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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI G.S. PANNU
The following point of difference has been referred to me by the Hon’ble President under Section 255(4) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’):
“(a) Whether cost of shares allotted to members of Bombay Stock Exchange (BSE) pursuant to its corporatisation/de-mutualisation would be calculated as per section 50 or section 55(2)(ab) if depreciation was claimed on BSE membership?
(b) Whether indexation benefit on sale of such share would be available from the date of corporatisation/de-mutualisation of BSE or from the date of acquisition of original membership of BSE ?”
Briefly put, the relevant facts are that the assessee is a Company incorporated under the Companies Act, 1956. The assessee became a member
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of the Bombay Stock Exchange (“BSE”) and acquired the right to trade in the shares of BSE by paying the total consideration of Rs. 94.50 Lakhs. At that point of time, BSE was a mutual association and accordingly, by paying the aforesaid consideration, the assessee became the member of the association and was entitled to carry on the trading activity. The assessee treated the rights acquired by it on payment of Rs. 94.50 Lakhs as ‘intangible right’ and claimed depreciation on the same, which was disallowed by the Revenue. The issue of claim of depreciation was ultimately settled by the Hon'ble Supreme Court in the assessee's case reported in 327 ITR 323, wherein the Hon’ble Supreme Court held that the membership card acquired by the assessee was an intangible asset as per Section 32(1)(ii) of the Act. Accordingly, the assessee was claiming depreciation on such assets and the Written Down Value (“WDV”) of the membership card as on 31st March 2005 was Rs. 12,61,422/-.
In the meantime, it was proposed by the Government to demutualize and corporatize the stock exchange. The sequence of event was as under:-
On 20th May 2005, the BSE (Corporatization and Demutualization) a. Scheme, 2005 was announced by the Security Exchange Board of India (“SEBI”). On 8th August 2005, Bombay Stock Exchange Limited (“BSE Ltd.”) was b. incorporated as a Company. On 12th August 2005, Certificate of Commencement of business was c. provided to the BSE Ltd.
Pursuant to the Scheme of Corporatization and Demutualization, the assessee as well as all other members were allotted two different rights, i.e. (a)
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10,000 shares of the incorporated entity, i.e. BSE Ltd.; and, (b) right to carry on trading in the stock exchange.
The following amendments were made in the Act to provide for treatment of cost of shares and period of holding of shares allotted to the members of BSE pursuant to Scheme of Corporatization and Demutualization:-
a) Clauses (h) and (ha) were inserted in Explanation 1 to Section 2(42A) of the Act by the Finance Act 2003, with effect from 1-4-2004, which provided that to determine whether the asset is long term or short term capital asset, the period for which the person was a member of AOP shall be considered as period of ownership for an assessee.
b) Section 47(xiiia) of the Act was inserted by the Finance Act 2003, with effect from 1-4-2004 to provide that the transfer of capital asset being membership right held in the AOP, in accordance with the Scheme of Corporatization and Demutualization will not come within the ambit of Section 45 of the Act.
c) 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 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.
d) The proviso to Section 55(2)(ab) of the Act inserted by the Finance Act 2003, with effect from 1-4-2004 provided that cost of the trading or
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clearing right of the recognized stock exchange shall be deemed to be Nil.
From the assessment year 2006-07 onwards, the assessee has not claimed any depreciation on the assets acquired by the assessee, i.e. shares and right to carry on trading in the stock exchange as a consequence of demutualization and corporatization of the stock exchange. The assessee contended that as shares in BSE is not a depreciable asset for which the original cost has been provided as the cost to the assessee of the membership rights, and as the cost of trading right is provided at Nil, the question of claiming depreciation on the trading right, being intangible asset, does not arise.
During the financial year relevant to assessment year 2008-09, the assessee has transferred 4,562 shares of BSE Ltd. under the Scheme of Buyback of shares by BSE Ltd. The assessee had received total consideration of Rs.20,37,22,400/- at Rs. 5,200/- per share. In the return of income, the assessee computed the cost of shares by taking the proportionate of 4,562 over 10,000 shares over the original cost of acquiring the membership right of Rs. 94,50,000/-. The assessee indexed the said cost from the date of acquisition of the membership right, i.e. 1998 and determined the total cost at Rs. 67,67,552/- and offered Long Term Capital Gain of Rs.1,69,54,848/-.
The Assessing Officer, vide order dated 08.12.2010, accepted the asset being long term capital asset and the gains being chargeable to tax as Long Term Capital Gains; however, held that cost of the asset, i.e. the shares, is to be determined as per the WDV of the membership right as the assessee had claimed depreciation on such membership right. The Assessing Officer also
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held that although Section 55(2)(ab) of the Act provides that cost of the membership card shall be the cost of shares; however, no provision can allow double deduction and, hence, the WDV of the membership card is taken to be the cost of the shares. The Assessing Officer, accordingly, computed the Long Term Capital Gains on the basis of such WDV.
The CIT(A), vide order dated 13th January 2012, confirmed the 9. assessment order in so far as the issue of computation of Long Term Capital Gains is concerned.
When the matter was heard originally by the Division Bench of the Tribunal, there was a difference of opinion between the learned Judicial Member and the learned Accountant Member and hence, this matter is placed before me as Third Member.
It was contended in the appeal proceedings before the Division Bench that Section 55(2)(ab) of the Act specially provides the cost of acquisition of shares of BSE Ltd. as cost of original membership card and, therefore, the cost of acquisition of shares should be the cost of membership card and not its WDV as per Section 50 of the Act. The learned Judicial Member concurred with the submissions advanced on behalf of the assessee that Section 55(2)(ab) of the Act being more specific section dealing with the above scenario, the same is applicable in the present case and provisions of Section 50 of the Act is not applicable. In allowing the cost of shares as original cost of membership card, the learned Judicial Member observed that though assessee has claimed depreciation on the original membership card, the said fact will not affect the computation of Capital Gains on the sale of shares. Section 55(2)(ab) of the Act
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clearly provides for the meaning of ‘cost of acquisition of assets’; which alone shall be considered will computing the Capital Gains in the present case. On the other hand, the learned Accountant Member passed an order sustaining the disallowance made by the Assessing Officer on the ground that since assessee has claimed depreciation on the cost of membership card, the computation of Capital Gains on sale of shares will fall under Section 50 of the Act which deals with the computation of Capital Gains in case of depreciable assets. It was also noticed by the learned Accountant Member that if the argument of the assessee is accepted, this will lead to double deduction which is not permitted in law unless the same is specifically provided for in the Act. In view of this difference of opinion between the learned Judicial Member and learned Accountant Member, the matter has been referred by the Hon'ble President to me for my opinion.
The question to be answered by me in this order, as framed by the learned Members and reproduced above, is what should be the cost of acquisition of shares of BSE Ltd. sold by the assessee in a situation wherein assessee had claimed depreciation on the cost of membership card. Is the cost of acquisition to be computed as per Section 50 of the Act or Section 55(2)(ab) of the Act. Further, what should be the period of holding of shares of BSE Ltd.; will it be computed from date of acquisition of membership card or from date of allotment of shares in BSE Ltd.
At the outset, I make it clear that so far as the relevant factual matrix is concerned, which has been discussed in the above paras, there is no dispute and, therefore, I refrain from adverting to the same in detail again.
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Before me, the learned Representative for the assessee has argued to support the order proposed by the learned Judicial Member. At the outset, it was argued that the consequence of demutualization and corporatization of the stock exchange is that the earlier existing membership right has been transferred by way of extinguishment of the membership right/ by way of an exchange in consideration for the receipt of two independent assets, i.e. (a) shares of BSE Ltd.; and, (b) trading right in BSE Ltd. The new asset is completely different and independent of the old asset which, but for provision of Section 47(xiia) of the Act, would have been chargeable to tax under Section 45 of the Act. The cost of the new asset acquired by the assessee is to be determined as per Section 55(2)(ab) of the Act.
Section 55(2)(ab) of the Act provides for the cost of acquisition of the assets - Cost of acquisition of shares of BSE Ltd. is specifically provided in Section 55(2)(ab) of the Act to be the cost of the membership card. Therefore, it was submitted that the cost of membership card is to be attributed to the number of shares allotted to the assessee. There is no other provision in the Act for determination of the cost of shares. The learned Counsel for the assessee also submitted that as the provisions of Section 55(2)(ab) of the Act is clear and unambiguous, literal interpretation of the provision has to be accepted and the total cost of acquisition of membership card is required to be allowed to the assessee as the cost of acquisition of the shares. In this regard, reliance was placed on the decisions in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 394 ITR 449 and CIT vs. Yokogawa India Ltd., 391 ITR 274, wherein the Court has held that literal interpretation has to be adopted in interpreting the taxing statute when there is no question of any ambiguity on the interpretation of the provisions. It was argued that on facts,
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there is no ambiguity on interpretation of Section 55(2)(ab) of the Act and hence, the full cost of membership card is to be allowed to the assessee as cost of the shares.
Secondly, it was argued that Section 50 of the Act, which deals with computation of Capital Gains in respect of assets which form part of block of assets on which depreciation has been claimed, is not applicable in the present case as the shares acquired by the assessee pursuant to demutualization and corporatization of stock exchange did not form part of the block of assets. The assessee submitted that share does not come within the ambit of ‘tangible assets’ as defined in Section 32(1)(i) of the Act as ‘tangible assets’ are defined as “building, machinery, plant or furniture”. Admittedly, shares are not one of these. There can be no dispute that shares are not ‘intangible assets’. Therefore, the question of applicability of Section 50 of the Act to the shares of BSE Ltd. does not arise. Section 50 of the Act applies only when the capital asset is an asset forming part of block of assets in respect of which depreciation has been allowed. This has been categorically held by the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. vs. DCIT, 314 ITR 314 (SC) at Para 12 which provides that ‘bottles’, which did not form part of block of assets, was not chargeable to tax under Section 50 of the Act.
Therefore, it was submitted that the finding of the learned Accountant Member that Section 50 of the Act was applicable as the assessee had been allowed deprecation on the membership card is not sustainable in law. The applicability of Section 50 of the Act is to be seen qua the assets which have been transferred for which the Capital Gain has to be computed. There can be no dispute that the share of BSE Ltd. is an asset which is completely different
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from the membership card held by the assessee prior to demutualization and corporatization of the stock exchange. Admittedly, the membership card was transferred by the assessee on account of corporatization of the stock exchange and in consideration, other asset was received by the assessee, i.e. the shares and the trading rights.
The fact that there was a transfer on corporatization of the stock exchange is clear from the provision of Section 47(xiiia) of the Act, which accepts that there is a transfer on account of corporatization. However, the provision of Section 45 of the Act will not apply to such transfer due to operation of law. Therefore, it is clear that the shares in BSE Ltd., which are an asset, is completely different from the membership card in the AOP. Even if Section 50 of the Act was applicable to a membership card, the same cannot apply to the shares of BSE Ltd. The view taken by the learned Accountant Member would, in fact, render the provisions of Section 47(xiiia) as well as Section 55(2)(ab) of the Act otiose. Therefore, it was submitted that the view taken by the learned Accountant Member was clearly unsustainable in law.
The assessee further submits that the view of the learned Accountant Member is itself contradictory and an inconsistent view. The learned Accountant Member, having accepted that asset which is transferred by the assessee is a long term capital asset on which the Long Term Capital Gain is chargeable to tax, could not have concluded that the provision of Section 50 of the Act is applicable as the said provision prescribes for taxation of capital gain as short term capital gain. Therefore, the view of the learned Accountant Member is contrary to the provisions of the Act and hence, not sustainable in law.
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As regards applicability of the decision of the Hon’ble Supreme Court in the case of Escorts Ltd. vs. Union of India, 199 ITR 43 (SC), it was submitted that the Hon’ble Supreme Court in Escorts Ltd. (supra) has held that there is a fundamental unwritten axiom that no legislature could have at all intended a double deduction in regards to the same business outgoing; and if it is intended, it should be clearly expressed. The assessee submitted that on the facts of the present case, it is clear that the double benefit, if any, provided to the assessee, is clearly expressed in the provisions of Section 47(xiiia) and Section 55(2)(ab) of the Act. The assessee submitted that the expression of the legislature is clear from the wording of the section which provides that cost of acquisition of the shares of BSE Ltd. will be the cost of the membership rights and not the WDV of the membership rights. Further, the ‘double taxation’, if any, is on account of non-taxability of the transfer of membership rights, which has been specifically provided by the legislature in Section 47(xiiia) of the Act. Therefore, it was argued that there is a clear provision for non-taxability of transfer of membership card and the cost of acquisition of shares to be the original cost and not the WDV of the membership rights.
In view of the aforesaid, it has been vehemently canvassed that even on an application of the dictum of the decision of Escorts Ltd. (supra), it is clear that cost of acquisition of instant shares would be the original cost and not the WDV. The learned Representative relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation, 402 ITR 441 (SC) wherein the Supreme Court has held that it is permissible for an assessee, being a charitable institute, to claim application of income for acquisition of assets as well as the depreciation of the said assets in
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subsequent years. Further, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Ala Chemicals Pvt. Ltd., 203 ITR 891 (Bom.) wherein the Hon'ble High Court has explained the decision in the case of Escorts Ltd. (supra) and allowed the depreciation to the assessee as well as claim of deduction under Section 80J of the Act on the basis of the original cost of the asset. In view of the aforesaid, it was submitted that the assessee should be allowed the cost of the membership right as the cost of the BSE Ltd shares, as intended by law.
The learned Representative made an alternate plea to the effect that if one was to take the view that the provision of Section 55(2)(ab) of the Act is not applicable and also the view that provision of Section 50 is not applicable, then it would lead to a situation where cost of the asset is not determinable and, hence, the Capital Gains cannot at all be assessed to tax as the machinery provision itself would fail.
On the other hand, the learned DR reiterated that there is no ambiguity on the issue of facts, and that the arguments of both the sides have been summarised and analysed in the respective differing orders of the Hon'ble Members. According to him, the say of the Department was to highlight the underlying principles involved in the matter, which may help the Hon'ble Third Member to take a decision in the facts and circumstances of the case. He has referred to the decision of the co-ordinate Bench on an identical issue in the case of Twin Earth Securities (P) Ltd. vs. ACIT-4(2), Mumbai, 66 Taxmann 258 pertaining to assessment year 2008-09. In this case also, the issue involved was interpretation of provisions of Sections 50 and 55(2)(ab) of the Act. The issue was whether the assessee company was entitled to claim cost of shares as per
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Section 50 of the Act or whether it was entitled to claim cost of shares as per Section 55(2)(ab) of the Act; that is to say, the issue was whether the assessee was entitled to claim original cost or only the WDV. The Hon'ble Bench held that the assessee company was not entitled to claim original cost and that it was entitled to claim only the WDV as the cost. Thus, the Hon'ble Bench upheld the provisions of Section 50 over the provisions of Section 55(2)(ab) of the Act in a case where the capital asset was being claimed as a depreciable asset. Similarly, the Hon'ble Bench held that the indexation benefit on sale of such share would be available from date of corporatisation of BSE and not from the date of acquisition of original membership of BSE. It was pointed out that though the learned Judicial Member has extensively referred to the decision in the case of Twin Earth Securities (P) Ltd. (supra), but without giving any cogent reasons, he has chosen to disagree with the decision of the co-ordinate Bench. It has been asserted that the learned Judicial Member has also not cited any decision in favour of assessee which was delivered by any Tribunal or High Court after the date on which the order in the case of Twin Earth Securities (P) Ltd. (supra) has been passed. The learned DR further pointed out that the instant assessee had waged a long battle on the issue of whether the BSE membership was entitled to depreciation or not, and, which has been finally settled by the Hon'ble Supreme Court, which held that the said asset was indeed entitled for depreciation. Thus, the assessee has been allowed depreciation on the BSE Membership card by the Assessing Officer. Now, all of a sudden, when the event of corporatisation of BSE took place and the assessee was allotted shares in lieu of the said card, whose cost had already been amortised to a large extent by the assessee through the allowance of depreciation, the assessee company wants to claim the original cost again for computing Capital Gains on sale of shares. According to the learned DR, this
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tantamounts to militating against the decision of the Hon'ble Supreme Court, which is not permissible. In fact, the entire case of the learned DR is that the instant is a case of double taxation, which is not permissible.
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/ de- mutualisation 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 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:
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“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 is an asset forming part of a block of assets in respect of
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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
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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 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.
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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 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,
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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.
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.
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.
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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."
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."
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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 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).
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
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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 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 assessee- firm had not obtained depreciation after the asset became property of the newly constituted firm, which was the assessee therein. Applying the same
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analogy, it is quite pertinent to find herein that the asset, which is the subject- matter 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
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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 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 and
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decided 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 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
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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.
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.
Sd/- (G.S. PANNU) VICE PRESIDENT Mumbai, Dated 30th August, 2019
आयकर अपीलीय अधिकरण “H” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI श्री महावीर स ुंह, न्याययक दस्य एवुं श्री एन. के. प्रिान लेखा दस्य के मक्ष। BEFORE SRI MAHAVIR SINGH, JM AND SRI NK PRADHAN, AM
ITA NO. 5938/MUM/2012 : A.Y : 2008-09
M/s. Techno Shares & Stocks Ltd., Vs. Addl. CIT - 4(2), 1 Ground floor, Vikas Building, 11, Mumbai. (Respondent) Bank Street, Fort, Mumbai 400 023. PAN : AAACT4464G (Appellant)
Appellant by : None Respondent by : V. Vinod Kumar, DR
Date of Hearing : 18/10/2019 Date of Pronouncement: 18/10/2019
O R D E R
This matter was placed before the Bench to pass a confirming order by the division Bench. The learned third member has now concurred with a view taken by the judicial Member Vide Para 34, 35, 36 as under: -
“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.
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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.”
Since, majority view now is that the cost of acquisition of shares of BSE Ltd. shall be the original cost of acquisition of Membership called in term of section 55(2)(ab) of the Act and period of holding of shares of BSE Ltd will be period for which the person was a member of the recognised stock exchange in India immediately prior to such de-mutualisation or corporatisation shall also be included in the period of holding of shares i.e. period of shares of BSE Ltd shall be reckoned from the date of original members of the BSE and not
3 Techno Shares&Stocks Ltd. ITA No. 5938/Mum/2012 from the date of allotment of shares in BSE Ltd. This conformity order is accordingly passed. 2. In the result, the appeal of assessee is allowed. Order pronounced in the open court on 18.10.2019. Sd/- Sd/- (एन. के. प्रधान/NK PRADHAN) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) म िंबई, ददनािंक/ Mumbai, Dated: 18. 10.2019. दीप रकार,व.यनजी धिव / Sudip Sarkar, Sr.PS आदेशकीप्रयिसलपपअग्रेपिि/Copy of the Order forwarded to : अपीलार्थी/ The Appellant 1. प्रत्यर्थी/ The Respondent. 2. आयकरआय क्त(अपील) / The CIT(A) 3. आयकरआय क्त/ CIT 4. ववभागीयप्रयतयनधध,आयकरअपीलीयअधधकरण, म िंबई/ DR, ITAT, Mumbai 5. गार्डफाईल / Guard file. 6.
आदेशान ार/BY ORDER, त्यावपतप्रयत //True Copy// उप/ हायकपुंजीकार (Asstt.Registrar) आयकरअपीलीयअधिकरण, म िंबई / ITAT, Mumbai