WALLFORT SHARES AND STOCK BROKERS P. LTD, MUMBAI v. ITO WD 4(2)(2), MUMBAI

ITA 4969/MUM/2010 | 2006-2007
Pronouncement Date: 23-12-2010 | Result: Allowed

Appeal Details

RSA Number 496919914 RSA 2010
Assessee PAN AAACW0750G
Bench Mumbai
Appeal Number ITA 4969/MUM/2010
Duration Of Justice 6 month(s) 7 day(s)
Appellant WALLFORT SHARES AND STOCK BROKERS P. LTD, MUMBAI
Respondent ITO WD 4(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 23-12-2010
Date Of Final Hearing 22-11-2011
Next Hearing Date 22-11-2011
Assessment Year 2006-2007
Appeal Filed On 15-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER I.T.A. NO. 4969/MUM/2010 ASSESSMENT YEAR : 2006-07. M/S WALFORT SHARES & THE INCOME TAX OFFICER STOCK BROKERS PVT. LTD. VS. 4(2)(2) MUMBAI. 205 GUNDECHA CHAMBERS NAGINDAS MASTER ROAD FORT MUMBAI 400 001. PAN AAACW 0750G. APPELLANT. RESPONDENT APPELLANT BY : SHRI BEHARILAL RESPONDENT BY: SHRI A.K .NAYAK. DATE OF HEARING : 22-11-2011. DATE OF PRONOUNCEMENT : 23-12-2011 O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-8 MUMBAI DATED 20-04-2010 AND THE SOL ITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE ADDITION OF RS.42 66 063/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON PROTECTIVE BASIS ON ACC OUNT OF THE BENEFIT ALLEGEDLY ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERA TION AS A RESULT OF DEMUTUALIZATION OF BOMBAY STOCK EXCHANGE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF SHARE AND STOCK TRADING AND BROKING. IT IS A MEMBER OF BOMBAY STOCK 2 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 EXCHANGE (BSE) HAVING PURCHASED THE BSE MEMBERSHIP CARD IN THE FINANCIAL YEAR 1998-99 FOR A TOTAL CONSIDERATION OF RS.97 51 000/- . THE ASSESSEE CLAIMED DEPRECIATION ON THE VALUE OF THE SAID CARD IN ASSES SMENT YEARS 2004-05 AND 2005-06 AGGREGATING TO RS.42 66 063/- WHICH WAS DISALLOWED BY THE AO AND THE MATTER WAS PENDING IN APPEAL. IN THE YEAR UNDER CONSIDERATION THE BSE WAS DEMUTUALIZED AND ITS OPERATIONS WERE TAKEN OVER BY BOMBAY STOCK EXCH ANGE LTD. (BSEL) WITH EFFECT FROM 19-08-2005. EACH HOLDER OF THE BSE CARD WAS GI VEN 10 000 SHARE OF BSEL IN LIEU OF THE MEMBERSHIP CARD AND AS PROVIDED IN SECT ION 55(2)(AB) THE COST OF ACQUISITION OF SHARES SO ALLOTTED WAS TO BE TAKEN E QUAL TO THE ORIGINAL COST OF ACQUISITION OF THE CARD WHEREAS THE COST OF ACQUISI TION OF TRADING RIGHTS WAS TO BE DEEMED TO BE NIL. ACCORDING TO THE AO THE ASSESSEE THUS WAS ENTITLED TO CLAIM THE COST OF ACQUISITION OF SHARES AT RS.97 51 000/- BEI NG THE ORIGINAL COST OF ACQUISITION OF MEMBERSHIP CARD AS AGAINST THE WRITTEN DOWN VALU E OF THE CARD OF RS.54 84 937/- IF ITS CLAIM FOR DEPRECIATION ON THE CARD WAS ALLOW ED. ACCORDING TO THE AO THE BENEFIT OF RS.42 66 063/- THUS HAD ACCRUED TO THE A SSESSEE AS A RESULT OF DEMUTUALIZATION OF BSE IF THE CLAIM OF THE ASSESSE E FOR DEPRECIATION ON BSE CARD WOULD HAVE BEEN ALLOWED. SINCE HE HAD DISALLOWED TH E CLAIM OF THE ASSESSEE FOR THE SAID DEPRECIATION IN THE EARLIER YEAR AND THE MATT ER WAS PENDING IN APPEAL THE AO ADDED THIS BENEFIT AMOUNTING TO RS.42 66 063/- TO T HE TOTAL INCOME OF THE ASSESSEE U/S 41(1) AS ALSO ALTERNATIVELY U/S 28(1)(IV) ON PR OTECTIVE BASIS. ON APPEAL THE LEARNED CIT(APPEALS) CONFIRMED THE SAID ADDITION MA DE BY THE AO ON PROTECTIVE BASIS KEEPING IN VIEW THAT THE MATTER RELATING TO A SSESSEES CLAIM FOR DEPRECIATION ON BSE CARD FOR ASSESSMENT YEARS 2004-05 AND 2005-0 6 WAS STILL PENDING IN APPEAL. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A PPEALS) THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 3 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 3. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET SUBMITTED THAT THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON BSE CARD NOW HAS B EEN HELD TO BE ALLOWABLE BY THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHA RES AND STOCK LTD. 327 ITR 323. HE SUBMITTED THAT THE ASSESSEE COMPANY HOWEVE R HAS NOT SOLD ANY SHARES OF BSEL IN THE YEAR UNDER CONSIDERATION AND IT THERE FORE HAS NOT REALIZED ANY BENEFIT IN THAT YEAR. HE SUBMITTED THAT THERE IS NO PROVISION IN THE I.T. ACT TO WRITE BACK THE DEPRECIATION ALREADY ALLOWED IN THE EARLIE R YEARS ON THE BSE CARD IN THE YEAR OF MUTUALIZATION OF BSE AND IF IT WAS THE INT ENTION OF THE LEGISLATURE TO WITHDRAW THE DEPRECIATION ALLOWED IN THE EARLIER YE ARS IN THE YEAR OF DEMUTUALIZATION THE SAME WOULD HAVE BEEN PROVIDED IN THE STATUTE ITSELF. HE SUBMITTED THAT THE BENEFIT OF ADOPTING THE ORIGINAL COST OF BSE CARD AS COST OF ACQUISITION OF BSEL SHARES WOULD BECOME AVAILABLE T O THE ASSESSEE ONLY WHEN THE SAID SHARES ARE SOLD AND NOT AT THE TIME OF DEMUTUA LIZATION OF BSE. HE CONTENDED THAT THE ASSESSEE HAS NOT SOLD ANY SHARES OF BSEL I N THE YEAR UNDER CONSIDERATION AND THERE IS NO QUESTION OF ANY BENEFIT ARISING TO THE ASSESSEE AS A RESULT OF THE PROVISIONS OF SECTION 55(2)(AB) MERELY ON THE BASIS OF ALLOTMENT OF BSEL SHARES IN LIEU OF BSE MEMBERSHIP CARD WHICH CAN BE BROUGHT TO TAX U/S 41(1) OR 28(1)(IV). IN SUPPORT OF THIS CONTENTION HE RELIED ON THE DECISI ON OF FULL BENCH OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHARAT IR ON AND STEEL INDUS. REPORTED IN 199 ITR 67 WHEREIN IT WAS HELD THAT SECTION 41(1) I NTRODUCES A FICTION BY WHICH WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN TH E ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY I NCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER ANY AMOUNT IN RES PECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED BY HIM OR THE VALUE OF BENEFIT ACCRUING TO 4 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 HIM SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS INCOME OF T HAT PREVIOUS YEAR. 4. THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT AS A RESULT OF DEMUTUALIZATION OF BSE THE ASSESSEE AS A MEMBER HOLDING MEMBERSHIP CARD OF BS E RECEIVED 10 000 SHARES OF BSEL. AS PER THE SCHEME OF DEMUTUALIZATION A TR ADING MEMBER MAY OR MAY NOT BE A SHARE HOLDER OF BSEL AND A SHARE HOLDER ALSO M AY NOT BE A TRADING MEMBER. AS PER THE PROVISIONS OF SECTION 55(2)(AB) COST OF ACQUISITION OF SHARES OF BSEL ALLOTTED TO THE ASSESSEE IN LIEU OF MEMBERSHIP CARD OF BSE SHALL BE EQUAL TO THE ORIGINAL COST OF ACQUISITION OF THE CARD WHEREAS CO ST OF ACQUISITION OF THE TRADING RIGHT SHALL BE DEEMED TO BE NIL. THE ASSESSEE COMPA NY HAD CLAIMED DEPRECIATION ON BSE MEMBERSHIP CARD IN THE ASSESSMENT YEARS 2004 -05 AND 2005-06 AGGREGATING TO RS.42 66 063/- AND THE SAME HAVING N OW HELD TO AN ALLOWABLE DEDUCTION BY THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. (SUPRA) THE WRITTEN DOWN VALUE OF BSE MEMBERS HIP CARD FOR THE YEAR UNDER CONSIDERATION WOULD BE RS.54 87 937/-. AS PER THE P ROVISIONS OF SECTION 55(2)(AB) THE ASSESSEE HOWEVER IS ENTITLED TO CLAIM THE COS T OF ACQUISITION OF SHARES OF BSEL EQUAL TO THE ORIGINAL COST OF ACQUISITION OF THE BS E MEMBERSHIP CARD I.E. RS.97 51 000/- AS AGAINST THE WRITTEN DOWN VALUE OF RS.54 84 937/-. THE AO HAS TREATED THIS DIFFERENCE ARISING AS A RESULT OF DEPR ECIATION ALLOWED TO THE ASSESSEE ON BSE MEMBERSHIP CARD IN THE EARLIER YEARS AS BENEFIT ACCRUING TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WHICH IS TAXABLE U/S 41(1) AND ALSO ALTERNATIVELY U/S 28(1)(IV). 5 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 6. AT THE TIME OF HEARING BEFORE US THE LEARNED CO UNSEL FOR THE ASSESSEE HAS NOT RAISED ANY ARGUMENTS TO DISPUTE THAT THE PROVISIONS OF SECTION 55(2)(AB) MAKING THE ASSESSEE ENTITLED TO CLAIM THE ORIGINAL COST OF ACQ UISITION OF BSE MEMBERSHIP CARD AT RS.97 51 000/- AS COST OF ACQUISITION OF 10 000 BSEL SHARES AS AGAINST THE WRITTEN DOWN VALUE OF BSE CARD AT RS.54 84 937/- HA S RESULTED IN A BENEFIT TO THE ASSESSEE. HIS CONTENTION HOWEVER IS THAT THE SAID BENEFIT HAS NEITHER BEEN RECEIVED BY THE ASSESSEE NOR ARISEN TO IT IN THE YEAR UNDER CONSIDERATION AND THE SAME WILL BE AVAILABLE ONLY WHEN THE SHARES OF BSEL ARE SOLD BY THE ASSESSEE AND THE QUESTION OF COMPUTATION OF CAPITAL GAIN ARISING FROM THE SAI D SALE COMES. WE ARE INCLINED TO AGREE WITH THIS STAND OF THE LEARNED COUNSEL FOR TH E ASSESSEE. THE PROVISIONS OF SECTION 55(2)(AB) ARE CONTAINED IN SCHEDULE IV WHIC H DEALS WITH THE COMPUTATION OF INCOME FROM CAPITAL GAINS AND THE QUESTION OF AV AILING THE BENEFIT AVAILABLE IN THE SAID PROVISION IN OUR OPINION WILL COME ONLY WHEN THERE IS AN OCCASION TO COMPUTE THE CAPITAL GAIN ARISING FROM SALE OF SHARE S OF BSEL ALLOTTED TO THE ASSESSEE. TILL SUCH TIME THE ASSESSEE CANNOT BE SA ID TO HAVE DERIVED ANY BENEFIT FROM THE PROVISIONS OF SECTION 55(2)(AB) WHICH WILL COME INTO PLAY ONLY ON SALE OF SHARES BY THE ASSESSEE OF BSEL RESULTING INTO CAPIT AL GAINS. IN OUR OPINION THE ALLOTMENT OF SHARES OF BSEL TO THE ASSESSEE IN LIEU OF BSE MEMBERSHIP CARD ON DEMUTUALIZATION OF BSE BY ITSELF WILL NOT CONFER AN Y BENEFIT TO THE ASSESSEE WHICH CAN BE BROUGHT TO TAX EITHER U/S 41(1) OR SECTION 2 8(1)(IV) IN THE YEAR UNDER CONSIDERATION. 7. AS PER THE PROVISIONS OF SECTION 28(1)(IV) THE VALUE OF ANY BENEFIT OR PERQUISITE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM THE BUSINESS OR THE EXERCISE OF A PROFESSION IS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION PROVIDED SUCH BENEFIT HAS A RISEN TO THE ASSESSEE IN THE 6 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 RELEVANT YEAR. SIMILARLY AS PER THE PROVISIONS OF S ECTION 41(1)(A) WHETHER AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSM ENT FOR ANY YEAR IN RESPECT OF LOSS EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY THE ASSESSEE HAS OBTAINED WHETHER IN CASH OR IN ANY OT HER MANNER WHATSOEVER IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OBTAINED BY THE ASSESSEE OR THE VALUE OF BENEFIT ACCRUED TO HIM SHA LL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION CHARGEABLE TO TAX I N THE RELEVANT PREVIOUS YEAR WHEREIN SUCH BENEFIT HAS BEEN OBTAINED BY THE ASSES SEE. THE PROVISIONS OF SECTION 28(1)(IV) AS WELL AS THAT OF SECTION 41(1) THUS ARE APPLICABLE AND CAN BE INVOKED TO CHARGE THE BENEFIT CONTEMPLATED THEREIN TO TAX IN T HE HANDS OF THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON PROVIDED SUCH BENEFIT HAS ARISEN TO THE ASSESSEE OR OBTAINED BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR AND THIS POSITION CLEARLY MANIFEST FROM THE RELEVANT PR OVISIONS HAS BEEN CONFIRMED BY THE FULL BENCH OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. BHARAT IRON AND STEEL INDUS. (SUPRA) CITED BY THE LEARNED COUNS EL FOR THE ASSESSEE. IN THE PRESENT CASE THE BENEFIT AVAILABLE AS A RESULT OF THE PROV ISIONS OF SECTION 55(2)(AB) HOWEVER HAD NOT ARISEN TO THE ASSESSEE OR OBTAINED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION SINCE THE SAME AS ALREADY DISC USSED WAS AVAILABLE TO THE ASSESSEE ONLY IN TERMS OF COMPUTATION OF CAPITAL GA INS ON SALE OR TRANSFER OF SHARES HELD BY IT IN BSEL AND THERE WAS NO SUCH SALE OR TR ANSFER IN THE YEAR UNDER CONSIDERATION. THE AO IN OUR OPINION THEREFORE W AS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 41(1) OR ALTERNATIVELY OF SEC TION 28(IV) TO BRING TO TAX THE SAID BENEFIT IN THE HANDS OF THE ASSESSEE IN THE YEAR UN DER CONSIDERATION. IN THAT VIEW OF THE MATTER WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) 7 ITA NO. 4969/MUM/2010 ASSESSMENT YEAR:2006-07 CONFIRMING THE ADDITION MADE BY THE AO ON THIS ISSU E AND DIRECT THE AO TO DELETE THE SAID ADDITION. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF DEC. 2011. SD/- SD/ - (V. DURGA RAO) (P.M. J AGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED : 23 RD DEC. 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR G-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI. WAKODE