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2016 (2) TMI 666 - ITAT MUMBAI

2016 (2) TMI 666 - ITAT MUMBAI - TMI - Depreciation u/s 32 on membership of BSE - value of consideration received by the assessee company on sale/transfer - received 10000 equity shares of BSE Limited and trading rights of BSE Limited in the process of the demutualization and corporatization of BSE, in lieu of membership of BSE - Held that:- Pursuant to demutualization or corporatization of BSE, the assessee company has got 10000 equity shares of BSE Limited and trading right of BSE Limited . Th .....

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ious year on proportionate basis based on the number of shares sold calculated on the total written down value of the 10000 shares of BSE Limited so allotted on 10-10-2005. The assessee company shall not be entitled for claiming benefit of cost inflation indexation from the period 10-07-2000 i.e. date of acquisition of membership of BSE till 10-10-2005 i.e. when the 10000 equity shares are allotted by BSE Limited along with trading rights in BSE Limited, in lieu of membership of BSE. The assesse .....

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ated:- 10-2-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : None For The Revenue : Shri Rakesh Ranjan,DR ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER : This appeal, filed by the assessee company, being ITA No. 2640/Mum/2012, is directed against the order dated 31.01.2012 passed by the learned Commissioner of Income Tax (Appeals)- 8, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2008-09. 2. The Grounds of appeal raised by the a .....

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)(ab) of the act. 2. On the facts and in the circumstances of the case and in law, the CIT(A) further has erred in calculating the indexed cost of acquisition with reference to year of exchange of BSE Membership Card for BSE Ltd. s shares i.e. FY 2005-06 instead of the year in which the BSE Membership card was purchased i.e. FY 2000-01. 3. The Brief facts of the case are that the assessee company is engaged in the business of share broking. During the course of assessment proceedings u/s 143(3) .....

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cquisition claimed for calculating capital gain on sale of BSE shares. The assessee company had claimed the cost of ₹ 2,41,00,000/- for BSE card. The assessee company was asked why the said cost be accepted as the assessee company has claimed depreciation on the BSE card in the earlier years and taking the original cost of BSE card as the cost of acquisition amounts to claiming double deduction on the same asset. The assesse company submitted that the above cost is to be taken as cost of a .....

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gains arising from sale of 4562 shares of BSE was computed at ₹ 1,45,80,661/- chargeable to tax under the Act vide assessment orders dated 16.11.2010 passed u/s 143(3) of the Act . 4. Aggrieved by the assessment orders dated 16.11.2010 passed u/s 143(3) of the Act by the AO, the assessee company filed first appeal with the CIT(A). The assessee company submitted that Long Term Capital Gain is to be computed as per Section 55(2)(ab) of the Act which unconditionally mandate to take the cost o .....

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n of BSE , the assessee company held membership right in BSE(AOP) which constituted the two rights being trading rights and membership rights which were not two different assets but a single asset . Upon demutualization and corporatization of BSE, the membership right in BSE(AOP) stood extinguished; in return the assessee company acquired 10000 shares in BSE Ltd as well trading right in BSE Ltd.. Therefore the two resulting assets , being trading right and membership have emerged from the earlie .....

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TR 323(SC) has held that membership rights in BSE(AOP) is eligible for depreciation as intangibles. While calculating the long term capital gains on sale of such shares as shares of BSE Ltd are long term capital asset within the meaning of Section 2(42A) explanation1 (ha) of the Act and if the contentions of the assessee company is accepted , Section 50 of the Act will become otiose. The CIT(A) also held that the assessee company will be entitled to take the benefit of indexation u/s 48 of the A .....

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ny on the hearing held on 19/11/2014 but still none appeared. The Ld. DR on the other hand relied upon the orders of the authorities below. 6. We have considered the material on record including case laws and after hearing the Ld. DR , we are proceeding to decide the appeal as despite several opportunities , the assessee company did not appear before the Tribunal when appeal was called for hearing. We have observed that the assessee company is a member of Bombay Stock Exchange and is engaged in .....

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oratization of BSE in the year 2005. Securities and Exchange Board of India(SEBI), a Government regulatory body directed that all the exchanges in the country should be demutualised and they should be managed by a company where share-holding is held by public at large and not merely by stock brokers and traders who hold trading rights. BSE, therefore, implemented demutualization process whereby first it converted itself into a company and subsequently at least shareholding to the extent of 51% w .....

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ic institutions. It was in the process of second step, that the 4562 shares of BSE Ltd. out of 10000 shares of BSE Ltd. held by the assessee company were transferred/sold by the assessee company for a consideration of ₹ 2,37,22,400/- leading to present dispute. The assessee company has contended that the original cost of acquisition of BSE membership on 20-07-2000 of ₹ 2,41,00,000/- shall be taken as cost of acquisition of 10000 shares of BSE Ltd on proportionate basis by virtue of S .....

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pital gains on sale of 4562 shares of BSE Ltd. and also for the purposes of cost inflation index , the period of holding shall be reckoned from the date of acquisition of the original BSE membership by the assessee company on 20-07-2000, in view of the provisions of Section 2(42A) Explanation 1 (ha ) of the Act and Section 47(xiiia) of the Act . While the Revenue on the other hand is contending that the membership of the BSE as acquired by the assessee company in the year 2000 was an intangible .....

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ition of shares in view of provisions of Section 55(2)(ab) of the Act and period of holding for the indexation purposes shall also be reckoned from the date of demutualization or corporatization of BSE on 10-10-2005 and not from the date of acquisition of original membership of BSE by the assessee company on 20-07-2000, as the said original membership of BSE being intangible asset formed part of block of assets on which the assessee company has claimed depreciation u/s 32 of the Act and in view .....

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ip;.. …….. (42A) ["short-term capital asset" means a capital asset held by an assessee for not more than [thirty-six] months immediately preceding the date of its transfer:] ……… ……… [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 .....

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tal asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange 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 India Act, 1992 (15 of 1992);] [Special provision for computation of capital gains in case of .....

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lue of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during .....

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ired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.] Meaning of "adjusted", "cost of improvement" and "cost of acquisition". 55. (1) For the purposes of [sections 48 and 49],- ……….. ……….. (2) [For the purposes of sections 48 and 49, "cost of acquisition&q .....

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xchange:] [Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil;] The Perusal of Section 2(42A) of the Act , Explanation 1 (ha) will reveal that in determining the period of holding for which any capital asset is held by the tax-payer, the capital asset being equity shares or shares in a c .....

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right held by a member of a recognized stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognized stock exchange in accordance with scheme of demutualization or corporatization which is approved by the SEBI shall not be regarded as transfer. Perusal of Section 50 of the Act will reveal that it is a special provision for computation of capital gains in case of depreciable assets under the Act under Chapter IV E -Computation of Total .....

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t stipulates , inter-alia, that with respect of block of assets as defined under Section 2(11) of the Act, where the full value of the consideration received or accruing as a result of transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling with in the block of asset during the previous year , exceeds the aggregate of the (i) expenditure incurred wholly and exclusively in connection with such tra .....

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asset shall be written down value of the block of asset at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets. Whereas Section 55(2)(ab) of the Act stipulates that for the purposes of section 48 and 49 of the Act , in relation .....

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e nil. The Hon ble Supreme Court has in the case of Techno Shares and Stocks Limited (supra) has held that membership right of BSE (AOP- assessment year 1999-00 to 2002-03 dealt with by Hon ble Supreme Court was prior to demutualization or corporatization of BSE ) is a business or commercial right of similar nature and is a license or akin to license as defined u/s 32(1)(ii) of the Act and is entitled for depreciation as being intangible asset , if acquired on or after 01.04.1998 as provided und .....

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or corporatization of BSE, had in-fact claimed depreciation on the membership of BSE in the return of income filed with the Revenue which was allowed by the Revenue. The Section 50 of the Act is a special provision for computing capital gains in case of depreciable assets and in the instant case , the membership of BSE is depreciable asset being intangible asset u/s 32(1)(ii) of the Act on which the assessee company has in-fact claimed depreciation in the preceding year which was allowed by the .....

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nything contained in Section 2(42A) of the Act, the provisions of Section 48 and 49 of the Act shall be applied subject to the modifications as stipulated which , inter-alia, provides that cost of acquisitions shall be deemed to be written down value of the block of asset as at the beginning of the previous year and actual cost of any asset falling with the block of asset acquired during the previous year , for the purposes of computing capital gains which shall be deemed to be arising from the .....

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ecause Section 50 of the Act being special provisions for computation of capital gain in case of depreciable asset has clearly stipulated that the provisions of Section 48 and 49 shall be applicable subject to the stipulated modifications u/s 50 of the Act and written down value of the block of asset at the beginning of the previous year shall , interalia be reduced from full value of consideration to arrive at capital gains which shall be deemed to be the capital gains arising from transfer of .....

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1 (ha) provides that in determining the period of holding for which any capital asset is held by the tax-payer, the capital asset being equity shares or shares in a company allotted in pursuance to the demutualization or corporatization of the recognized stock exchange in India as referred to in Section 47(xiii) of the Act, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization w .....

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s of Section 48 and 49 of the Act in relation to the capital asset , being equity share or shares allotted to a shareholder of a recognized stock exchange in India under a scheme of demutualization and corporatization approved by SEBI , shall be cost of acquisition of original membership of the exchange. While for capital asset being trading or clearing rights of the recognized stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualizat .....

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ll prevail on the general provisions because if a special provision is made on a certain matter, that matter is excluded from the general provision. Section 55(2)(ab) of the Act while referring to cost of acquisition of original membership of the exchange has to subjugate itself and cost of acquisition referred therein Section 55(2)(ab) of the Act for the purposes of Section 48 and 49 of the Act being cost of acquisition of original membership will mean thereby cost of acquisitions for the purpo .....

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