TMI Blog1999 (11) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench is :--- "What would be the composite value of the Ticket and Membership rights held by the assessees in M/s. Delhi Stock Exchange ?" In the appeals which have specifically come up before the Special Bench, we are concerned with the assessment years 1991-92 and 1992-93. For the assessment year 1991-92, the AO had valued the Ticket (right to trade after entering the Stock Exchange premises) at Rs. 25 lakhs in the case of Shri V.N. Agarwalla and for the assessment year 1992-93, the AO had valued the same at Rs. 40 lakhs in the case of Shri Jagan Nath Sayal. The Commissioner of Income-tax (Appeals) reduced the value of Ticket to Rs. 16 lakhs in Shri V.N. Agarwalla's case for assessment year 1991-92 and to Rs. 24 lakhs in the case of Shri Jagan Nath Sayal for the assessment year 1992-93. Both the Assessing Officer as well as the Commissioner (Appeals) gave exhaustive reasons in their orders and both of them held that Delhi Stock Exchange share and membership rights are independent and distinct tights and those rights are liable to be valued separately. Before the Special Bench, several Interveners sought permission to address arguments in support of the assessees' contention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter called as WT Act). He further contended that the membership of Stock Exchange is inalienable and conversely speaking, what is not freely alienable or transferable generally is a personal right. Therefore, it constitutes a personal right. He also contended that the permission to use the asset without granting exclusive possession constitutes a licensory right and not any right or interest in the property. He relied upon the order delivered by the Bombay Bench of the Tribunal in Asstt. CIT v. Shri Ram Das L. Dalal [WT Appeal Nos. 1682 to 1685 (Bom.) of 1991 dated 28-1-1993], a copy of which is provided at Vol. 2 at pages 23 to 27 of the paper book. Before the Bombay Bench, heavy reliance was placed upon the case of Regal R. Dalal v. Stock Exchange [W.P. No. 2084 of 1989]. Inter alia, the Bombay High Court while deciding the case before them is purported to have held the following:--- "In order to decide whether there is any property in the membership of the Stock Exchange, it is necessary to refer to Rules relating to membership of the Stock Exchange. Under rule 5, the membership shall constitute a personal permission from the exchange to exercise the rights and privileges atta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbership of the stock exchange. Under Rule 5, the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the rules, Bye-laws and Regulations of the Exchange. The membership, therefore, is not a transferable right. It is only a personal permission granted by the Stock Exchange to an individual member. This is brought out further by rule 6, which states that the right of membership is inalienable. The membership rules give to a member a right of nomination which shall be personal and non-transferable. This right under Rule 11 can be exercised by a member of not less than 7 years standing who desires to resign. He may in turn nominate a member as set out in Rule 11. In the case of a deceased member, under Rule 9 on his death, his right of nomination ceases and vests in the Exchange. There is, therefore, no property in membership. 11. Under Rule 11 (b), however, "The legal representatives of a deceased member or his heirs or the person mentioned in Appendix-C to these Rules may with the sanction of the Governing Board nominate any person eligible under these Rules for admission to membership of the exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, attached thereto, subject to the Rules, Bye-laws and Regulations of the Exchange. It is, therefore, clear that it is only a permission given to the share broker to transact through the Exchange. It is not a personal property at all. It is further significant to note that the aforesaid right to hold a permission card has been circumvented and restricted by Rules 6, 7, 9, 53 and 54. After going through all the aforesaid rules and particularly Rule 54, which declares that a member's right of membership shall finally vest in the Exchange immediately after he is declared a defaulter, it is crystal clear that the membership card of a share broker is not at all a personal property of the share broker. It is only a personal privilege conferred by the Stock Exchange on the share broker. According to us, as has been rightly urged on behalf of the Stock Exchange, all the rules, including the impugned Rule 16, operate and stand to benefit the petitioner. In the absence of these rules, in particular rule 16, the petitioner would perhaps not get any benefit. The functioning of the Exchange is made smooth and orderly in accordance with the said rules, so that proper settlements are facilitated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honourable practice. As observed by the Privy Council, in order to obtain its ends, the Organisation has made its membership to be a personal thing, incapable of uncontrolled transfer; expulsion from membership must normally follow default or misconduct, upon expulsion, interests of the defaulting members in the property and the asset must cease. All these necessities, which are characteristic to any member club have been carefully provided mutatis mutandis by the DSE as well. The Members of the Association are not interested in the 'hall' or any other properties or assets of the exchange which continue to remain their collective property, although held on their account but without any right of any member or majority of members to have any right to realisation for individual benefit. Only if and when all the members would agree to cut an end to the Association, they, after its debts have been satisfied, will be entitled to have a division amongst themselves of what remains. It is the remoteness of the individual interest which provides an effective reasons for forfeiture or abandonment of all interests following expulsion, resignation or death. The learned counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls provide facilities to conduct business activities as well. They provide conference halls for business meetings, telecom and computer facilities and so on. One cannot say that they provide for a right to do any business as such. 4. The learned counsel for the assessee continued to submit that the main object of DSE is to promote and regulate business of exchange of stocks in shares etc. and with a view thereto, to establish and conduct stock exchange in Delhi and elsewhere for conduct of such business, it is essential to set up a hall. The word 'hall' is defined in Article 1 (xviii) as follows : --- "'hall' shall mean the place provided by the Association where the Stock Exchange business is done by members of the Exchange during the business session." Thus, hall is only a place. No member of the Exchange has exclusive possession thereof and no member has any right of ownership or any other interest in the hall or in any other property of the Exchange. The learned counsel argued that what is to be valued is only a share in the Stock Exchange and not the rights attached to that share. Similarly, it is argued that membership is not a source in itself, but only a permission t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He adverted to Rule 27, which provides that the Board of Directors may, at any time, after the date of admission cancel the admission and expel a member in the circumstances stated therein. Rule 43 provides for cessation of membership automatically in the following five events: (i) by resignation, (ii) by death, (iii) by expulsion in accordance with the provisions herein contained or under the Bye-laws and Regulations, (iii) by being declared a defaulter in accordance with the Rules, Bye laws and Regulations. (v) If a Corporate Member commits an act of insolvency resulting in a winding up action and the appointment of a Provisional Liquidator, or Official Liquidator or Receiver of the Corporate Member being appointed.'' He adverted to Rule 45 which provides that a member's right of membership shall lapse and vest in the Exchange immediately he is declared a defaulter. On the declaration of default, he shall at once cease to be a member of the Exchange and as such ceases to enjoy any of the rights and privileges of membership but the rights of his creditor-members against him shall remain unimpaired. He drew our attention to Rule 26(b)(i) of DSE which states that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the said Rule, no partnership shall be formed except between two or more members of the Exchange. Proviso to that Rule lays down that a member may take his father/mother, son or sons or brothers or brother's son or sons who are otherwise in all respect eligible for membership as partner or partners without their acquiring individual membership of the Stock Exchange and the qualification share already held by such member would be considered sufficient to qualify the constituent member as member of the Exchange. Shri Bajpai pointed out that three significant points emerge from out of the provisions allowing formation of partnership : (1) Close relations is eligible for membership in all respects, provided that he possesses all the qualifications which are required for becoming a member, (2) the only concession provided is that such a close relation would not be required to acquire individual share or individual membership, and (3) on the death of the person who holds the share, the membership of the Exchange shall cease under Rule 43. Rule 43 does not make any distinction between a person who has formed a partnership or who is doing business in his individual capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment years 1991-92 and 1992-93, DSE was treated as an AOP (Trust) by the Revenue. In order to prove that, the assessee placed a copy of the assessment order dated 8-12-1993 under section 143(3) of the Income-tax Act at pages 40 and 41 of the paper book, Vol. II. Column 5 of the assessment order clearly shows status of DSE as having been shown as AOP (Trust). In that order, the condition stipulated for the claim of exemption under section 11 was specifically held to have been satisfied, and accordingly the claim of exemption under section 11 was accepted and the income of DSE was assessed at Nil The learned counsel submitted that the question for consideration is that when the DSE is exempt under section 11, whether the shares of the members of such Exchange is also exempt. Section 5()(i) of the WT Act provides that wealth-tax shall not be payable by an assessee in respect of certain assets which includes any property under trust or other legal obligation for any public purpose of a charitable or religious nature. It is asserted that the DSE holds the property for public purpose of a charitable nature and as such, the members of the Association will enjoy exemption from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be exempt. He next contended that the status of the DSE as an Association of Persons (Trust) cannot be disputed. In this connection, he had set out the definition of 'persons' given in section 2(31) of the Income-tax Act and our specific attention is drawn to clause (v) of sub-section (31) of section 2 in which it is stated that 'an Association of persons or a body of individuals, whether incorporated or not'. He drew our, attention to Form No. 2 prescribed under Rule 12(1)(i) of the Income-tax Rules, 1962, according to which 16 categories of status are recognized and they are all set out. Among them 'Association of Persons (Trust)' is identified as "08". Thus, Shri Bajpai argued that 'Association of Persons (Trust)' is one of the status statutorily prescribed under Rule 12(1)(i), Rule 12(1A), Rule 12(1)(b)(iii) and Rule 12(1)(c) of the said Rules. Then, be argued that the word 'person' is not defined in the WT Act. However, the charging section 3(1) includes individual, Hindu undivided family and a company. Section 21-A of the WT Act provides an exemption to the general rule of exemption provided in section 5(1)(i). If the conditions prescribed in clauses (i), (ii) and (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey have granted total exemption under section 11 of the Income-tax Act to the DSE. As part of its objects. DSE provides the facility for conduct of share-broking business. The share-broking business facility provided by the DSE should not be confused and mixed up with the conduct of business of share-broking done by the individual members. Provision of this facility by itself did not produce any profit or loss to the members. Having become a member, one may not do any business, or he may suffer loss as well as he may make profit. Individual activities of members are distinct and separate from the provisions of facility and control and management of proper conduct of share-broking business by the Stock Exchange. According to the assessee's counsel, the three essentials for creation of an association very much exist among the member/shareholders of the DSE. Initially certain persons joined hands to form an association for public purpose. They settled an amount and the same persons who constituted the Board of Directors acted as trustees to manage the fund. They discharged their responsibilities of carrying out the object of association of persons. They utilised its income for promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the Kerala High Court in CIT v. K. T Mathew [1998] 233 ITR 770. Therefore, the learned counsel argued that the Directors of DSE can act legally in two capacities; (a) as Directors of the company performing their obligations as directors and (b) as trustees performing their functions for holding the property under trust and legal obligation. It is contended that for getting exemption under section 11 of the Income-tax Act or under section 5(1)(i) of the Wealth-tax Act, it is not necessary that the company should be registered under section 25 of the Companies Act. It is significant, argues the learned counsel for the assessee, that the basic requirements of section 11 of the Income-tax Act and section 25 of the Companies Act are similar. The learned counsel submitted that though the grant of licence to a company under section 25 of the Companies Act, 1956, does prima facie show that the assessee has come into existence for a charitable or any other useful object, the mere issue of such a licence cannot be taken to be conclusive for the purpose of section 2(15) of the Income-tax Act. He referred to the following judgments:---- CIT v. Ootacamund Gymkhana Club [1977] 110 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of this proposition, he cited R.L. Bajgharia v. ITO [1977] 107 ITR 347 (Cal.); ITO v. R.L. Rajgharia [1979] 119 ITR 872 (Cal.). It is argued that the 'Tribunal can deal with only that part of the order of the first appellate authority which has been made subject matter of attack in the appeal before it. However, in this case, not only the question does not form subject-matter of appeal, but the matter relates to a third party which is not before the Tribunal and he had no grievance with regard to its status. It is also argued that it is not open to the Tribunal to disregard or dispute the matter on its own which stands concluded, particularly when the decision is taken by the Department after due consideration of all the relevant facts and circumstances and in accordance with relevant provisions of law. The learned counsel for the assessee further contended that under section 5(1)(i) of the Wealth-tax Act read with Rule 16, Proviso Explanation (b) of the Wealth-tax Rules, the members of the Stock Exchange should not be considered as having had any value. Section 5 of Wealth-tax Act deals with cases of exemption from Wealth-tax. Section 5(1)(i) is as follows: "Subject to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets bears to the net wealth of the firm or association; (b) Where the net wealth of the firm or association computed in accordance with this rule includes the value of any assets which are exempt from inclusion in the net wealth under sub-sections (1) and (1A) of section 5, the value of the interest or a partner or member shall be deemed to include the value of his proportionate share in the said assets and, the provisions of sub-sections (1) and (1A) of section 5 shall apply to him accordingly ; (c) where the net wealth of the firm or association computed in accordance with this rule includes the value of any assets referred to in sub-section (2) of section 5, the value of the interest of a partner or member shall be deemed to include the value of his proportionate share in the said assets, and the provisions of sub-section (2) of section 5 shall apply to him accordingly." The argument advanced on behalf of the assessee is that DSE is a trust formed for charitable purposes and was granted exemption under section 11 and, therefore, assuming without admitting that membership is to be valued and considered part of the wealth of the assessee, still by virtue of proviso (b) u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered to be having value, it should not be added while computing the wealth of the members of the Stock Exchange. It should be considered to be beneficiaries under the trust as per the above exposition of law. In this connection, the learned counsel for the assessee contended that DSE has always been filing its staus in Form No. 2 of the Income-tax Rules as AOP (Trust), 0.8. Lastly, it is contended that Section 16A of the Wealth-tax Act is mandatory and failure to comply with the said provision results in an error of jurisdiction and the said error cannot be considered to be a curable defect which can be corrected with the consent of the party -affected. In support of this contention, reliance is placed upon Karan Singh v. Chaman Paswan AIR 1954 SC 340. It is contended before us that the word "may" appearing in section 16A should be interpreted as "shall" Reliance is also placed upon the CBDT circular and also on the Punjab Haryana High Court decision in Raj Paul Oswal v. CWT [1988] 171 ITR 489/[1987] 35 Taxman 509 for the proposition that WTO was bound to refer the question of valuation to the Valuation Officer when the difference between the returned value and the assessed va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not compulsory sales under the Statutory provisions. It cannot, therefore, be said that the property right in a member's card cannot be attached." Shri Sampath submitted that in the Articles of Association of DSE also right of Nomination was not given to any member and this is an important factor which distinguishes the Gujarat High Court decision from the facts on hand. 9. The propositions and arguments advanced by Shri Bajpai dated 15-3-1999 at pages 1 to 61 of paper book No. 1 filed on behalf of the assessee are made part of the record. The learned Special Standing Counsel Shri Rajendra also filed written arguments on 30-3-1999 in 16 typed pages and it is also made part of the record (part of the departmental paper book). First, he attached the argument of the learned counsel for the assessee Shri Bajpai and his proposition that since the Stock Exchange ticket had no value as it is a personal privilege/permission to be granted and it was inalienable and was a licence and, therefore, this personal privilege had no market value and as such, it is not an "asset" within the meaning of section 2(e) of the Wealth-tax Act. He argued that the Bombay, High Court's decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Stock Exchange. As a result, it was decided by a majority of 15:2 not to admit Mrs. Sejal as a member of the Stock Exchange. By their letter dated 24-5-1989, the Stock Exchange informed Mrs. Sejal about the rejection of her application by the governing board of the Stock Exchange. A Writ Petition was filed challenging the authority of the Governing Board of the Stock Exchange not to grant membership to Mrs. Sejal. Her Lordship had duly considered Rule 4 of the Securities Contracts (Regulation) Act, 1956 to know the main objects of the Stock Exchange and she was pleased to find from the said Rule that the main object of the Stock Exchange was "To support and protect in the public interest the character and status of brokers and dealers and to further the interests both of brokers and dealers and of the public interested in securities, to assist, regulate and control in the public interest dealings in securities, to ensure fair dealing, to maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices and just and equitable principles of trade and business, to discourage and to suppress malpractices, to settle disputes and to decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal Court disposed of the petitioner's appeal after recording the statement on behalf of the Stock Exchange that it shall not apply any amount received by it as consideration on nomination of the membership to any person falling in the same category for the purpose of priorities as the appellant under rule 16 of the Mumbai Stock Exchange Rules till the Award of the Arbitrator was received. According to rule 16, the first priority was towards dues to the Stock Exchange/Clearing House. The petitioner requested the Stock Exchange to amend the rules so as to enable him to Realise the dues to him from the defaulter member out of The sale proceeds of his membership card on par with the Stock Exchange. As he did not succeed in his attempts, he filed a Writ Petition contending that (i) the membership card of a share broker is his private/personal property and if it is sold by the Stock Exchange, the consideration received from the said sale should be applied in accordance with rules 16 and 43, and (ii) the discretion vested by the said Rules on the Stock Exchange to allocate the said sale consideration in the order of priorities stipulated in the said Rules was bad in law and arbitrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrary. Every care is taken in the entire rule 16 that the consideration received from the sale of the membership card of a share broker is allocated on just and fair basis of priorities. Rule 43 provides for lien on security. The security provided by a member/share broker is subjected to a first and paramount lien for any sum due to the Exchange or to the Clearing House. The very purpose of getting security from a member/share broker is to ensure fulfilment of all his engagements, obligations and liabilities arising out of or incidental to any bargains, dealings, transactions and contracts made by the member. If no such hen on the security is provided for, the transaction would very often create insecurity in the minds of the people who enter into contracts with such member of the Stock Exchange. This provision creates confidence in the members of the public. Hence, there is nothing wrong in this provision whereby the first lien on the security of the member is retained by the Stock Exchange. The underlying principle of both these rules is nothing but fairness and justness in the dealings and transactions entered into by the share broker with the member of the public. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. T.P. Act has no application to the card of a member of the Association. Therefore, according to the learned Standing Counsel for the department, none of the three cases on which heavy reliance was placed by the assessee, come to his rescue or support the propositions sought to be canvassed on his behalf. We agree with the contention of the learned Standing Counsel that in all these three cases, there is no question of valuation of a running business, as is the case involved in the facts of the appeals before us. We also agree that the judgments are delivered in different contexts. The question whether a person is entitled to become a member also naturally or whether any conditions are to be fulfilled is quite different from the question whether stock exchange/card/membership is an asset or not. In fact this important distinction is to be borne in mind while holding that the cited decisions are distinguishable and do not deal with the real point in controversy." 11. Next it is sought to be impressed upon us that the rules of DSE are entirely different from BSE and they provided a vested right to a member to carry on business as a stock broker. Once he became a member, he could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Bombay decisions were distinguishable, as held by the Bombay Bench 'E' in V.N. Contol v. WTO [1994] 50 ITD 386. The Bombay Bench "E" of the Tribunal is directly confronted with the question similar to one under consideration in the case of V.N. Cantol. The Tribunal went into the question whether membership card of Stock Exchange held by the assessee in BSE was property under section 2(e) of the W.T. Act and whether its value should be added as assessee's net wealth. Answering the question in affirmative, the learned Bench held the following, as per the Head Note of the decision : "A perusal of the rules of the Bombay Stock Exchange clearly showed that the assessee's argument that the membership of stock exchange was akin to membership of such professional bodies as the Institute of Chartered Accounts and Medical Association, was without basis. By no dint of imagination could it be said that a Chartered Accountant can nominate a person unless he or she possesses certain additional qualification. If the educational qualification is possessed by such incumbent person then it is not necessary for anybody to select or elect such persons by vote or some other methods. He becomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the contrary made by Shri Bajpai was legally untenable. It was next argued that under the rules of DSE, membership of Stock Exchange vests in a member the right to carry on business as a stock broker and there was no question of the Stock Exchange debarring the member from carrying on the business. It is only in tie unlikely event of stock broker becoming defaulter or uncertain event of death that his membership can be terminated. Even then under Rule 21, the person becoming entitled to the share has the right to get himself registered as a share holder or in the alternative, he is entitled to make transfer to outsider. The teamed Standing Counsel relies upon rules 16, 17, 18, 21, 22, 24, 25, 31, 34 which, according to him, clearly envisage transfer of the ticket/membership held by a person in DSE. Those relevant rules on which he seeks to rely upon as stated above are furnished as under: --- Rule 16 : The instrument of transfer of any share in the company shall be executed both by the transferor and the transferee, and the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of the shareholders in respect the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 24 deals with membership of the Stock Exchange. Rule 24 is as follows: "24. All those individuals and firms who are members of the Exchange on the date of adoption of these Articles shall ipso-facto be deemed to have been elected as members of the Exchange under these presents and they shall be bound to comply with all such requirements as may be necessary under these presents, or under the Securities Contracts (Regulation) Act, 1956 and the Rules framed thereunder. Notifications or Orders issued by the Central Government from time to time in that behalf or as may be laid down by the Board under these presents for the continuance of membership, subject to the following conditions: --- Membership of the Stock exchange shall be open only to an individual who shall be a Member of the Company and eligible to become and continue to be a member of the recognised Stock Exchange under the Securities Contracts (Regulation) Rules, 1957. Provided that the above share of the Company may be got registered by such individual in his own name singly or in his name jointly with any one else being his wife, son, father, daughter, or in their absence, any other person whom such individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to be elected as a member if :--- (a) he is less than twenty-one years of age; (b) he has not possessed a minimum educational qualification of matriculation or an equivalent examination: Provided that the Board of directors may waive compliance with the foregoing conditions with the prior concurrence of the Central Government when an individual succeeds to the established business of deceased or retiring member or in any other deserving case; (c) he is not a citizen of India, provided that the Board of Directors may in suitable cases relax this condition with the prior approval of the Central Government; (d) he has been adjudged bankrupt or a receiving order in bankruptcy has been made against him or he has been proved to be insolvent even though he has obtained his final discharge; (e) he has compounded with his creditors unless he has paid sixteen annas in the rupee; (f) he has been convicted of an offence involving fraud or dishonesty; (g) he is engaged as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability unless he undertakes on admission to sever his connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion is in respect of means, position, integrity, knowledge and experience of business in securities, considered by it to be otherwise qualified for membership. (3) No person who is a member at the time of adoption of these Articles or subsequently admitted as a member shall continue as such, if :--- (a) he ceases to be a citizen of India. Provided that nothing herein shall affect those who are not citizens of India but are admitted under the provisions of clause (b) of sub-rule (1) of this rule, subject to their complying with all other requirements of this rule; (b) he is adjudged bankrupt or a receiving order in bankruptcy is made against him or he is proved to be insolvent; (c) he is convicted of an offence involving fraud or dishonesty; (d) deleted; (e) deleted; (f) he engages either as principal or employee in any business other than that of securities except as a broker or agent not involving any personal financial liability, provided that: (i) the Board of Directors may, for reasons to be recorded in writing, permit a member to engage himself as principal or employee in any such business, if the member in question ceases to carry on business on the Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the Rules. Rule 45 states that a member's right of membership shall lapse and vest in the Exchange immediately he is declared as a defaulter. On the declaration of default, he shall at once cease to be a member of the Exchange and as such cease to enjoy any of the rights and privileges of membership, but the rights of his creditor members against him shall remain unimpaired. The DSE has acquired and taken over as going concerns the activities, functions and business of the Delhi Stocks Shares Exchange Ltd. and the Delhi Stock Share Broker's Association Ltd. and has acquired all assets and liabilities, rights and duties of the said two companies and with a view thereto adopted following Agreement, namely, (1) An agreement of Amalgamation made between the Delhi Stock Exchange Association Ltd. on the first part and the company of the second part, and (2) an agreement of Amalgamation made between Delhi Stock Share Brokers Association Ltd. on the first part and the company on the second part, being the agreement referred to in clause 3(1) of the Memorandum of Association and the Directors shall carry the same into effect with full powers nevertheless at any time and fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence to Dr. Kaviraj Khajan Chand's case Equally the decisions in CWT v. Trustees of H.E.H. the Nizam's Wedding Gifts Trust [1995] 216 ITR 232 (AP), CWT v. Prince Muffakkam Jah Bahadur [1990] 186 ITR 421 (AP), CWT v. H.H. Maharani Sharimisthadevi Holkar [1988] 174 ITR 459 (MP) are all distinguishable. It is submitted that the Bombay Bench decision in V.N. Cantol's case is correctly decided and, according to the instructions gathered by the learned Standing Counsel no reference was asked against that decision to the High Court and the decision of the Tribunal has become final. The learned Standing Counsel heavily relied upon the Gujarat High Court decision in Stock Exchange's case wherein it was held that membership of Stock Exchange for more than seven years giving membership right to nominate successor was right which could be sold and had economic value. The learned Standing Counsel also brought to our notice the Hon'ble Supreme Court's decision in Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235, wherein it is categorically held that Delhi Stock Exchange is not a charitable institution and it is entitled to declare dividends to its share-holders and also it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jendra submitted that a perusal of Rules 21, 22, 24, 31 and 34 of DSE shows that share and consequently membership of Stock Exchange is not a personal privilege and is not extinguished with the member fading out. Under Rule 21, in case of death or insolvency of the shareholder, the person entitled to share, has the right to be registered as shareholder and is further entitled to make such transfer. Read with Rule 18, share can be transferred only to a member of Stock Exchange or person eligible for membership who has been duly elected. Thus, an heir of a deceased member has the right to get share transferred in his name, of course he has to satisfy the qualifying conditions as per Rule 25, namely, that he is major and is a matriculate. Even the educational qualifications can be waived when the heir is succeeding to the established business of the deceased. similarly, an outsider to whom share is transferred by the heir of the deceased, he is entitled to become member of the Stock Exchange, subject to satisfying the minimum conditions prescribed under Rule 25 which can also be waived. Thus, it is clear that even in the case of death or insolvency of a share-broker, his share and his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or and such right to sell had economic value, and in the facts of that case, the membership right (of the deceased member in that case) had been sold for Rs. 27 lakhs. The Gujarat High Court at page 917 noted corresponding provisions of Ahmedabad Stock Exchange where shares were at par with those of BSE, in respect of being privilege not orally alienable, having right of nomination etc. and held that the right to nomination, even if hedges and restricts is free marketability, bears economic value and there is element of wealth in that right. The Gujarat High Court referred to value of Ticket in New York and London Stock Exchanges. The Gujarat High Court had distinguished K.R.P Shroff's case. Their Lordships held, commenting upon the facts of the Privy Council's case that it was rendered in the context of a defaulting member. The Gujarat High Court found that the defaulting member lost all interest, both in the property of the Association and in his card and in that context the Privy Council held that there was no interest reserved in the defaulter's card, except to the members of the Association who had suffered by the lapse of the defaulter. However, in the facts before us, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt as a charitable institution. A copy of the assessment order in the case of the said company for the assessment year 1991-92 is enclosed, placed at page 40 of the paper book No. 2. 3. That in Column No. 5 of the assessment order for the assessment year- 1991-92 referred to above, the Assessing Officer has mentioned the status as AOP (Trusts). This is apparently done owing to the impression on the part of the Assessing Officer that since the income of the company is exempt under section 11 of the Income-tax Act, 1961, its status is analogous to that of an AOP (Trust). 4. That the aforesaid company satisfies conditions laid down under section 25 of the Companies Act, 1956, though it has not so far got itself registered under that section." Under the Wealth-tax Act, neither AOP nor Public Limited Company is assessable. No wealth-tax assessment of DSE was ever made, nor any return under Wealth-tax Act was filed by DSE. DSE, by no stretch of imagination, is an AOP. DSE was formed to regulate business of Stock Exchange and not to carry on business individually or collectively with its members. The Hon'ble Supreme Court in Indira Balakrishna's case held that an Association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mistaken view of statutory provisions in Income-tax assessment, it is not estopped from taking corrective view in wealth-tax assessment. In the Head Note of the decision, the following ratio is laid down: "Decisions arrived at in one assessment year are binding neither on the assessee nor on the Revenue in respect of subsequent assessment years. The principle of estoppel has no applicability to successive assessments. The Revenue authorities are not bound by any contention or admission or decision taken up in one assessment when the same issue comes up for decision in a different assessment. There is not estoppel against a statute. Where the Revenue authorities take a particular view of the statutory provisions in the Income-tax assessment and later on realise that it was a mistaken view, they cannot be estopped from taking a correct view of the statutory provisions later on." According to us, this is a correct view of law. Countering the argument that since the question of valuation was not referred by the WTO to the Valuation Officer under section 16A read with Rule 3B of the Wealth-tax Rules, it vitiates the whole assessment and the whole assessment is liable to be stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion and an assessment order passed by ignoring the said provision cannot be regarded as null and void." This has been the view consistently held by the Courts including the Hon'ble Supreme Court in Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC). In the instant case, the Assessing Officer under the Wealth-tax Act all along had the Jurisdiction. Even after referring to the Valuation Officer under section 16A of Wealth-tax Act, he alone will pass the assessment order after receiving the Valuation Officer's report. The jurisdiction to dispose of the assessment always stays with the Assessing Officer. Therefore, non-reference to the Valuation Officer, at best, is only a procedural irregularity. 15. The learned counsel for the assessee Shri Bajpai had cited Raj Paul Oswal v. CWT [1988] 171 ITR 489/[1987] 35 Taxman 509 (Punj. Har.). Raj Paul Oswal delivered by the Punjab Haryana High Court for the proposition that a reference to the Valuation Officer under section 16A is mandatory. In the said decision, what are the consequences of non-reference to the valuation Officer were not further clarified. Similarly is the situation in Raja Baldeodas Birla Santatikosh v. CWT [1991] 189 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter due discussion, at the close of para 3 of his orders, as follows : "From the facts as they appear Shri Akash Bajaj was not only gifted a share by his father but also received membership right to DSE which has also been certified by the General Manager of the DSE Association Ltd. vide his letter dated 26-7-1994 filed before me to the effect that Shri Akash Bajaj was admitted as a member of the DSE vide the meeting of the Board of Directors held on 24-4-1990 when the share certificate No. 70 of DSE held by Shri M.G. Bajaj, appellant was transferred in his favour." Thus, he repelled the contention of the appellant before him that what the appellant transferred was merely a share in DSE and not the membership of the DSE Ltd. The CIT(A) has dealt with the valuation of the share/membership of the DSE at para 7 of his orders. Since this is important to be appreciated, it is extracted as under : --- "The next question which arises is as to what should be the fair market value of the share/ticket Alongwith the membership of stock exchange which was gifted by the appellant to his son ? In this connection the reports received from the Assessing Officer as well as the Annexure att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es between declared price to the Stock Exchange and sale price by auction. Further, the price of any share in the stock exchange is usually a multiple of earning which multiple is around 8 to 10 world wide and around 20 in India. This share of the Delhi Stock Exchange has normal earning of Rs. 2 to Rs. 4 lakhs per year. Taking the average multiple of 8, the value of the DSE ticket should vary between Rs. 16 to Rs. 32 lakhs. It would be most fair and reasonable, therefore, to adopt the fair market value of the gifted share/ticket in question at a minimum of Rs. 16 lakhs. The Assessing Officer is directed to assess the appellant accordingly." 17. On 30-3-1999 on behalf of the assessee, a certificate dated 6-11-1997 given by the Company Secretary of DSE was filed certifying the consideration amount of share/ticket of the DSE as under : --- Date Consideration amount 25-2-1991 Rs. 2.5 lakhs 31-3-1992 Rs. 4 lakhs 31-3-1993 Rs. 4 lakhs 31-3-1994 Rs. 25 lakhs 31-3-1995 Rs. 25 lakhs In view of the above material, the contention that principles of natural justice were violated and no opportunity was ever given to the assessee to state his objections about the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is not saleable in the open market. The membership right will automatically get transferred when the share holding is changed with the approval of the Stock Exchange and as such, it cannot be said that the right is not saleable in the open market. Ultimately, he held that membership right has to be valued separately under rule 20(i) of Schedule III of Wealth-tax Act. To this value, the value of the share has to be added which has to be determined under Rule 11 of Schedule III in accordance with the decision of the Hon'ble Supreme Court in the case of Bharat Hari Singhania. Thus, the CIT(A) held that the total value of share-holding as determined in Rule 11 and the membership right as determined in Rule 20(i) will have to be taken for the purposes of valuation of the asset under the Wealth-tax Act. The CIT(A) further held that he had already determined the value of membership right for the assessment year 1991-92 at Rs. 16 lakhs on the basis of taking average income of a share-broker at Rs. 2 lakhs per annum and multiplying the same by a factor of 8 for determining the value. Similarly, for the assessment year 1992-93, he estimated the average annual income of a share-broker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that intangible rights cannot be regarded as 'assets' is no longer good law, after the aforesaid Supreme Court's decisions and also rulings above-mentioned. Hence Shri Sampath's (Counsel for the intervenors) argument relying upon the Allahabad High Court judgment was misplaced or was not correct. Countering the argument of Shri K. Sampath (WTA 877/95- Item 29 in Intervenor's list) who claimed Nil value for ticket, the learned Standing Counsel submitted that his arguments are the same as in the case of regular appeals in this regard. The Standing Counsel submitted that DSE is not registered under section 25 of the Companies Act. Hence section 5(1)(i) of W.T. Act does not operate in case of DSE. Even otherwise, neither widely held companies nor AOP arc assessable under W.T. Act. As already submitted, DSE is not an AOP, applying the ratio of Indira Balakrishna's case followed in CIT v. Raja Ratan Gopal [1966] 59 ITR 728 (SC). Generally submitting about 81 intervenors and the cases put forward on behalf of each of them, the learned Standing Counsel submitted that most of them have accepted valuation of the ticket and the share as determined by the CWT(A) and only the department is in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner (Appeals) in each of their cases has become final and binding and there is no scope to reduce it any further. The second category among the intervenors is those which came under Kar Vivad Samadhan Scheme. It is said that there are 22 such assessees who had already accepted the valuation determined by the Commissioner (Appeals). Even in such cases also, no further relief can be granted to them. The third set of Intervenors are those who have individual or peculiar facts involved in their respective cases of appeals. The learned Standing Counsel made it very clear that since he has applied his mind and concentrated only on the main issue before us as to the determination of the composite value of Ticket of DSE, he has refrained from arguing the peculiarities involved in the intervenors' cases. In such cases, as the when the cases come up in second appeal before the Tribunal, besides relying upon the Tribunal's order in Special Bench they can also advance separate arguments about the peculiar facts involved in their respective cases and, thus, in those category of cases it should not be taken to have decided the whole of their cases but only deemed to have decided the main issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act; and (c) that it would be in the interest of the trade and also in the public interest to grant recognition to the stock exchange; It may grant recognition to the stock exchange subject to the conditions imposed upon it as aforesaid and in such form as may be prescribed. The conditions imposed are enumerated under sub-section (2). They are with regard to the following four matters: (i) the qualifications of membership of stock exchanges; (ii) the manner in which contracts shall be entered into and enforced as between members; (iii) the representation of the Central Government on each of the stock exchanges by such number of persons not exceeding three as the Central Government may nominate in this behalf; and (iv) the maintenance of accounts of members and their audit by chartered accountants whenever such audit is required by the Central Government. Thus, section 4 deals with recognition of stock exchanges. Section 5 deals with withdrawal of recognition. Section 6 deals with the power of the Central Government to call for periodical returns or direct inquiries to be made. Section 6(2) which appears to be important for our purposes categorically states "eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the conditions as may be prescribed, with a view to ensure fair dealing and to protect investors. Therefore, it would appear that the main intendment of a stock exchange is to ensure fair dealing and to protect investors. 23. Then we have to deal with the particulars of Rules and Bye-laws of the DSE. We have already extracted the important rules and bye-laws in the prior paras of our orders while dealing with the arguments advanced on both sides. Article 3.1 states that the DSE took over, as going concerns, the activities, funds and business of the Delhi Stocks Share Brokers' Association Ltd. It had acquired all their assets and liabilities, rights and duties and agreed to adopt agreements embodying such terms and conditions as may evolve out of schemes of Amalgamation to be adopted. Article 3.4 sets out the object of the DSE as follows : "To facilitate the transactions of business on the Stock Exchange and to make rules and bye-laws regulating the mode and conditions in and subject to which the business on the Stock exchange shall be transacted and the conduct of the persons transacting the same and generally for the good order and government of members of the Exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormed with the object of providing general public utility and whether it is a charitable institution and exemption under section 11 is entitled to it. They have considered the Articles of 'Association as well as Bye-laws of DSE, its formation in 1947 and held ultimately that DSE is not entitled to exemption under section 11. We have already observed that for some years DSE was assessed as AOP "0.8" which deals with Trusts. However, in view of this categorical decision, the argument that DSE is a charitable institution is no longer be permitted to be raised. Further, the status of DSE is also determined, according to us, if we observe the ratio of the Supreme Court's decision in the penultimate para, which is as follows; at page 242:--- "As regards the provisions of the Securities Contracts Regulation Act, 1956, it is no doubt true that the said Act makes provision for recognition of a stock exchange. The expression "stock exchange" has been defined in section 2(j) to mean any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. We, however, do not find any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, we have no hesitation to repel the contention that membership does not confer any proprietary right but it represents only a personal permission. 25. Adverting to the facts of the present case, we find that one purchases the shares with a view to become the member of the Stock exchange. It is a condition precedent for becoming the member of the DSE. Therefore, the holding of share give rise to a dorment right. Holding the share is not enough. One must satisfy the other conditions also laid down in the rules to become the member of the DSE. But one thing is certain that without holding the share, one cannot enter the stock exchange. Therefore, in our opinion, value of share is to be determined with reference to the purpose which it serves. It is not an ordinary share. It does not fetch any dividend. It does not confer any other benefit to the holder. It is an essential requirement to attain the status of member of DSE. Because of its peculiar nature its value cannot be determined in isolation. It cannot be determined by following the normal procedure. Therefore, to find a value good and true composite value of the share and ticket is to be considered. Such a value would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay it is a ticket to explore the EL DORADO. This right cannot be disturbed. Only by becoming a defaulter or in the event of death membership comes to an end. However, if a member becomes a defaulter stock exchange auctions the card and utilise the proceeds to pay his debts. Similarly, on his demise, his successors may step into his shoes subject to the fulfilment of conditions contained in the Memorandum. The distinction between proprietary and personal rights would be that proprietary rights are susceptible to valuation while personal rights are not. The right would be propriety if it has economic value. It is absolutely clear from the aforesaid discussion that the DSE card has got economic value. 31. In the case of M.M. Rodey, the Assessing Officer stated that in the assessment year 1991-92 ticket was sold for Rs. 11.4 lakhs. But it is not clear from the records that whether opportunity was given to the assessee to rebut the finding used against him. 32. The Assessing Officer is duty bound to determine the market value of the card. Market value may be said to be the price that a willing purchaser would pay to a willing seller for a property having due regard to its existing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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