M/S WAY 2 WEALTH BROKERS (P) LTD.,,BANGALORE vs. DCIT, BANGALORE

The grounds of appeal raised by the assessee which are common

The CIT (A) in para 4 has reproduced the statement of fact and objection raised by the assessee which is as under :

The conclusion reached by the CIT (A) is as under :

We have gone through the record and heard the rival contentions. Considering the written submissions filled before us and the reasons given by the AO for reopening, that the assessee has claimed the depreciation on stock exchange membership cards considering them as intangible assets. However, the said investment qua membership of NSE and BGSE shown in Schedule VI of P&L account where it has not been shown as fixed asset. However the assessee for the first time has claimed the depreciation on the said cards. Hitherto the assessee has not claimed depreciation though the certificate of registration was granted to the assessee with respect to BGSE on 01.10.2001 and with respect to NSE, the same was granted on 09.09.2009 as per duplicate certificate. Further, we have looked into the order of assessment for the respective assessment years, where we find that there was no description on the allowance or disallowance of the depreciation on these investments. For ready reference, we are reproducing herein below the order passed u/s.143(3) on 30.12.2008, which is as under :

From a perusal of the above, it is clear that the issue of depreciation has neither been considered by the AO nor any question was raised nor any adjudication has taken place in this regard. Therefore there was no occasion for the AO to form an opinion. In our view, the situation before us clearly falls within the four corners of Section 147 r.w.s.148, as the assessee has failed to disclose all the material facts necessary for assessment and therefore the case of the assessee falls within the proviso to Section 147 of the Act. In view thereof, there is no illegality or irregularity in the order passed by the AO for reopening the case. Accordingly ground nos.4 to 6 are dismissed.

Coming to merits of the case, the assessee before us has submitted that the assessee has investment in the form of BGSE / NSE cards which are in the nature of intangible assets and by virtue of these memberships, the assessee gets a right to trade in NSE and BGSE. As per section 32 of the IT Act, the depreciation is allowable on block assets and the ‘block of assets’ is defined in section 2(11) of the Act, with effect from 01.04.1999 which includes intangible assets, licences, franchises or any other business or commercial rights of similar nature. It was submitted by the AR that the depreciation is allowable in view of the definition of ‘Block Assets’ from AY 1999- 00 onwards and therefore the assessee has rightly claimed the

On the other hand, the Ld. DR has submitted that the judgment of the Hon’ble Supreme Court was on the facts of that case and the Hon’ble Supreme Court has interpreted the rules and regulations as prevailing on the date of claim of depreciation. Our attention was drawn to the following paragraph :

The Ld. DR further submitted that any person after depositing the amount can become the member of BGSE / NSE and therefore BGSE / NSE memberships stand on a different premises and therefore the judgment of the Hon’ble Supreme Court is not applicable. It was further submitted that the membership, if any, gets a premium on reselling the same. The membership card instead of depreciating will appreciate in value with the passage of time and it carries the goodwill, clients etc., Therefore, instead of depreciation, the card value will appreciate.

We have heard the rival submissions and perused the record, as also the written submissions filed before us. It is beyond cavil that the block assets included intangible assets, licences, franchises or any other business or commercial rights of similar nature. At this juncture, we would like to reproduce paras 11 and 24 of the judgment

At the outset we wish to clarify that our present judgment is confined to the Rules and Bye-laws of BGSE, as they stood during the relevant assessment years. 24. Before concluding, we wish to clarify that our present judgment is strictly confined to the right of membership conferred upon the member under the BGSE membership card during the relevant assessment years. We hold that the said right of membership is a “business or commercial right” which gives a non-defaulting continuing member a right to access the Exchange and to participate therein and in that sense it is a licence or akin to licence in terms of section 32(1)(ii) of the 1961 Act. That, such a right vests in the Exchange only on default/demise in terms of the Rules and Bye-laws of BGSE, as they stood at the relevant time. Our judgment should not be understood to mean that every business or commercial right would constitute a “licence” or a “franchise” in terms of section 32(1)(ii ) of the 1961 Act.

From a perusal of the above, it is clear that the Hon’ble Supreme Court has clarified that the judgment rendered by the court was confined to the rules and bye-laws of the BGSE as they stood during the relevant assessment years. Keeping the above said observation of the Hon’ble Supreme Court, the bench has directed the assessee to produce the rules and bye-laws of NSE as well as of the BGSE, pertaining to the category of membership of the assessee, as applicable to the assessment year 2006-07 and 2007-08. As directed by the Tribunal, the assessee filed some extracts of the NSE / BGSE rules. On a perusal of the NSE literature filed on record, we notice that there are the following four categories of memberships :

Under the Alpha membership, the following description is given:

The eligible criteria for the partnership firm, LLP and corporate company institution is given, and then the other eligibility criteria are mentioned as under :

From a perusal of the above, it is clear that any person who is fulfilling the criteria as laid down in the norms stated herein above and is having the credit worthiness fulfilling the basic cash deposit, can become the member of the exchange. There are no rules pointed out to us by the AR that the membership is a personal privilege or it is not inalienable or there is a right of nomination or any other provisions which make the rules and bye-laws of NSE as applicable to the business.

For the purpose of BGSE, the assessee has provided the rules of BGSE but has not provided any rules pertaining to BGSE in the paper book. The assessee has filed the rules pertaining to trading membership but no rules have been filed by the assessee with respect to BGSE. Even the rules which were filed with respect to NSE were incomplete as the page nos.14, 15, 18 to 20, 22, 24 to 42 are missing. Therefore in the absence of these rules, it is difficult to conclude whether the rules of the NSE were similar to that of BGSE or not .

Copy of the registration certificate produced before us is as under,

Similarly, the assessee has placed at page 26, the certificate of registration in respect of BGSE, dt.01.10.2001, but the assessee has not only failed to provide the details of the consideration paid for acquiring this registration from BGSE but also the assessee has not provided the rules and regulations that are applicable at the time of issuance of certificate as well as at the time of claiming depreciation ie., AYs. 2006-07 and 2007-08. Further we may notice that in the aBGSEnce of relevant rules and regulations for the relevant years under consideration and the rules and regulations at the time of acquisition of membership, it is not possible to conclude whether the privilege which the assessee was having are similar to that of the privilege as available to BGSE membership during that period. In our view in the absence of this information, it is not possible for the bench to conclude anything for or against the assessee.

Further the assessee in Schedule VI claimed the same investment, whereas now the assessee is claiming depreciation by treating the investment as fixed assets. It is to be analysed by the AO if the assessee was claiming it to be a fixed asset, then what was the value of acquisition at the time of acquiring the membership and how the WDV of the assets have been worked out after its acquisition and

The bench is taking judicial notice of the fact that BGSE, has surrendered its registration certificate and is now registered as a company dealing in properties under the companies Act . Further, recently the Mumbai Tribunal in the case of Pavak Securities P. Ltd v. ITO [(2011) 38 taxmann.com 387], and Sino Securities P. Ltd v. ITO [ 38 taxmann 387] has examined rights of a member and the rights of the trading member of BGSE stock exchange and thereafter has come to the conclusion that the person who has a right to trade in BGSE Ltd, is not akin to licence and therefore not entitled to any depreciation. However, all these aspects as mentioned hereinabove are required to be examined by the AO after affording the opportunity of hearing to the assessee.

In the light of the above said adjudication, we remand the matter to the file of the AO to adjudicate after consider the following :

In the result, both the appeals of the assessee are allowed for statistical purpose. Order pronounced in the open court on 6th day of October, 2017. Sd/- Sd/- (INTURI RAMA RAO) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Bengaluru Dated : 06.10.2017 MCN* Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By Order