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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI PAVAN KUMAR GADALE, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., v. Addl. CIT – Range – 4(2) 154/C, Mittal Court Aayakar Bhavan, M.K. Road Nariman Point, Mumbai -400021 Mumbai - 400020 PAN: AAACR4082Q
(Appellant) (Respondent) Assessee by : Shri Nitesh Joshi Department by : Shri S.N. Kabra
Date of Hearing : 28.01.2022 Date of Pronouncement : 06.04.2022
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)–8, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 03.02.2012 for the A.Y.2008-09.
Assessee has filed following grounds in its appeal: -
2 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., “1. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance of depreciation of Rs 9,38,281/- on WDV of “BSE Membership Card”. It is submitted that “BSE Membership Card is a capital asset on which depreciation was allowed in earlier years and as such this and in accordance with the provisions of section 32 of the Act, the appellant is entitled to depreciation on W.D.V. of Rs. 37,53,122/- BSE Membership Card” 2. The conclusion arrived at by the learned Commissioner of Income-tax (Appeals) and by the learned Assessing Officer is erroneous and contrary to the law. The Commissioner of Income-tax (Appeals) for the purpose of computing tax on long term capital gains arising on sale of shares of Bombay Stock Exchange Limited erred in directing the assessing officer to take cost of shares at Rs 66,72,217/- (WDV on 01.04.2005, cut of assessment year 2005-06, the year in which BSE changed from AOP to company) instead of 2,98,51,108/- (original cost of acquisition of membership rights of the BSE). It is submitted that in accordance with the provisions of section 55(2) (ab) of the Act, the cost of acquisition of the membership rights of the exchange is deemed to be Cost of the shares received on demutualization. Therefore, in computing capital gains arising on sale of shares of Bombay Stock Exchange Ltd, the learned assessing officer ought to have allowed the cost of acquisition of Membership rights of the Exchange as cost of the shares sold. The conclusion arrived at by the Commissioner of Income-tax (Appeals) and by the learned Assessing Officer is erroneous, contrary to the law. 3. The learned Commissioner of Income-tax (Appeals) erred in directing the assessing officer to withdraw depreciation allowed on BSE Card for A Y 2006-07 (Rs 16,68,054/-) and for A Y 2007-08 (Rs 12,51,041/-). It is submitted that directions given by the Commissioner of Income- tax (Appeals) are without jurisdiction and ought to be deleted. 4. The appellant reserves the right to add to, alter or amend the grounds of appeal.”
3 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., 3. At the time of hearing, Ld. AR of the assessee brought to our notice facts of this case and fairly accepted that this issue under consideration is against the assessee as per the decision passed by the ITAT in assessee’s own case in ITA.No. 6710/Mum/2011 dated 15.02.2017.
Ld.DR also agreed with the above proposition.
Considered the rival submissions and material placed on record, we observe that this issue under consideration on disallowance of depreciation on WDV of BSE membership card, the Coordinate Bench has already dealt with this issue in assessee’s own case for the sake of clarity it is reproduced below:- 3. Issue No.1: After hearing both the parties we find that assessee has claimed depreciation amounting to Rs.15,04,143/- towards depreciation on membership rights which was disallowed by the AO because BSE has been demutualised and assets were taken over by BSE Ltd. w.e.f. 19-8-2005 and as per the scheme trading members may of may not be the shareholders. On demutualisation the asset in the form of BSE card ceased to exist. Therefore, depreciation according to the AO was not allowable. 4. On appeal, the decision of the AO was confirmed by the Ld. CIT(A). 5. The Ld. DR pointed ‘out that this issue is squarely covered in favour of the Revenue by the order of the Tribunal in the case of Sino Securities Pvt. Ltd. vs. ITO in IT.A.No.6264-Mum-2009 [copy of the order filed]. 6. ‘After considering the relevant material on record and the submissions of the Ld. DR, we find that the Tribunal in the case of Sino Securities Pvt. Ltd. vs; ITO in I.T.A.No.6264-Mum-2009 has discussed this issue in detail and found that after demutualisation
4 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., rights of the members of erstwhile BSE were segregated into (a) right to: participate in ownership of assets of the stock exchange and (b) right to trade at stock exchange. The Tribunal observed that as far as right to participate in assets is concerned, same is through holding of the shares and, therefore, no question of depreciation arises. In respect of trading rights It was observed by the Tribunal in paras 31 & 32 as under: 31. Coming to trading rights, we find that the value that can be assigned from out of the value of BSE card is only to the extent of deposit made. Trading right Is no doubt a business in commercial rights but value is equivalent to the quantum of deposit. The assessee is entitled to refund of the deposit. When the value is equal to a refundable deposit, how can such value of refundable deposit be depreciated when the value in reality does not come down. If the refundable deposit is deducted from the value, then the present value of trading right is nil. Under these circumstances, there is no value to the trading in commercial right entitling the assessee for deduction by way of depreciation. Hence, no depreciation can be granted on this right. Thus, we uphold the finding of the Revenue authorities. We now discuss the impact of the following sections: “55(2) For the purposes of sections 48 and 49, “cost of acquisition ‘ — (ab) In relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992, (15 of-1992) shall be the cost of acquisition of his original membership of the exchange. Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil. 2(42)(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to In clause (xiii) of section 47, there shall be included the “period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation.
5 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., 2 (42) (h)in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be induced the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation] 1 13c[(hb) (ha) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares. 47(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of Individuals is succeeded by such company:] — Provided that (a) all the assets and liabilities of the firm (or of the association of persons or body of Individuals] relating to the business immediately before the succession become the assets and liabilities of the company; (b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession; (c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and (d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;. (e) the demutualisation or corporatisation ‘of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange
6 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., Board of India Act, 1992 (15 of 1992);] 47(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);] 32. All these sections deal with computation of capital gains under Chapter--IV(E) i.e., section 45 to 55A of the Act. In our considered opinion, sections which are for the computation of capital gains, have no relevance on the allowability of depreciation. The argument of the assessee that it had taken the original cost of the share © 1, while computing capital gain in a latter year, does not effect our decision. Thus, we uphold the order the Assessing Officer as confirmed by the Commissioner (Appeals) wherein depreciation on membership card has been denied. Therefore, following the above order, we decide this issue against the assessee.”
With regard to Ground No. 2 the issue involved is provisions of section 55(2)(ab) of the Act as per which cost of acquisition of membership rights of the exchange is deemed to be the cost of shares received on demutualization. While computing the capital gains arisen on sale of shares of Bombay stock exchange rate, the cost of acquisition on membership rates of the exchange as cost of shares sold. Since Assessing Officer charged long term capital gain on sale of BSE shares @20%.
Ld. DR relied on the order passed by the lower authorities.
7 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., 8. At the time of hearing Ld. AR submitted that this issue under consideration is covered in favour of the assessee in the case of M/s.Techno Shares & Stocks Ltd., in ITA.No. 5938/Mum/2012 dated 30.08.2019, for the sake of clarity it is reproduced below: -
As regards the reference made by the learned Accountant Member and learned DR on. the decision of our co-ordinate in case of Twin Earth Securities (P.) Ltd. vs. ACIT (66 taxmann.com 258, I find that in that case none appeared on behalf of the assessee therein and as such, arguments of the losing party were not articulated before the bench. In this regard, it is pertinent to refer to the reliance placed by the learned Representative for the assessee on the book of P. J. Fitzgerald, M.A. named “Salmond on Jurisprudence” to argue that when the matter is not argued or is not fully argued, the same cannot be taken as valid precedent as in that case, the court did not have the occasion to consider the arguments of the losing party. The relevant extract from the said book is reproduced hereunder: “We now turn to the wider question whether a precedent is deprived of its authoritative force by the fact that it was not argued or not fully argued, by the losing party. If one looks at this question merely with the eye of common sense, the answer to it is clear. One of the chief reasons for the doctrine of precedents that a matter has once been fully argued and decided should not be allowed to be reopened. Where a ‘judgement is given without the losing party having been represented there isno assurance that all the relevant consideration have been brought to the notice of the court and consequently the decision ought not to be regarded as possessing absolute authority, even if it does not fall within the sub Silentio rule.” (underlined for emphasis by me) Due to the above reason, I am not inclined to follow the ratio laid down in the said decision. Further, I find that in the concluding para of the said decision, the Bench has partially applied Section 55(2)(ab) of the Act and held that cost of trading rights will be NIL as per Section 55(2)(ab) of the Act, whereas for cost of shares, it applied Section 50 of the Act. I find that such a partial application of section
8 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., 55(2)(ab) of the Act is not correct application of Section 55(2)(ab) of the Act and such the same is not a good precedent. 33. As regards the reliance placed by the learned DR on the decision of M/s Pavak Securities Pvt. Ltd. vs. ITO in ITA No. 1803/Mum/2012, the same is distinguishable on facts as in that case, assessee had not argued and claimed that it was eligible to claim entire cost of acquisition of membership card while computing Long Term Capital Gains. Rather, assessee itself chose to claim only the WDV as the cost of acquisition of membership card. Such an action on the part of the assessee in that case cannot be said to be a valid binding precedent and thus, the same cannot help the cause of Revenue in the present case. 34. In light of the above discussion, I hereby hold that the cost of acquisition of shares of BSE Ltd. shall be the original cost of acquisition of membership card in terms of Section 55(2)(ab) of the Act even though assessee has claimed depreciation on the cost of membership card in the earlier years. 35. As regards the period of holding of shares of BSE Ltd., | find that as per clause (ha) inserted in Explanation 1 to Section 2(42A) of the Act by the Finance Act, 2003, period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation shall also be included in period of holding of shares. In terms of the clear and unambiguous language of the section, | hold that the period of holding of shares of BSE Ltd. shall be reckoned from the date of original membership of BSE and not from date of allotment of shares in BSE Ltd. 36. I thus, agree with the view taken by the learned Judicial Member that the cost of shares will be original cost of the membership card in terms of Section 55(2)(ab) of the Act. 37. In view of the foregoing discussion, the questions put forth before me are answered in the positive and in favour of the assessee. The decision arrived at by learned Judicial Member is the appropriate view, and I concur with the view adopted by the learned Judicial Member on this issue.”
Respectfully following the above said decision, we allow the ground raised by the assessee.
9 ITA NO. 3509/MUM/2012 (A.Y: 2008-09) M/s. Rosy Blue Securities Pvt. Ltd., 10. With regard to Ground No. 3 both the counsels agreed that Ground No. 3 is directly connected with Ground No. 1, since Ground No. 1 is already decided against the assessee. We deem it fit and proper to dismiss this ground also.
In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 06.04.2022.
Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 06.04.2022 Giridhar, Sr.PS
Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum