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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI M. BALAGANESH, AM & SHRI AMARJIT SINGH, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI M. BALAGANESH, AM AND SHRI AMARJIT SINGH, JM (Hearing through Video Conferencing Mode) आयकर अपील सं/ I.T.A. No. 2522/Mum/2012 (निर्धारण वर्ा / Assessment Year: 2008-09) M/s. Shivnarayan Nemani बिधम/ DCIT, Circle-4(2) Shares & Stock Brokers P. Mumbai Vs. Ltd. 9/43, Bhupen Chambers, 2nd Floor, Dalal Street Mumbai- 400023. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AADCS3296C (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee by: Shri Mayank Chauhan (AR) Revenue by: Shri Rohit Kumar (DR) सुनवाई की तारीख / Date of Hearing: 07/09/2021 घोषणा की तारीख /Date of Pronouncement: 08/10/2021 आदेश / O R D E R PER AMARJIT SINGH, JM: The assessee has filed the present appeal against the order dated 20.01.2012 passed by the Commissioner of Income Tax (Appeals)-09, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2008-09. 2. The assessee has raised the following grounds: - “1(a). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax(Appeals) erred in confirming the disallowance of additional amount of Rs.2,98,258/- under the provisions of section 14A r.w.r. 8D of the Income Tax Rules,
ITA. No.2522/Mum/2012 A.Y. 2008-09 1962 by rejecting the explanations and submission given by the appellant and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961, and Rules made thereunder.
1(b). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax(Appeals) erred in confirming the disallowance of proportionate interest u/r 8D(2)(ii) [ i.e. Rs.2,20,1 12 (3,58,615 - 1,38,503)] attributable to earning of tax free income without appreciating that the investments in shares and units of mutual funds have been made out of own funds and free reserves and no borrowed funds have been used for investments, and as such doing so is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder.
1(c). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax(Appeals) erred in confirming an amount of Rs.3,58,615/- as against Rs.6 1,601 /- by holding that even stock-in-trade have to be considered for disallowance and the reasons assigned for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961 and the Rules made thereunder.
2(a). On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in confirming the disallowance of amount of Rs.26,938/- paid on account of Leased Line charges to stock exchanges by invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the facts and the provisions of Income Tax Act, 1961, and Rules made
ITA. No.2522/Mum/2012 A.Y. 2008-09 (b). On the facts and circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in not following the decision of the ITAT, Mumbai Bench in the case of DCIT-4(1) v. Angel Broking Ltd. on the same issue of disallowance of Lease Line Charges under section 40(a)(ia) of the Income Tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961, and Rules made thereunder.
3 On the facts and in the circumstances of the case and in law, the leaned Commissioner of Income-Tax (Appeals) erred in adopting the cost inflation index for the Financial Year 2005-06, being the year of allotment of BSE equity shares to the appellant in accordance with the BSE (Corporatization and Demutualization) Scheme 2005, approved by SEBI as against the cost inflation index for Financial Year 1994-95 being the year in which BSE card was originally acquired for the purpose of calculating the Indexed cost of acquisition' for computing the Long Term Capital Gain on sale of equity shares of BSE Ltd. and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961, and Rules made there under.
4(a). On the facts and in the circumstances of the case and in law the learned Commissioner of Income-Tax (Appeals) erred in confirming the additions made for sub-brokerage paid to various parties to the extent of Rs.1,40,611/- being the difference in the amount accounted for by the appellant in its books of accounts and the amount accounted for by the remisers and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the ITA. No.2522/Mum/2012 A.Y. 2008-09 case, the provisions of Income Tax Act, 1961 and the Rules made thereunder.
4(b). On the facts and in the circumstances of the case and in law the learned Commissioner of Income-Tax (Appeals) failed to appreciate that the difference of Rs.6,305/- in the amount of sub-brokerage paid was due to the double deduction of tax at source while making payment to M/s Krupa Investment Co. and difference of Rs.1,34,306/- in the case of Kiran N Shukla was on account of the opening balance appearing in the books of accounts of remiser as on 1.4.2007 which was inadvertently considered by the remiser while responding to notice u/s 133(6) of the Income Tax Act, 1961. 4(c). Without prejudice to above the learned Commissioner of Income-Tax (Appeals) erred in appreciating that the amount claimed by appellant as expenses in the books of accounts are less than what has been reported by the remisers in response to notice u/s 133(6) of the Income Tax Act, 1961 and hence there can be no disallowance on these items.
On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in confirming the reduction of rebate u/s 88E to Rs.23,33,544/- as against Rs.31,39,647/- claimed by the appellant and the reasons assigned for doing so are wrong and contrary to the provisions of the Income tax Act, 1961 and the Rules made thereunder.
On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals) erred in enhancing the total income of the appellant by disallowing an amount of ITA. No.2522/Mum/2012 A.Y. 2008-09 Rs.3,12,178/- paid on account of Transaction charges to the Stock Exchange, Mumbai by invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961 by holding that the appellant failed to deduct to tax at source u/s I94J of the Income Tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the provisions of the Income tax Act, 1961 and the Rules made thereunder. The appellant craves leave to add, alter, amend and/or modify all or any of the above grounds of appeal on or before the date of hearing.” 3. The brief facts of the case are that the assessee filed its return of income on 30.09.2008 declaring total income to the tune of s.2,83,77,800/-. The return was processed u/s 143(1) of the I. T. Act, 1961. Thereafter, the case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company is a member of Stock Exchange, Mumbai and carrying on the business of Share and Stock Broking. The assessee is also dealer & investor in shares and holds share both in its trading & investment portfolio. The assessee earned the tax free dividend income of Rs.6,27,736/- which was claimed as exempt income. No expenses incurred to earn the exempt income was shown in view of the provisions u/s 14A r.w. Rule 8D and AO assessed the expenses to earn the exempt income to the tune of Rs.3,58,615/-. After deducting the disallowance by assessee to the tune of Rs.60,357/- an amount of Rs.2,98,258/- was added to the income of the assessee. The assessee has also incurred the expenses on leaseline amounting to Rs.26,938/-. The same was disallowed in view of the provisions u/s 40a(ia) of the Act and added to the income of the assessee. The bad debts in sum of Rs.8,76,079/- was also ITA. No.2522/Mum/2012 A.Y. 2008-09 added to the income of the assessee. The assessee claimed the capital gain on share of BSE in sum of Rs.2,64,75,092/- which was also disallowed and added to the income of the assessee. Sub-brokerage in sum of Rs.37,87,578/- was also disallowed and added to the income of the assessee. After some more addition and disallowance, the total income of the assessee was assessed in sum of Rs.7,82,50,992/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the but the assessee was not satisfied on the grounds mentioned above, therefore, the assessee has filed the present appeal before us.
ISSUE No.1 4. Under this issue the assessee has challenged the disallowance in view of the provisions u/s 14A r.w. Rule 8D of the Rule. It is also argued by Ld. Representative of the assessee is that its own funds is more than the investments, therefore, there should not be interest disallowance in accordance with law and in support of these contentions the Ld. Representative of the assessee has placed reliance upon the decision in the case of CIT Vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 and Maruti Udyog Ltd. Vs. Dy. CIT (92 ITD 119) . However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the CIT(A) in question. The copy of balance-sheet dated 31.03.2008 is on the file which lies at page no. 46 of the paper book. The balance-sheet speaks that the assessee was having its share capital in sum of Rs.9,580,080.00 and reserve and surplus in sum of Rs.42,167,466.71/-. The investment has been shown in sum of Rs.5,129,890.00. The trading stock has also been shown in sum of ITA. No.2522/Mum/2012 A.Y. 2008-09 Rs.25,670,681.32/-. All these figures speaks that the own funds of the assessee is more than the investment. No interest disallowance is required in the interest of justice. Moreover, we found that the AO considered investment in Gold and Silver Coins while calculating expenditure to earn the exempt income but those investment which yielded the exempt income is liable to be considered while calculating the expenditure to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D(iii). In this regard, we also placed reliance upon the decision of ACIT Vs. Vireet Investments P. Ltd. (2017) 165 ITD 27/82 taxmann.com 415 (Delhi- Trib). Accordingly, we decide this issue in favour of the assessee against the revenue.
ISSUE No. 2 5. Under this issue the assessee has challenged the disallowance of lease line payment to stock exchanges. The AO took the view that the said amount is nature of technical services in view of the provisions u/s 194J and disallowed u/s 40(a)(ia) of the Act. CIT(A) while passing the order has placed reliance upon the decision in the case of Kotak Securities Ltd., ITA. No. 3111 of 2009. Subsequently, the said decision was reversed by the Hon’ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd., Civil Appeal No.3140 of 2016 (Arising out of SLP(C) No.19907 of 2012) in which it is specifically held that the transaction charges are in nature of payment made for facilities provided by stock exchange and no TDS was deductible u/s 194J of the Act. In view of the decision of the Hon’ble Supreme Court in the case of Kotak Securities Ltd (supra), no doubt, the claim of the assessee is liable to be allowable, hence, we ordered
ITA. No.2522/Mum/2012 A.Y. 2008-09 accordingly. Accordingly, this issue is decided in favour of the assessee against the revenue.
ISSUE No. 3
Under this issue the assessee has challenged the calculation of the long term capital gain for the period w.e.f. allocation of shares. However, the contention of the assessee is that the indexation to calculate the capital gain is liable to be reckoned w.e.f allotment of BSE card and not from the date of BSE equity shares issued to the appellants. In support of these contentions, the Ld. Representative of the assessee has placed reliance upon the Third Member decision in the case of M/s. Techno Shares & Stock Ltd. Vs. ACIT in ITA. No.5938/Mum/2012 date 30.08.2019, wherein it was held as under:-
“24. I have heard the rival submissions and considered the material on record. Ostensibly, the facts have been succinctly noted in the earlier paras, and there is no dispute on facts. The controversy before me is whether the cost of shares allotted to members of BSE pursuant to its corporatisation/ demutualisation should be computed as per Section 50 or 55(2)(ab) of the Act in a situation where the assessee had already claimed depreciation on the BSE membership card and whether the indexation benefit will be available to the assessee from the date of acquisition of BSE membership card or from the date of allotment of shares in BSE Ltd. To recapitulate, and as discussed in earlier part of the order, the assessee acquired BSE membership card for Rs. 94.50 Lakhs on which it claimed depreciation. Subsequently, pursuant to its corporatisation/ de- mutualisation, assessee was allotted shares in BSE Ltd and trading rights in BSE Ltd. From the date of allotment of shares in BSE Ltd., assessee stopped claiming any depreciation on the shares allotted to it. Section 55(2)(ab) of the Act was inserted by the Finance Act 2001 with effect from 1-4-2002 to provide that the cost of equity shares
ITA. No.2522/Mum/2012 A.Y. 2008-09 allotted to a shareholder of the recognized stock exchange pursuant to the Scheme of Corporatization and Demutualization shall be the cost of acquisition of his original membership of the exchange. The proviso to Section 55(2)(ab) of the Act inserted by the Finance Act 2003 with effect from 1-4-2004 provides that the cost of trading or clearing right of the recognized stock exchange shall be deemed to be NIL. The relevant extract of Section 55(2)(ab) of the Act is reproduced hereunder:
“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;] (underlined for emphasis by me)
From above, it is amply clear that in terms of Section 55(2)(ab) of the Act, the cost of shares allotted to the assessee pursuant to the demutualisation and corporatisation has to be as per the original cost of acquisition of his original membership card of BSE. The section does not prescribe for any pre-condition to claim the cost of acquisition as the cost of shares allotted to the assessee. Thus, I find that language of Section 55(2)(ab) of the Act is unambiguous and clear.
Now, the grievance of the Assessing Officer is that since the assessee has claimed depreciation on the cost of membership card, the computation of Capital Gains on sale of shares of BSE Ltd. will be governed by Section 50 of the Act, which provides for calculation of Capital Gains on assets forming part of the block of assets and on which depreciation has been allowed under this Act. The relevant extract of Section 50 of the Act reads as under:
“*Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset
ITA. No.2522/Mum/2012 A.Y. 2008-09 is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :” (underlined for emphasis by me)
As is evident from a perusal of Section 50 of the Act, in order to get governed by the provisions of Section 50 of the Act, twin conditions need to be satisfied; namely, the capital asset must be an asset forming part of block of assets; and, depreciation must have been allowed on the said assets under the Act.
I shall now test whether the above twin conditions are fulfilled in the present case or not. Firstly, I shall make it clear that the asset which is being transferred and on which capital gains is being computed is the share of BSE Ltd. Neither the Assessing Officer nor the learned Accountant Member has given a finding that the shares of BSE Ltd. was ever forming part of block of assets of the assessee company. Thus, it is undisputed fact that the asset in question, i.e. share of BSE Ltd. never entered the block of assets of the assessee company. Once that is so, the question of depreciation having been allowed on the said shares, in the context of Section 50 of the Act, does not arise. Nevertheless, even Section 32 of the Act, which provides for claim of depreciation, does not have any category to allow depreciation on the shares. As such, even otherwise, the shares which are transferred by the assessee is not at all a depreciable asset and thus, the question of claiming depreciation on the same does not arise.
In the perception of the Assessing Officer as well as the learned Accountant Member, the above interpretation of the statute will lead to allowance of double deduction to the assessee, which is not permitted under law. In this regard, I find that when the language employed by the legislature is so clear and unambiguous, the same should be adhered to, even when the same results in double deduction in the hands of the assessee. In this regard, it would be pertinent to refer to the remark made by the Hon’ble Supreme Court in the case of Yokogawa India Ltd. (supra), which is reproduced hereunder:- “The cardinal principles of interpretation of taxing statues centers around
ITA. No.2522/Mum/2012 A.Y. 2008-09 the opinion of Rowalatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64 which has virtually become the locus classicus. The above would dispense with the necessity of any further elaboration of the subject notwithstanding the numerous precedents available inasmuch as the evolution of all such principles are within the four corners of the following opinion of Rowlatt, J. “……..in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” (underlined for emphasis by me) The above analysis clearly reveals that while interpreting the taxing statute, nothing is to be assumed, nothing is to be implied. One has to only look at the language used in the statute. The interpretation which prevailed with the learned Accountant Member will require assumption to the fact that the legislature never intended the double deduction. However, on a plain reading of the section, there is no ambiguity, a facet, which even the learned Accountant Member agrees to. The interpretation accepted by the learned Accountant Member will require one to go beyond the language employed in the section, even when there is no ambiguity in the text of Section 55 of the Act. The above aspect also gets support when one is to consider the provisions of Section 50 and 55(2)(ab) of the Act, as the following discussion would show. I further find that provisions of Section 50 of the Act are general in nature and does not provide for any case specific situation. The provisions of Section 55(2)(ab) of the Act were subsequently brought into statute book and specifically provides for cost of acquisition of the shares allotted to the members of the BSE pursuant to the Corporatization and Demutualization. Thus, Section 55(2)(ab) of the Act is a specific provisions dealing with the present situation. It is well-settled law that a specific provision shall prevail over the general provision. Therefore, I find that provisions of Section 55(2)(ab) of the Act, being specific in nature, shall prevail over Section 50 of the Act, which is general in nature. It is also pertinent to note that provisions of Section 50 of the Act are in the statute book from the date of enactment of the Act, whereas provisions of Section 55(2)(ab) of the Act were subsequently brought into the statute
ITA. No.2522/Mum/2012 A.Y. 2008-09 book. When the amendments are made in the statute or new law is brought in, it is to be understood that the legislature was well versed with the prevailing law and sections and the amendments brought in by the legislature are after considering the effect of the prevailing section or law. In other words, while inserting the provisions of Section 55(2)(ab) of the Act, Section 50 of the Act was already in existence and the legislature must have considered the impact of Section 50 of the Act and even after considering the impact of Section 50 of the Act, they deemed it appropriate to bring in provisions of Section 55(2)(ab) of the Act. A doubt may arise that the assessee was allowed depreciation on the membership card by the Hon’ble Supreme Court after a long drawn litigation and as such, the legislature at the time of insertion of Section 55(2)(ab) of the Act might not have envisaged the situation that the depreciation could be claimed by the assessee on cost of membership card. This doubt also gets repelled, once it is appreciated that the courts do not write the law, but only interpret the law in the correct perspective. Thus, the law remains the same and there is no change in the law consequent to a court judgment. So, the argument of the learned DR that first the assessee claimed the depreciation on the cost of membership card after long drawn litigation till Hon'ble Supreme Court and thereafter, claiming cost of the same at the time of sale of shares, has no substance. Thus, it will be wrong to say that the legislature must not have envisaged the present situation while amending Section 55 of the Act. 28. If for a moment, the argument of the learned DR is accepted that provisions of Section 50 of the Act and not Section 55(2)(ab) of the Act are applicable, then the moot question which arises is as to what was the purpose of insertion of Section 55(2)(ab) of the Act. It is a well settled principle of interpretation that all the sections dealing with the same subject should be given effect to in such a way that none of the sections are rendered infructuous. If I interpret the provisions of Section 50 and Section 55(2)(ab) of the Act the way the learned DR has canvassed, it will surely make the provisions of Section 55(2)(ab) of the Act redundant and infructuous, an approach which ought to be avoided, especially when the language of Section 55(2)(ab) of the Act is unambiguous and clear.
ITA. No.2522/Mum/2012 A.Y. 2008-09 29. At this stage, it would also be important to refer the cases, which arose in a situation wherein the cost of purchase of fixed assets by the Charitable Trusts was allowed as application of income in the year of purchase and on the same cost of purchase, the Trusts were allowed depreciation in subsequent year, leading to making of a charge of double deduction by the Assessing Officer. The matter travelled upto the Hon’ble Supreme Court in the case of Rajasthan and Gujarati Charitable Foundation (supra) and the Trust’s claim of both application of income and depreciation was upheld by the Hon’ble Supreme Court, though it had imprints of a double deduction. It also pertinent to refer to the decision of the Hon’ble Bombay High Court in the case of A.L.A. Chemicals (P.) Ltd. (supra) wherein the facts were that the assessee-company claimed deduction under Section 35 of the Act in respect of capital expenditure incurred on scientific research and development in the preceding two assessment years, which was allowed. The Assessing Officer excluded the amount of aforesaid expenditure from the capital computation for the purposes of deduction under Section 80J of the Act. On appeal, the AAC, however, allowed this amount to be included in the capital computation for the purpose of Section 80J of the Act. The Tribunal confirmed this decision. On Revenue’s appeal to Hon’ble High Court, the High Court discussed the applicability of the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra). The relevant part of the said discussion is reproduced hereunder:-
“11. In our view, however, the observations of the Supreme Court in the case of Escorts Ltd. (supra) will not have any application to the benefit granted to an assessee under section 80J. The Supreme Court in the case of Escorts Ltd. (supra ) was concerned with interpreting the provisions of section 32 and section 35. Both these provisions form a part of Chapter IV, which deals with the computation of business income. While arriving at the total income of an assessee, certain deductions are allowed as set out in the said Chapter itself. Section 29 of the Act which forms part of Chapter IV states that: "Income from profits and gains of business or profession, how computed.— The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43C."
ITA. No.2522/Mum/2012 A.Y. 2008-09 These sections include, inter alia, deduction of depreciation under section 32 and deduction regarding expenditure on scientific research in the manner set out in section 34. Therefore, the deductions which the Supreme Court was concerned with, were the deductions which were within the scheme of Chapter IV, to be taken into account while computing the income under section 28 of the Act. Section 80J. on the other hand, forms part of Chapter VIA which provides for certain additional deductions which are to be made from the gross total income of the assessee as computed under Chapter IV. Thus, for example, section 80A provides : "In computing total income of an assessee, there shall be allowed from his gross total income, the deductions specified in sections 80C to 80U."
These are additional deductions. They are quite different in kind from deductions which fall under Chapter IV. Under section 80J what is provided is an additional deduction which is calculated as a percentage of the capital employed by the assessee in certain undertakings as set out in section 80J. Section 80J(1A)(II) prescribes the manner of ascertaining the value of such capital assets. The assets which are to be taken into account for computation of capital are also specified in that section. These include under sub-clause (i) of section 80J(1A)(II) assets entitled to depreciation. In that case their written down value has to be taken into account. It also includes assets which are acquired by purchase and which are not entitled to depreciation, such as, assets in the present case. In the case of such assets, we have to take into account the actual cost of such assets to the assessee. Since the assets are acquired by the assessee by purchase, the actual cost would certainly include at least the price of those assets to the assessee, though it may also include something more as we have pointed out earlier. This section also includes in addition assets which may be acquired by an assessee otherwise than by purchase which are not entitled to depreciation. These may be assets which may be gifted to the assessee. Their actual cost to the assessee is nil. Yet, their value is also required to be taken into account under clause (iii) of section 80J(1A)(II). In their case, the value of the assets when they become assets of the business, has to be taken into account. Therefore, the question whether the assessee has expended any amount for ITA. No.2522/Mum/2012 A.Y. 2008-09 the acquisition of those assets or whether he has been reimbursed in respect of such expenditure indirectly by reason of any tax benefit which he may have got or whether the assets are gifted to the assessee, is not strictly relevant for the purpose of section 80J except to the extent so specified. What we have to ascertain is whether assets are such as are includible in the computation of capital. If so, their value is to be ascertained as set out in section 80J(1A)(II). 12. In such a situation there is no question of any double deduction of the nature contemplated by the Supreme Court in Escorts Ltd.'s case (supra). In fact, the Supreme Court has made this clear (page 874) when it says that the two deductions, i.e., deductions under sections 32 and 35 are, 'basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profits'. A deduction under section 80J is not of the same nature as a deduction under section 35. Therefore, in our view, the ratio of the Supreme Court judgment in Escorts Ltd. 's case ( supra)will not apply to the computation of capital under section 80J for the purpose of determining the quantum of deduction under section 80J.” (underlined for emphasis by me) The above analysis of the Hon'ble High Court clearly answers the question that even if for the time being it is assumed that there is a double deduction, the nature of deduction claimed, i.e. as cost of shares under the head ‘Capital Gains’ and nature of deduction claimed earlier, i.e. depreciation on cost of membership card under the head ‘Income from Business and Profession’ is quite different and cannot be said to be of the same nature and thus, the ratio of the Hon’ble Supreme Court in the case of Escorts Ltd. (supra) cannot be said to be militating against the position canvassed by the assessee.
I may also refer to the reasoning taken by the Hon’ble Madras High Court in the case of Kali Aerated Water Works vs. CIT, 242 ITR 79 (Mad), in the context of Section 50 of the Act, which was to the effect that Section 50 will apply only to cases where the depreciation had been obtained by “the assessee”. The assessee before the Hon'ble Madras High Court was the new partnership firm formed after dissolution of the old firm. The case of the Revenue was that the WDV as on the date of dissolution of the firm was to be adopted for the purposes of calculation of Capital Gain, which was resisted by ITA. No.2522/Mum/2012 A.Y. 2008-09 the assessee therein. The claim of the Revenue, based on Section 50 of the Act, was negatived by the Hon'ble High Court on the ground that the assesseefirm had not obtained depreciation after the asset became property of the newly constituted firm, which was the assessee therein. Applying the same analogy, it is quite pertinent to find herein that the asset, which is the subjectmatter of consideration, has not suffered depreciation and therefore Section 50 of the Act cannot be applied. The claim of depreciation on the old asset is of no relevance to address the present controversy. In fact, at this stage, I may refer to the observation of the learned Accountant Member at para 7.6 of his order. As per the learned Accountant Member, adoption of Section 55(2)(ab) of the Act in the present case “would lead to allowing claim of double deduction on the same asset”. In my considered opinion, the misconception about the “same asset” leads to an anomalous interpretation. As my discussion in the earlier part of this order show, the subject matter of consideration, i.e. share of BSE Ltd., has not been subject to allowance of any depreciation. Thus, in my view, the view canvassed by the learned Judicial Member is apt under the facts and circumstances of the case.
As regards the reliance of the learned DR on the decision of the Hon’ble Supreme Court in the case of J. K. Synthetic Ltd. (supra), I find that the decision rendered relied on by the learned Representative for the assessee in the case of Rajasthan and Gujarati Charitable Foundation (supra) was rendered subsequent to the decision of the Hon’ble Supreme Court in the case of J. K. Synthetic Ltd. upholding the double deduction to the charitable trusts. Further, we find that the Hon’ble Supreme Court in the case of J. K. Synthetic Ltd. has not laid down a law that double deduction is not permissible. It only stated that the same should be expressly provided for under the Act. In the present case, admittedly Section 32 of the Act provides for allowance of depreciation of cost of membership card. Further, Section 55(2)(ab) of the Act provides that cost of shares of BSE Ltd. shall be the cost of acquisition of membership card. Section 55(2)(ab) of the Act does not prescribe any reservation or exception for cases wherein assessee has already claimed depreciation on the cost of membership card. This implies that the legislature in its wisdom has considered the scenario of double deduction while bringing in such ITA. No.2522/Mum/2012 A.Y. 2008-09 amendment. In such cases, it cannot be inferred that the benefit granted to the assessee was unintentional and shall not be allowed to the assessee. When the language of the section is so clear and no conditions are attached with the allowance available to the assessee, while interpreting the section this bench cannot suo-moto put certain conditions to take away the benefit granted by the statute even when the same may lead to double deduction. Such an act on our part will be without jurisdiction, and without authority of law.
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 anddecided should not be allowed to be reopened. Where a judgment is given without the losing party having been represented there is no 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 ITA. No.2522/Mum/2012 A.Y. 2008-09 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 55(2)(ab) of the Act is not correct application of Section 55(2)(ab) of the Act and, as such, the same is not a good precedent.
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.
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.
As regards the period of holding of shares of BSE Ltd., I 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, I 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.
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.
ITA. No.2522/Mum/2012 A.Y. 2008-09 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.
The Registry of the Tribunal is directed to list this appeal before the Division Bench for passing an order in accordance with the majority view.” The Hon’ble Third Member in case of M/s. Techno Shares & Stock Ltd.(supra) has held 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. Now it is clear that for computing the capital gain, indexation is liable to be considered from the date of original membership of BSE and not from the date of allotment of shares in BSE Ltd. By honoring the decision of Hon’ble ITAT Mumbai Tribunal (supra), we set aside the finding of the CIT(A) on this issue and allow the claim of the assessee and direct the AO to reckon the capital gain accordingly.
ISSUE No. 4
Under this issue the assessee has challenged the disallowance of sub- brokerage paid to various parties of Rs.1,40,611/- being the difference between amount accounted for by appellant in its books of account and the amount accounted for by the recipients in connection with sub-brokerage. The Ld. Representative of the assessee has argued that in connection with the addition of Rs.1,34,306/-, the ledger speaks about the opening balance of Rs.1,34,305.74 shown at page 59 of the paper book, therefore, the said disallowance is unwarranted. It is also argued that the disallowance in sum
ITA. No.2522/Mum/2012 A.Y. 2008-09 of Rs.6305/- was on account of double deduction tax at source while making the payment to the sub-broker, therefore, the said amount is also liable to be allowed in the interest of justice. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. No doubt, for the confirming of the said amount, the AO issued the notices u/s 133(6) of the Act. In response to the notice, the recipients submitted that they had accounted more than the disallowance i.e 1,34,306/- on account of sub-brokerage paid to Kiran N. Shukla. In respect of sub-brokerage of Rs.6305/- on account of Krupa Investment Co, the receipient Krupa Investment Company confirmed the sub-brokerage in sum of Rs.11,16,520/- whereas the assessee claimed of Rs.11,10,215/-. The recipient Kiran N. Shukla confirmed sub-brokerage in sum of Rs.11,81,781/-, whereas assessee claimed sub-brokerage in sum of Rs.10,47,475/- thereby resulting in difference of Rs.1,34,306/- which represents opening balance in ledger account. No doubt, the confirmation is higher than disallowance. There is no need to disallowance the difference because the recipient has confirmed the higher sub-brokerage. The disallowance nowhere seems justifiable, therefore, we are of the view that the finding of the CIT(A) is not justifiable, hence, we set aside the finding of the CIT(A) on this issue and allow the claim of the assessee. Accordingly, this issue is decided in favour of the assessee against the revenue.
ISSUE No. 5 8. Under this issue the assessee has challenged the reduction of rebate u/s 88E to Rs.23,33,544/- as against of Rs.31,39,647/- claimed by the ITA. No.2522/Mum/2012 A.Y. 2008-09 appellant. The contention of the assessee is that the bad debt expenses in sum of Rs.876,079/- and Telephone Expense of Rs.669,353/- nowhere rise in account trading share. The said disallowance is unjustifiable. However, on the other hand, the Ld. Representative of the Department has strongly passed by the CIT(A) in question. The working of the AO is as under:- “2. The learned Assessing Officer calculated rebate as under: Share Trading Income (A)-1,74,18,853/- Proportion of Share Trading income to total income-76% Total Expenses-Rs.101,25,989/- Proportionate Expesnes 76% (B)-Rs.76,95,752/- Eligible Income (A-B)-Rs.97,23,101 Rebate u/s 88E (Average 24%)-Rs.23,33,544/- However, the working of the AO has been confirmed by CIT(A), the said working nowhere demonstrate about the bad debts expenses, therefore, in the said circumstances, we set aside the finding of the CIT(A) in question and restore the issue before the AO to recalculate the claim of the assessee by considering the bad debts expenses of Rs.876,079/- and Telephone Expense of Rs.669,353/- in accordance with law. Needless to say that an opportunity of being heard is liable to be given to the assessee. Accordingly, this issue is restored to the file of AO.
ISSUE No. 6 9. Under this issue the assessee has challenged the disallowance of amount paid as transaction charges of Rs.3,12,178/- to Stock Exchange on the ground of that the assessee has failed to deduct the tax at source u/s ITA. No.2522/Mum/2012 A.Y. 2008-09 194J of the I. T. Act, 1961 and by invoking the provision of Section 40(a)(ia) of the Act. The CIT(A) disallowed the claim of the assessee on the basis of the decision in the case of CIT Vs. Kotak Securities Ltd. (Civil Appeal No.3140 of 2016 Bombay High Court. Subsequently, the matter went into the Hon’ble Supreme Court of India wherein the Hon’ble Supreme Court of India has reversed the judgment and held that the such charges are nothing but payment made for facilities provided by Stock Exchange, therefore, no contention of such payment would, therefore, be deductible u/s 194J of the Act by relied upon the Hon’ble Supreme Court in the case of CIT vs. Kotak Securities Ltd. (Civil Appeal No.3140 of 2016) (Arising out of SLP(C) No.19907 of 2012. We set aside the finding of the CIT(A) on this issue and allowed the claim of the assessee accordingly. 9. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 08/10/2021 (M. BALAGANESH) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 08/10/2021 Vijay Pal Singh, (Sr. PS)
ITA. No.2522/Mum/2012 A.Y. 2008-09
आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- आयकर आयुक्त / CIT 4. 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //// उि/सहधिक िंजीकधर /(Dy./Asstt.