's (Counsel lor the interve nors) argument relying upon the Allahabad High Court judgment was misplaced or was not correct. Countering the argument of Shri K. Sampath (WTA 877/95- Item 29 in Intervenor's list) who claimed Nil value for ticket, the learned Standing Counsel submitted that his arguments are the same as in the case of regular appeals in this regard. The Standing Counsel submitted that DSE is not registered under Section 25 of the Companies Act. Hence Section 5(1)(z) of W.T. Act docs not operate in case of DSE. Even otherwise, neither widely held companies nor AOP are assessable under W.T. Act. As already submitted, DSE is not an AOP, applying the ratio of IndiraBalakrishna'scase (supra) followed in CAIT v. RajaRatan Gopal [1966] 59 ITR 728 (SC). Generally submitting about 81 intcrvenors and the cases put forward on behalf of each of them, the learned Standing Counsel submitted that most of them have accepted valuation of the ticket and the share as determined by the CWT(A) and only the department is in appeal against the valuation reduced by the CWT(A) as against the valuation determined by the A.O. It is submitted by the learned Standing Counsel that the Revenue filed 3 lists of assessees (totalling 22) who have applied under Kar Vivad Samadhan Scheme-which means that they have accepted the valuation determined by CIT(A). The learned Standing Counsel, in so far as the Intervenors have made submissions relating to individual circumstances which have no bearing on the composite valuation of ticket and share of DSE no comments are offered.
20. Regarding valuation of ticket, it was submitted that market value of ticket will be the same for all the individual members (holders) irrespective of their individual income which varies with quantum of business transacted of them. On this premise, it was further submitted that the WTO was fully justified in determining the same market value of the ticket for all the members by estimating average annual income of a holder, keeping in view the business turnover of the Exchange, admission free charged with reference to ticket valued at Rs. 25 lakhs and sale instances of the tickets etc.
21. We have heard, the arguments of both sides and also the arguments advanced on behalf of the Intervenors. We have not heard all the individual facts of the cases, since it would result in writing unwieldy order. Further, the Hon'ble Supreme Court now clearly laid down the role of an intervenor in Saraswati Industrial Syndicate Ltd. scase (supra). It is held that the purpose of granting opportunity to the intcrvenors is to entitle them to address arguments is support of one or the other side Having heard the arguments the Tribunal has to decide in favour of one side or the other. The intervenor may take advantage of that order which may be passed by thc Tribunal. Therefore, it could not be taken lo be disposing of intervenor cases. The main issue which arose in this case which we decide, may be taken advantage of by the intervenors. Further, in the cases oi most of the intervenors, they have accepted the valuation as determined by the Commissioner (Appeals) in their respective appeals and it is only the department which came against the valuation reduced by the Commissioner (Appeals) and against the relief granted to those intervenors in the appeals by the Commissioner (Appeals). The composite value of the Ticket determined by the Commissioner (Appeals) in each of their cases has become final and binding and there is no scope to reduce it any further. The second category among the intervenors is those which came under Kar Vivad Samadhan Scheme. It is said that there are 22 such assessees who had already accepted the valuation determined by the; Commissioner (Appeals). Even in such cases also, no further relief can be granted to them. The third set of Intervenors are those who have individual or peculiar facts involved in their respective cases of appeals. The learned Standing Counsel made it very clear that since he has applied his mind and concentrated only on the main issue before us as to the determination of the composite value of Ticket of DSE, he has refrained from arguing the peculiarities involved in the intervenors' cases. In such cases, as the when the cases come up in second appeal before the Tribunal, besides relying upon the Tribunal's order in Special Bench they can also advance separate arguments about the peculiar facts involved in then respective cases and, thus, in those category of cases it should not be taken to have decided the whole of their cases but only deemed to have decided the main issue involved in their cases.
22. Now we come to the main issues involved in the cases referred to the Special Bench. Before embarking upon an attempt to answer the main question at issue, we would like to dwell upon providing suitable answers to the main questions involved. Let us see first the provisions of the Act under which the Stock Exchanges have to function. The Central Govern merit had passed Securities Contracts (Regulation) Act, 1956. Under Section 3, every Stock Exchange seeking recognition should apply for it in the prescribed manner. The application shall contain such particulars as are prescribed and shall also be accompanied by a copy of the bye laws of the Stock Exchange for the regulation and control of contracts and also a copy of the rules relating in general to the constitution of the Stock Exchange and in particular to-
(a) the governing body of such stock exchange, its constitution and powers of management and the manner in which its business is to be transacted;
(b) the powers and duties of the office bearers of the stock exchange;
(c) the admission into the stock exchange of various classes of members, the qualifications for membership and the exclusion, suspension, expulsion and re-admission of members there from or there in to;
(d) the procedure for the registration of partnerships as members of the stock exchange in cases where the rules provide for such membership; and the nomination and appointment of authorised representatives and clerks.
Section 4 of the Act deals with grant of recognition to stock exchanges. Under Sub-clauses (1) of Section 4, if the Central Government is satisfied, after making such inquiry as may be necessary in this behalf and after obtaining such further information, if any, as it may require:-
(a) that the rules and bye-laws of a stock exchange applying for registration are in conformity with such conditions as may be prescribed with a view to ensure fair dealing and to protect investors;
(b) that the stock exchange is willing to comply with any other conditions (including conditions as to the number of members) which the Central Government, after consultation with the governing body of the stock exchange and having regard to the area served by the stock exchange and its standing and the nature of the securities dealt with by it, may impose for the purpose of carrying out the objects of this Act; and
(c) that it would be in the interest of the trade and also in the public interest to grant recognition to the stock exchange;
It may grant recognition to the stock exchange subject to the conditions imposed upon it as aforesaid and in such form as may be prescribed. The conditions imposed are enumerated under Sub-section (2). They are with regard to the following four matters :
(i) the qualifications of membership of stock exchanges;
(ii) the manner in which contracts shall be entered into and enforced as between members;
(iii) the representation of the Central Government on each of the stock exchanges by such number of persons not exceeding three as the Central Government may nominate in this behalf; and
(iv) the maintenance of accounts of members and their audit by chartered accountants whenever such audit is required by the Central Government.
Thus, Section 4 deals with recognition of stock exchanges. Section 5 deals with withdrawal of recognition. Section 6 deals with the power of the Central Government to call for periodical returns or direct inquiries to be made. Section 6(2) which appears to be important for our purposes categorically states :
every recognised stock exchange and every member thereof shall maintain the preserve tor such periods not exceeding five years such books of account and other documents as the Central Government after consultation with the stock exchange concerned may prescribe in the interest of the trade or in the public interest and such books of account and other documents shall be subject to inspection at all reasonable times by the Securities and Exchange Board of India.
Sub-section (3) of Section 6 deals with the supervisory powers of the Securities and Exchange Board of India. Under the said provision, SEBI may by order in writing :-
call upon a recognised stock exchange or any member thereof to furnish in writing such information or explanation relating to the affairs of the stock exchange or of the member in relation to the stock exchange as the Securities and Exchange Board of India may require.
Section 7 states that every recognised stock exchange shall furnish Statement to the Central Government with a copy of the annual report and such annual report shall contain such particulars as may be prescribed. Section 9 gives power to the recognised stock exchanges to make bye-laws. Sub-section (1) of Section 9 says that any recognised stock exchange may, subject to the previous approval of the Securities and Exchange Board of India, make bye-laws for the regulation and control of contracts and according to Sub-section (2) in particular and without prejudice to the generality of the foregoing power, such bye-laws may provide for several of the subjects dealt with under Clauses (a) to (w). Under Clause (n), the bye-laws may provide the method and procedure for the settlement of claims or disputes, including settlement by arbitration. Clause (q) empowers the fixing of a scale of brokerage and other charges. Clause (w) prescribes the obligation of members to supply such information or explanation and to produce such documents relating to the business as the governing body may require. Thus, it can be seen that the stock exchanges work under the recognition granted to them by the Central Government and the intendment is to ensure fair dealing and to protect investors. Therefore, stock exchanges work for the public good to ensure fair dealing and to protect investors and the Central Government permits only such rules and bye-laws for registration as are in conformity with the conditions as may be prescribed, with a view to ensure fair dealing and to protect investors. Therefore, it would appear that the main intendment of a stock exchange is to ensure fair dealing and to protect investors.
23. Then we have to deal with the particulars of Rules and Bye-laws of the DSE. We have already extracted the important rules and bye-laws in the prior paras of our orders while dealing with the arguments advanced on both sides. Article 3.1 states that the DSE took over, as going concerns, the activities, funds and business of the Delhi Stocks & Share Brokers' Association Ltd. It had acquired all their assets and liabilities, rights and duties and agreed to adopt agreements embodying such terms and conditions as may evolve out of schemes of Amalgamation to be adopted. Article 3.4 sets out the object of the DSE as follows :
To facilitate the transactions of business on the Stock Exchange and to make rules and bye-laws regulating the mode and conditions in and subject to which the business on the Stock exchange shall be transacted and the conduct of the persons transacting the same and generally for the good order and government of members of the Exchange.
Under Article 3.6 DSE can regulate and fix the scale of commission and/ or brokerage to be charged by members of the exchange. Article 5 states that the Authorised capital was Rs. 8,00,000 (Rupees Eight lakhs only) divided into 400 shares of Rs. 2,000 each with power to increase or reduce the capital of the company. Under the definitions given in Article 1, a share-holder is defined to mean any person, individual or firm registered in the books of the company as owner of any share in the capital of the company. The Member of the stock exchange is defined to mean a member authorised to operate on the Stock Exchange. Thus, the definition of share holder and definition of Member connote different categories of persons.
24. Having regard to the elaborate discussion and having heard rival arguments from both parties, we have no hesitation in our minds to come to the conclusion that a share in the DSE and also membership of DSE are capital assets within the meaning of Section 2(e) of the W.T. Act. There are ample indications that the Parliament itself intended to treat them as capital assets, though in order to know such intention we have to take into consideration the provisions of the Finance Act, 1997 which came into effect from 1-4-1988. Section 47 of the Income-tax Act deals with the exempted assets whose transfer does not yield any capital assets and while listing out such assets, in Clause (xi) membership of a recognised stock exchange is specifically recognised as a capital asset. Clause (xi) of Section 47 along with its Explanation is extracted as follows :-
(xi) any transfer made on or before the 31st day of December (1988) by a person (not being a company) of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor.
Explanation - For the purposes of this clause, the expression "membership of a recognised stock exchange" means the membership of a stock exchange in India which is recognised under the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)."
According to us most of the serious contentions advanced on behalf of the assessees before us should be repelled in view of the Hon'ble Supreme Court's decision in Delhi Stock Exchange Association Ltd. 's case (supra). The main issue involved in that case was whether Delhi Stock Exchange is formed with the object of providing general public utility and whether it is a charitable institution and exemption under Section 11 is entitled to it. They have considered the Articles ol Association as well as Bye-laws of USB, its formation in 1947 and held ultimately that DSE is not entitled to exemption under Section 11. We have already observed that for some years DSE was assessed as AOP "0.8" which deals with Trusts. However, in view of this categorical decision, the argument that DSE is a charitable institution is no longer be permitted to be raised. Further, the status of DSE is also determined, according to us, if we observe the ratio of the Supreme Court's decision in the penultimate para, which is as follows; at page 242 :-
As regards the provisions of the Securities Contracts Regulation Act, 1956, it is no doubt true that the said Act makes provision for recognition of a stock exchange. The expression "stock exchange" has been defined in Section 2(j) to mean any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. We, however, do not find any provision in the said Act which imposes an obligation on a recognised stock exchange not to distribute any part of its profits by way of dividend to its shareholders.
Therefore, the argument that because the shareholding in DSE cannot be compared to equity share or other type of share held in a limited company since it is only a controlling authority and it also does not earn any dividend can no longer be hold good. Thus, in pursuance of the above decision, we have to hold that the share in DSE is an asset in itself and it can also earn dividend under law and, thus, the said asset should be separately valued, apart from the membership. In view of the ratio of this decision, the argument advanced on behalf of the assessee that DSE is a Trust formed for charitable purposes, was granted exemption under Section 11 and, therefore, assuming without admitting that its membership is to be valued and should be considered part of the wealth, but still by virtue of proviso (b) under the Explanation under Rule 16 of Wealth-tax Rules, membership should not be considered to bear any value since it is an exempted asset in the hands of the shareholder, should be wholly dismissed as untenable and such an argument has no legs to stand any further. As per Black's Law Dictionary, Special Deluxe, 5th Edition page 1095 the meaning of "property" is described as under :
The word is also commonly used to denote everything which is the subject of ownership corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal, everything that has an exchangeable value or which goes to make up wealth or estate. It extends to every species of valuable right and interest and includes real and personal property, easements, franchises and incorporeal hereditaments and includes every invasion of one's property rights by actionable wrong.
This definition appears to be based upon Labberton v. General Cos. Co. of America, 53 Wash 2d 180, 332 p. 2d 250, 252, 254. There share in the DSE as such does not entitle a shareholder to transact business in the Stock Exchange. He should also become a member by following the formalities already adverted to above in prior paras of this order. We have already held that shareholder is different from a Member of DSE according to the Bye-laws of DSE. A Member can co-opt several others. He can form a partnership with others and, therefore, we have no hesitation to repel the contention that membership does not confer any proprietary right but it represents only a personal permission.
25. Adverting to the facts of the present case, we find that one purchases the shares with a view to become the member of the Stock exchange. It is a condition precedent for becoming the member of the DSE. Therefore, the holding of share give rise to a dorment right. Holding the share is not enough. One must satisfy the other conditions also laid down in the rules to become the member of the DSE. But one thing is certain that without holding the share, one cannot enter the stock exchange. Therefore, in our opinion, value of share is to be determined with reference to the purpose which it serves. It is not an ordinary share. It does not fetch any dividend. It does not confer any other benefit to the holder. It is an essential requirement to attain the status of member of DSE. Because of its peculiar nature its value cannot be determined in isolation. It cannot be determined by following the normal procedure. Therefore, to find a value good and true composite value of the share and ticket is to be considered. Such a value would only be a realistic value.
26. Next issue relates to the question that what would be the composite value of the share and the card and that how that technical value is to be determined.
27. We first consider the applicability of Schedule III. Rule 20 of Schedule III is pertinent. It is reproduced here as under :-
(1) The value of any asset, other than cash, being an asset which is not covered by Rules 3 to 19, for the purposes of this Act, shall be estimated to be the price which, in the opinion of the Assessing Officer, it would fetch if sold in the open market on the valuation date.
(2) Notwithstanding anything contained in Sub-rule (1), where the valuation of any asset referred to in that sub-rule is referred by the Assessing Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date.
(3) Where the value of any asset cannot be estimated under this rule because it is not saleable in the open market, the value shall be determined in accordance with such guidelines or principles as may be specified by the Board from time to time by general or special order."
28. In our opinion, the phrase "if sold in the open market", does not contemplate any actual sale or the actual state of market. It only enjoins the assumption that there exist an open market and the property could be sold in that market.
29. The term "asset" as given under Section 2(e) of the Wealth-tax Act has got a very wide connotation. The Apex Court in the case of- Ahmed G.H. Ariff'scase (supra) and Purshottam N. Amarsay v. CWT [1973] 88 ITR 417 (SC) has held that even if an asset is non-transferable and not saleable in the open market, still it can be valued for the purposes of the levy of wealth-tax. Arif had only beneficial interest to get share of income from a Wakf. Similarly, in Purshottam N. Amarsay 's case (supra) there was right to get income from Trust property which was a personal estate. This right was not transferable, still apex court held it to be an asset. The word "property" signifies every possible interest which a person can clearly hold and enjoy.
30. In the present case we find that DSE rules provides a vested right to its members to carry on business as stock broker. This is a very important right. In a way it is a ticket to explore the EL DORADO. This right cannot be disturbed. Only by becoming a defaulter or in the event of death membership comes to an end. However, if a member becomes a defaulter stock exchange auctions the card and utilise the proceeds to pay his debts. Similarly, on his demise, his successors may step into his shoes subject to the fulfilment of conditions contained in the Memorandum. The distinction between proprietary and personal rights would be that proprietary rights are susceptible to valuation while personal rights are not. The right would be propriety if it has economic value. It is absolutely clear from the aforesaid discussion that the DSE card has got economic value.
31. In the case of M.M. Rodey, the Assessing Officer stated that in the assessment year 1991-92 ticket was sold for Rs. 11.4 lakhs. But it is not clear from the records that whether opportunity was given to the assessee to rebut the finding used against him.
32. The Assessing Officer is duty bound to determine the market value of the card. Market value may be said to be the price that a willing purchaser would pay to a willing seller for a property having due regard to its existing conditions, with all its existing advantages and its potential possibilities when laid out in its most advantageous manner. In view of this the composite value of the ticket cannot be determined with reference to the BSE sensex. Nor the auction value of BSE is relevant.
33. The argument that the value of ticket depends on the business acumen of a broker is not tenable. A novice shooter may not yield result, while with the same weapon an experienced shooter may hit the target. The gun is the same. Result depends on the expertise. The gun will fetch the price according to its quality. The experience or inexperience of its owner in its operation is not relevant for determining its value.
34. The provisions of Section 16A(1) read with Rule 3(b) of the Wealth-tax Rules, 1957 mandatorily require the Wealth-tax Officer to make a reference to the DVO, if the difference in the value of the assets returned by the assessee and the fair market value of the assets as estimated by the Wealth-tax Officer is more than the limits prescribed under Rule 3(b).
However, if as required under these provisions, reference to DVO is not made, it amounts to a procedural irregularity.
In a case where the flaw in the order appealed against consists of in the non-observance of certain procedure, it is open to the Assessing Office to start the procedure once again with the view to follow the rules of procedure and the principles of natural justice.
35. While applying the value as done in the case of M.M. Rodey, the maxim AUDI ALTERAM PARTEM, was not followed by the Assessing Officer. Similarly, in some cases the provisions of the Section 16A(1) read with Rule 3(b) were not adhered to. It has also came to our knowledge that many interveners accepted the valuation as done by the Revenue authorities by resorting to the provisions of Kar Viveid Sarnadhan Scheme.
36. Taking into consideration the entire conspectus of the case, we are of the opinion that the membership right held by the assessee in DSE constituted asset and is exigible to tax. Composite value ol share and ticket is to be adopted. For making the correct valuation, recourse to be made to the value, which ticket would fetch if sold in the open market on the relevant valuation date. Such an ascertainment has to be on the basis of evidence. The onus is on the Revenue to find out the true value and there should be an earnest endevour on their part to arrive at such value, in accordance with the accepted principles of valuation. With these remarks, we set aside the impugned orders and restore the matter to the file of the Assessing Officer with direction to determine the valuation afresh in accordance with law after providing adequate opportunity to the assessee ol being heard.
37. We have not separately examined the facts of the intervener's cases. It was stated before us that some of the interveners have accepted valuation as adopted by the Revenue and availed the benefit of Kar Vivad Sarnadhan Scheme. In relation to those matters which are not covered by K.V.S.S. the Assessing Officer may follow the principles discussed hereinbefore.
38. In the result, appeals stand partly allowed.