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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
ORDER
Per Shri A.T.Varkey, JM
This appeal of the revenue arises out of order of the Learned Commissioner of Income Tax (Appeals) - 2, Kolkata for AY 2008-09 dated 27.02.2015.
The sole issue in this revenue’s appeal is against the action of Ld. CIT(A) in treating the assessee’s income of Rs.1,87,17,838/- as long term capital gain as claimed by the assessee.
Briefly stated the facts as noted by the AO is that the assessee is engaged in share trading and share broking. According to AO, the assessee had claimed Long Term Capital Gain (LTCG) of Rs.1,87,17,838/- as exempt u/s. 10(38) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). The AO completed the assessment u/s. 143(3) of the Act and allowed the claim of the assessee. Subsequently, the AO found that the LTCG was earned by assessee from sale of unquoted shares of Bombay Stock Exchange (BSE) and STT too was not deducted on it so, according to AO, the assessee was not eligible for claiming exemption. Hence, the case was reopened u/s. 147 of the Act and notice u/s. 148
2 R.M. Share Trading Pvt. Ltd, AY 2008-09 and later 143(2) and 142(1) were issued and served upon the assessee. Before the AO, the assessee’s contention was that the assessee transferred its 4562 shares out of the 10,000 shares at a total consideration of Rs.2,37,22,400/- which was in accordance with sec. 47(xiiia) of the Act inserted by the Finance Act, 2003, w.e.f. 01.04.2004 with the introduction of Securities Transaction Tax. The heading of the relevant section reads “Transaction not regarded as transfer” wherein it is stated that “Nothing contained in section 45 shall apply to the following transfers.” Therefore, according to assessee, the claim of exemption from LTCG was correct, bonafide and in accordance to law. And even if the claim was not made under the correct provision of law the assessee cannot be denied the claim of exemption on such gains. However, according to AO, sec. 45 relates to the definition of Capital Assets and sec. 47(xiiia) deals with "The transactions not regarded as transfer". According to AO, since the assessee itself claimed that there was no transfer of capital assets, so question of Capital Gains does not arise. As the shares were received by the assessee from BSE, and were sold off, the difference of the selling price and cost price amounting to Rs 1,87,17,838/- need to be taken as business income and not capital Gain. Accordingly, the assessee was issued a show cause notice as to why the transaction may not be taxed as business receipt. According to AO, assessee failed to provide any new explanation, and hence, the AO taxed it as business income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who allowed the assessee’s claim by relying on ITAT Mumbai Bench decision in ITA No. 3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. Vs. ITO dated 29.01.2014 . Aggrieved, revenue is in appeal before us.
The Ld. DR assailing the decision of the Ld. CIT(A), wants us to reverse the order of the Ld. CIT(A) and uphold the order of AO and relied upon the order of AO. Per contra, the Ld. AR supported the action of the Ld. CIT(A) and does not want us to interfere with the order of the Ld. CIT(A).
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee company, R. M. Shares Trading Pvt. Ltd., is engaged in 3 R.M. Share Trading Pvt. Ltd, AY 2008-09 business of share trading and share broking, and have acquired the membership card (Clg. No. 594) of Bombay Stock Exchange (BSE) from Mr. Ratan Lal Damani, the Director of the above said company, under the scheme of Corporatization which is approved by SEBI . We note that the history of the case is relevant to understand the issue at hand which is that on 27.05.1987, Ratan Lal Damani became the Member of Bombay Stock Exchange (BSE) at a cost of Rs. 1 cr. And later on 08.10.1998, the individual Membership of Ratan Lal Damani was transferred into Corporate Membership to R M Shares Trading Pvt. Ltd. BSE decided to separate Membership Rights and Trading Rights of its Members and accordingly, the Membership Rights has been demutualised as per the scheme of Demutualization and hence on 07.10.2006, BSE agave their members a Membership right to purchase 10,000 shares of BSE @ Rs. 1 per share. Thus M/s. R. M. Trading Private Ltd. has been allotted 10,000 equity shares @ Rs.1 each of BSE at a total cost of rs.10,000/- only at a rate of Rs. 1/- per share. Thereafter on 17.05.2007, BSE gave an Open offer to all its members to Buy Back its equity shares held by each Members @ Rs.5200/- per share. In response to the above offer, made by the BSE, R. M. Shares Trading Pvt. Ltd. has applied for 50% of its shares i.e. 5000 shares under the Buy Back Scheme of BSE and thus offered 5000 shares for sale to BSE. However the BSE could only accept 4562 shares out of 5000 shares applied for Buy Back. According to the terms of Buy Back, R M Shares Trading Pvt. Ltd. received Rs 2,37,22,400/-(Rs.5200 * 4562 shares). The assessee computed the LTCG as under;-
We note that issue before us is no longer res-integra. The co-ordinate bench of ITAT
4 R.M. Share Trading Pvt. Ltd, AY 2008-09 Mumbai decision in ITA No. 3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. Vs. ITO dated 29.01.2014, has adjudicated an identical issue, wherein it was held that section 2(42A)(ha) is relevant for deciding the point in issue which is reproduced as under:
“2. Definitions In this Act, unless the context otherwise requires,- (42A) 9 ["short-term capital asset" means a capital asset held by an assessee for not more than 10[thirty-six] months immediately preceding the date of its transfer10a :] 11[Provided that in the case of a share held in a company 12[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10] 13[or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.] 14[Explanation 1].—(i) In determining the period for which any capital asset is held by the assessee— (ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualization or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;]”
The long term capital asset has been defined under section 2(29A) of the Act as a capital asset which is not a short term capital asset. So in determining the period for which any capital asset is held by the assessee the provisions of section 42A will be applicable and after determining the period of holding of an asset as per the explanation 1 to section 42A, if the asset is found to be held by an assessee for not more than 36 months immediately preceding the date of its transfer, the same will fall in the definition of short term capital asset and if the period is more than 36 months then the asset will fall in the definition of long term capital asset. As per the section 2(42A)(ha) supra, for determining the holding period of capital asset being equity shares allotted in pursuance to demutualisation of a recognised stock exchange in hand, the period for which the assessee was a member of the recognised stock exchange prior to such demutualisation shall also be included. Hence, the holding period of the asset is to be calculated from the acquisition of date of ‘BSE card’ and not from the date of conversion of ‘BSE card’ into equity shares. As per the section 55(2)(ab) of the Act, the cost of acquisition in relation to equity shares allotted to a shareholder under a scheme of demutualisation shall be the cost of acquisition of his
“55.(2). [For the purposes of sections 48 and 49, "cost of acquisition"96 ,— [(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 6 [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:]”
So from the above stated express provisions, it is clear that the cost of acquisition of ‘BSE card’ shall be the cost of acquisition of BSE shares and the shares are deemed to be acquired on the date of acquisition of ‘BSE card’ and not from the date of their conversion. Hence, the date of holding/acquisition of an asset being equity shares allotted pursuant to demutualisation or corporatisation of a recognised stock exchange will be the date of acquisition of original ‘BSE card’ and we note that Ld CIT(A) have given relief to assessee by following the decision in M/s. Parag Parikh Financial Advisory Services Ltd. No other decision was cited before us by Revenue, to persuade us to to take a different view. Therefore, respectfully following the decision of Mumbai Tribunal in M/s. Parag Parikh Financial Advisory Services Ltd.[supra], the lis is decided in favour of the assessee and so, we confirm the order of Ld CIT(A).
In the result, appeal of revenue is dismissed.
Order is pronounced in the open court on 01/05/2019