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2015 (10) TMI 2121 - ITAT MUMBAI

2015 (10) TMI 2121 - ITAT MUMBAI - TMI - Addition under section 36 - amount utilized the borrowed funds for specified persons (related parties) - outstanding sundry debts against the persons namely Aayush Shah, Anika and Yugam who were the persons defined under section 40A(2)(b)on which no interest was charged - Held that:- Admittedly, the assessee, though, had surplus funds but from the facts on file it is clear that the assessee had used the overdraft funds for settlement of accounts of the pe .....

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interest paid by the assessee on overdraft account. Partly decided in favour of the assessee.

Depreciation on stock exchange card - Held that:- Tribunal in the case of "Pavak Securities (P) Ltd. vs. ITO" [2013 (9) TMI 608 - ITAT MUMBAI] wherein held when the membership ceased to exist and in lieu of the card, new asset came into existence i.e. 1000 shares as well as rights to trade and clearing in the stock exchange and the acquisition of the cost of trade and clearing has been provid .....

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ITA No. 118/M/2011 - Dated:- 27-5-2015 - B R Baskaran, AM And Sanjay Garg, JM For the Appellant : Shri Sanjay Chaudhary, AR For the Respondent : Shri Love Kumar, DR ORDER Per Sanjay Garg, Judicial Member The present appeal has been preferred by the assessee against the order dated 29.10.2010 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2007-08. The assessee has taken three effective grounds of appeal. 2. At the outset, the Ld. A.R. .....

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defined under section 40A(2)(b) on which no interest was charged. It was also noticed by the AO that the assessee had paid interest of ₹ 3,12,819/- on account of overdraft from bank. The AO worked out the peak debit in respect of above stated three persons and bank overdraft on the relevant debt and arrived at a conclusion that the assessee had paid the borrowed funds from bank and had paid the amount on behalf of the above stated three persons in respect of settlement of payment on ' .....

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reed with the findings of the AO that the assessee had used its funds in settlement of payment of above stated specified persons. He, therefore, held that the interest bearing funds were used by the assessee for payment for settlement of the account of the specified persons and hence the interest bearing funds were diverted and used for non interest bearing payments. He, therefore, confirmed the disallowance of interest but restricted the same up to an amount of ₹ 2,23,957/- observing that .....

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een settled through this account only. Even the overdraft fees was obtained against the FDR upon which the assessee has received interest of ₹ 1,42,698/-, hence the net interest paid by the assessee on overdraft account was ₹ 81,259/- only. 6. We have considered the submissions. Admittedly, the assessee, though, had surplus funds but from the facts on file it is clear that the assessee had used the overdraft funds for settlement of accounts of the persons specified under section 40A( .....

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paid by the assessee on overdraft account. This issue is accordingly partly allowed in favour of the assessee. Ground No.3 7. Ground No.3 is relating to the claim of depreciation on stock exchange card. The AO noted that the assessee had claimed depreciation of ₹ 1,48,918/- on stock exchange card. He held that the assessee was not entitled to the above stated depreciation and disallowed the same. 8. In appeal, the Ld. CIT(A) observed that there was demutualization and corporatization of st .....

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into new trade rights, the value on which was to be determined at nil. He, therefore, confirmed the findings of the AO. 9. Before us, the Ld. D.R. has brought our attention to the decision of the co-ordinate bench of the Tribunal, in the case of "Sino Securities (P.) Ltd. v. Income-tax Officer" [2011] 16 taxmann.com 354 (Mumbai), wherein, while adjudicating the identical issue of depreciation on stock exchange card after demutualization of the stock exchange, the Tribunal has observed .....

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s and commercial right of similar nature as provided under section 32(1)(ii) of the Act being intangible asset. It was further held that even though the trading right was a commercial right but since the value of the said right was equal to refundable deposit to be made by the assessee with BSE Ltd., it could not be depreciated when its value in reality did not come down and hence the assessee was not entitled to depreciation on BSE Card. The relevant observations of the Tribunal for the sake of .....

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ed and in lieu thereof the BSE member acquires shares in BSEL and trading rights in BSEL; (iv) Under section 47(xiiia), such extinguishment of rights and acquisition of shares and trading rights in BSEL is not regarded as transfer. (v) That cost of acquisition of ownership rights and trading rights would have to be split and valued on transmission. (vi) Trading rights are based as deposit system as opposed to card system; (vii) The trading card system is replaced by the deposit system; (viii) Th .....

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is clear that the asset of the assessee, as it existed while it was a BSE membership cardholder, is different from the assets held by the assessee after corporatization and demutualization of Stock Exchanges, which resulted in the assessee becoming a share holder in BSEL. 27. The ownership rights of the assessee gives it a right to participate in the ownership of the assets and management of the Stock Exchange. The assessee has been granted certain shares in BSEL at par. The assessee has disclo .....

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ghts of similar nature held by the assessee as a holder of the membership card of the erstwhile BSE no longer exists. The same got extinguished. Hence, we are of the considered opinion that the Assessing Officer was right in holding that no depreciation can be granted on the written down value of the BSE membership card. At best, the claim for depreciation can be on a trading right of the members, which is newly acquired, which aspect we will discuss hereafter. 30. As we have noticed, the group .....

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BSEL or through some other approved method. 31. Coming to trading rights, we find that the value that can be assigned from out of the value of BSE card is only to the extent of deposit made. Trading right is no doubt a business in commercial rights but value is equivalent to the quantum of deposit. The assessee is entitled to refund of the deposit. When the value is equal to a refundable deposit, how can such value of refundable deposit be depreciated when the value in reality does not come down .....

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n 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. Provided that the cost of a capital asset, being trading or clearing rights of the recogni .....

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was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation. (ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation 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 corp .....

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the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company :] Provided that- (a) all the assets and liabilities of the firm [or of the association of persons or body of individuals] relating to the business immediately before the succession become the assets .....

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rtners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession; (e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of Indi .....

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