SINO SECURITIES P. LTD, MUMBAI v. ITO 4(2)(4), MUMBAI

ITA 6264/MUM/2009 | 2006-2007
Pronouncement Date: 23-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 626419914 RSA 2009
Assessee PAN UGUST2005A
Bench Mumbai
Appeal Number ITA 6264/MUM/2009
Duration Of Justice 1 year(s) 11 month(s) 19 day(s)
Appellant SINO SECURITIES P. LTD, MUMBAI
Respondent ITO 4(2)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 23-11-2011
Date Of Final Hearing 13-10-2011
Next Hearing Date 13-10-2011
Assessment Year 2006-2007
Appeal Filed On 04-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER A ND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 6264/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) SINO SECURITIES PVT. LTD. SANWA HOUSE 79/99 MUMBAI SAMACHAR MARG FORT MUMBAI 400 001 .. APPELLANT V/S INCOME TAX OFFICER WARD-4(2)(4) AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .... RESPONDENT ITA NO. 6394/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) INCOME TAX OFFICER WARD-4(2)(4) AAYAKAR BHAVAN 101 M.K. ROAD MUMBAI 400 020 .. APPELLANT V/S SINO SECURITIES PVT. LTD. SANWA HOUSE 79/99 MUMBAI SAMACHAR MARG FORT MUMBAI 400 001 .... RESPONDENT ASSESSEE BY : MR. R.J. VAZIRANI REVENUE BY : MR. V.V. SHASTRI DATE OF HEARING 13.10.2011 DATE OF ORDER 23.11.2011 SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 2 O R D E R PER J. SUDHAKAR REDDY A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUG NED ORDER DATED 23 RD SEPTEMBER 2009 PASSED BY THE COMMISSIONER (APPEAL S)-VIII MUMBAI FOR ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SH ARE BROKING. IN THE FINANCIAL YEAR 2000-01 THE ASSESSEE COMPANY PURCHA SED A MEMBERSHIP CARD IN THE CASH SEGMENT AND DERIVATIVE SEGMENT FROM BOM BAY STOCK EXCHANGE (FOR SHORT BSE ) FOR A TOTAL CONSIDERATION OF ` 2 50 01 000 AND CLAIMED DEPRECIATION ON THE SAME. THE ALLOWABILITY OF THE S AME IS NOT IN DISPUTE IN THOSE YEARS IN VIEW OF THE JUDGMENT OF HON'BLE SUPR EME COURT IN THE CASE OF TECHNO SHARES AND STOCK LTD. V/S CIT 193 TAXMAN 24 3 (SC). 3. BSE UNDER THE SCHEME OF CORPORATISATION AND DEMUTUALISATION WAS SUCCEEDED BY A COMPANY INCORPORATED UNDER THE C OMPANIES ACT 1956 UNDER THE NAME AND STYLE BOMBAY STOCK EXCHANGE LIMITED (FOR SHORT BSEL ). THE PURPOSE FOR WHICH THE COMPANY WAS FLOATED WA S TO ASSIST REGULATE AND CONTROL THE BUSINESS OF BUYING SELLIN G OR DEALING IN SECURITIES AS RECOGNISED STOCK EXCHANGE AND SEGREGATION OF OWNERS HIP RIGHTSAND MANAGEMENT OF THE EXCHANGE FROM THE TRADING RIGHTS OF THE MEMBERS WAS CONTEMPLATED. THE ASSESSEE WAS GRANTED 10 000 SHARE S OF THE NEWLY INCORPORATED COMPANY BSEL AS HE WAS AN OWNER OF BS E CARD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MEMBERSHIP RIGHTS OF THE BSEL DOES NOT SATISFY THE CONDITIONS LAID DOWN UNDER SECTION 32(I )(B) OF THE ACT FOR THE REASONS (I) ALL THE OPERATIONS OF BSE WERE TAKEN OVER BY BSEL W.E.F. 19 TH AUGUST 2005 AND EACH HOLDER OF A BSE CARD GIVEN 10 000 SHARES OF THE NEWLY INCORPORATED COMPANY BSEL; (II) ACCORDING TO THE NE W SCHEME A TRADING MEMBER MAY OR MAY NOT BE A SHAREHOLDER AND A SHAREH OLDER MAY NOT BE A TRADING MEMBER. HENCE HE CONCLUDED THAT THE TRADIN G RIGHTS OF BSE CARD GOT SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 3 EXTINGUISHED. THE ASSESSING OFFICER ALSO OBSERVED T HAT NEW PERSONS CAN DO TRADING IN BSE BASED ON A DEPOSITS KEPT WITH IT WH ICH IS SIMILAR TO THE PROCEDURE FOLLOWED BY NATIONAL STOCK EXCHANGE. OLD MEMBERS WERE GIVEN CERTAIN RELAXATION WITH RESPECT TO DEPOSITS ETC. FOR THE PURPOSE OF TRADING. HOWEVER IF THE TRADING RIGHT IS TRANSFERRED BY AN ERSTWHILE BSE MEMBER TO A NEW MEMBER THESE RELAXATIONS WERE WITHDRAWN BY BSE L. THE TRANSFEREE IN SUCH CASES IS A FRESH MEMBER FOR ALL PURPOSES. THE ASSESSING OFFICER THUS CONCLUDES THAT THERE IS NEITHER ANY VALUE NOR ANY C OST TO THIS TRADING RIGHT; (III) THAT THE ASSET I.E. BSE CARD CEASED TO EXIST AND THE ASSESSEE COULD NOT CONTINUE TO CLAIM DEPRECIATION ON THE SAME ON THE G ROUND THAT IT STILL HAS TRADING RIGHTS; (IV) THAT BSE CARD WAS EXCHANGED IN LIEU OF 10 000 SHARES OF BSEL PLUS ITS TRADING RIGHTS. THE SCHEME OF DEMUTUALIZATION ENVISAGES SEPARATION OF OWNERSHIP FROM TRADING AND THE ACCUM ULATED RESERVES OF BSE WHICH WAS AN AOP WERE TRANSFERRED TO THE MEMBERS I N THE GUISE OF SHARES ISSUED AT PAR VALUE OF RUPEES ONE PER SHARE IN BSEL; (V) ACCORDING TO SECT ION 55(2)(AB) OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT ) COST OF ACQUISITION OF SHARES HAS TO BE TREATED AS THE ORIG INAL COST OF ACQUISITION OF MEMBERSHIP RIGHTS AND THAT COST OF ACQUISITION OF T HE TRADING RIGHT SHALL BE DEEMED TO BE NIL; (VI) THAT MOST OF THE SHARE BROKE RS HAVE TREATED THE ENTIRE COST OF MEMBERSHIP OF ERSTWHILE BSE AS A CAPITAL AS SET AND HAVE CLAIMED DEPRECIATION UNDER SECTION 32(1)(II) AND SUCH CLAIM S HAVE BEEN UPHELD BY THE HON'BLE SUPREME COURT; (VII) THAT THE STATUTE DOES NOT PROVIDE DOUBLE DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED AN D UNDER SECTION 55(2)(AB) THE COST OF ACQUISITION IS TREATED AS OR IGINAL COST THE WRITTEN DOWN VALUE IN THE BOOKS OF ACCOUNT DUE TO GRANT OF DEPRE CIATION RESULTS IN DOUBLE BENEFIT. THUS THE ASSESSING OFFICER VIDE PARA-3.1 4 OF THE ASSESSMENT ORDER CONCLUDED AS FOLLOWS:- 3.14 IN THIS CASE ALTHOUGH THE WRITTEN DOWN VA LUE AS ON THE DATE OF EXCHANGE OF BSE CARD WITH SHARES OF BSEL AND BSE L TRADING RIGHTS IS ` 69 21 663. THE ASSESSEE GETS ENTITLED TO CLAIM THE ORIGINAL COST OF THE ACQUISITION OF MEMBERSHIP OF BSE I.E. RS 2 50 0 1 000/-. THEREFORE THERE ACCRUES AN EXCESSIVE BENEFIT TO THE EXTENT OF DEPRECIATION AIMED AND ALLOWED BY THE ITAT IN THIS YEAR ALTHOUGH THIS WILL BE REALIZED IN THE YEAR IN WHICH SALE IS MADE IN FACT IT IS THE D IRECT CONSEQUENCE AND SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 4 INCIDENT FOLLOWING FROM THE LEGAL FICTION ENUNCIATE D BY SECTION 55(AB)(SUPRA ). THIS TANTAMOUNT TO RECOVERING BACK THE ALLOWANCE OF DEPRECIATION ALLOWED U/S.41(1)(A) OF THE ACT AMOUN TING TO RS. 1 80 79 337/- (RS. 2 50 01 000 RS. 6921663/-). 4. ALTERNATIVELY THE ASSESSING OFFICER HELD THAT NO P ART OF THE ORIGINAL COST OF BSE CARD CAN BE ATTRIBUTED TO THE RIGHT TO CONDUCT TRADING AND HENCE THE ASSESSEE WOULD NOT BE ENTITLED TO THE CLAIM OF DEPRECIATION. THE ASSESSING OFFICER AT PARA-3.18/PAGE-8 OF THE ASSES SMENT ORDER CONCLUDED AS FOLLOWS:- 3.18 IN VIEW OF ABOVE DISCUSSION ASSESSEE IS NO T ENTITLED FOR CLAIM OF DEPRECIATION IN THIS YEAR ALSO THEREFORE THE C LAIM OF DEPRECIATION ON BSE CARD OF ` 17 30 416 IS DISALLOWED FOR THIS YEAR. A PROTECTIV E ADDITION OF ` 1 80 79 337 IS BEING THEREFORE MADE IN THIS CASE AS DEPRECIATION IS DENIED TO THE ASSESSEE. IN CASE IT IS FINALLY HELD THAT THE DEPRECIATION ON BSE CARD IS ALLOWABLE THE SAID DISA LLOWANCE WOULD BE ` 2 50 01 000. 5. THE ASSESSING OFFICER ALSO MADE DISALLOWANCES UNDER SECTION 14A AS WELL AS UNDER SECTION 40A(IA) OF THE ACT AND ARRIVE D AT A TOTAL INCOME OF ` 2 60 41 151. 6. AGGRIEVED THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY WHEREIN THE COMMISSIONER (APPEALS) ON T HE ISSUE OF ADDITION ON ACCOUNT OF LIKELY BENEFIT THE ASSESSEE WOULD GET IN FUTURE UNDER SECTION 55(2)(AB) DELETED THE ADDITION IN VIEW OF THE COND UCT OF THE ASSESSEE DURING THE ASSESSMENT YEAR 2008-09 WHILE SELLING 4 562 SH ARES OF BSEL. 7. COMING TO DEPRECIATION ON MEMBERSHIP CARD THE JUDG MENT OF HON'BLE JURISDICTIONAL HIGH COURT WAS FOLLOWED AND THE GROU ND OF THE ASSESSEE WAS DISMISSED. 8. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A THE COMMISSIONER (APPEALS) CONFIRMED THE FINDINGS OF THE ASSESSING O FFICER. SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 5 9. DISALLOWANCE MADE UNDER SECTION 40A(IA) WAS DELETED . AGGRIEVED BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN AP PEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE LEARNED COUNSEL MR. R.J. VAZIRAN I ON BAHALF OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIV E MR. V.V. SHASTRI ON BEHALF OF THE REVENUE. ON A CAREFUL CONSIDERATION O F THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD WE HOLD AS FOLLOWS:- 11. WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.6264/M UM./2009. 12. GROUND NO.1 READS AS FOLLOWS:- DEPRECIATION EXCHANGE ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE COMMISSIONER OF INCOME TAX APPEALS-8 MUMBAI (HER EINAFTER REFERRED AS THE CIT (A)) ERRED IN CONFIRMING THE ACTION OF THE A. 0. IN DISALLOWING THE DEPRECIATION ON THE MEMBERSHIP CARD OF BOMBAY STOCK EXCHANGE. DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4 21 70 1/- U/S 14A OF THE ACT AS PER RULE 8D IN RESPECT OF TOTAL DIVIDEND OF RS. 7 72 937/- RECEIVED BY THE APPELLANT. 13. ON THE ISSUE OF DEPRECIATION ON MEMBERSHIP CARD TH E ASSESSEE RELIES ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN TEC HNO SHARES & STOCKS V/S CIT (2010) 193 TAXMAN 248 (SC). HE SUBMITTED THAT THE DEPRECIATION WAS ALLOWED IN THE EARLIER YEARS AND ONCE THE SAME WAS HELD AS ALLOWABLE THE ASSESSEE IS ENTITLED TO THE CLAIM UNTIL SUCH T IME THE WRITTEN DOWN VALUE BECOMES NIL. 14. HE SUBMITTED THAT SECTION 55(2)(AB) OF THE ACT IS ONLY ON THE COMPUTATION OF INCOME FROM CAPITAL GAINS AND HAS NO RELEVANCE AS FAR AS THE GRANT OF DEPRECIATION CLAIMED BY THE ASSESSEE UNDER SECTION 32(1)(I) OF THE ACT. SECTION 2(42A) SUB-CLAUSE (2)(H)(HA) INSERTED BY THE FINANCE ACT 2003 SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 6 W.E.F. 1 ST APRIL 2004 STIPULATES THAT CAPITAL ASSETS BEING E QUITY SHARES ALLOTTED ON DEMUTUALISATION THE PERIOD OF HOLDING OF THE CAPITAL ASSETS SHALL INCLUDE THE PERIOD FOR WHICH THE PERSON WAS A MEMBE R OF BSE AND THAT THIS SECTION ALSO IS CONCERNED WITH THE COMPUTATION OF C APITAL GAIN ONLY. HE CONTENDS THAT THERE APPEARS TO BE A LACUNA IN THE A CT WHICH UNINTENTIONALLY PROVIDED DOUBLE BENEFIT TO THE ASSESSEE. THE HON'BL E SUPREME COURT HAS HELD THAT BSE MEMBERSHIP CARD FALLS WITHIN THE DEFI NITION OF INTANGIBLE ASSET AND IS ELIGIBLE FOR DEPRECIATION AND WHEREAS FOR TH E PURPOSE OF COMPUTATION OF CAPITAL GAINS THE ORIGINAL COST OF MEMBERSHIP I S CONSIDERED AND THE PERIOD OF HOLDING WOULD BE RECKONED FROM THE DATE OF ACQUI SITION OF THE ORIGINAL BSE CARD. HE SUBMITTED THAT THE ASSESSEE GETS DOUBLE BE NEFIT. 15. HOWEVER LEARNED COUNSEL POINTED OUT THAT THE ASSES SEE IN THE PRESENT CASE HAS NOT CLAIMED ANY DOUBLE BENEFIT SI NCE IT HAS OFFERED SHORT TERM CAPITAL GAINS OF ` 2 37 17 383 IN RESPECT OF 4 562 SHARES SOLD BY TH EM DURING THE ASSESSMENT YEAR 2008-09 AND INSTEAD OF A PPLYING THE PROVISIONS OF SECTION 55(2)(AB) R/W SECTION 2(42A)(H)(HA) THE ASSESSEE HAS TAKEN THE COST AT RUPEES ONE PER SHARE AND THE PERIOD OF HOLDING AS S HORT TERM. HE FURTHER SUBMITTED THAT THE LANGUAGE OF THE STATU TE IS CLEAR AND UNAMBIGUOUS AND HENCE PROVISIONS MUST BE INTERPRE TED ACCORDINGLY. HE RELIED ON THE FOLLOWING CASE LAWS:- CIT V/S SODRA DEVI/DAMAYANTI SOHNI V/S CIT 32 ITR 165 (SC); CIT V/S INDIAN BANK LTD. 56 ITR 77 (SC); AND CIT V/S AJAX PRODUCTS LTD. 55 ITR 741 (SC). 16. LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CIT V/S VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) FOR THE PROPOSITION THAT RULE OF BENEFICIAL CONSTRU CTION TO THE ASSESSEE MUST BE ADOPTED. 17. ON THE DISALLOWANCE UNDER SECTION 14A LEARNED COUN SEL SUBMITTED THAT THE ASSESSEE IS TRADING IN SHARES AND AS SUCH DIVID END RECEIVED IS A SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 7 BYPRODUCT OF THIS ACTIVITY IN DEALING IN SHARES AND THAT THE ASSESSEE HAS NOT INCURRED ANY DIRECT OR INDIRECT EXPENDITURE FOR EAR NING DIVIDEND AND HENCE NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 14A. 18. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT CONSEQUENT TO DEMUTUALIZATION AND CORPORATISATION THE ASSESSEE WAS GRANTED 10 000 SH ARES IN THE NEW COMPANY BSEL AS WELL AS A RIGHT TO TRADE SUBJECT T O FULFILLMENT OF CERTAIN CONDITIONS SUCH AS MAKING DEPOSITS ETC. HE EMPHASI ZED THAT ANY PERSON COULD TRADE IN BSEL SUBJECT TO PAYMENT OF A DEPOSIT AND THE RIGHT OF THE ASSESSEE WAS NOT AN EXCLUSIVE RIGHT AND IT WAS NOT CONNECTED OR LINKED WITH HIS BEING A SHAREHOLDER IN BSEL. THUS HE SUBMITTED THAT THE ENTIRE STOCK OF THE BSE CARD IS ATTRIBUTABLE TO THE ACQUISITION OF 10 000 EQUITY SHARES IN BSEL AND NO PART THEREOF CAN BE ASSIGNED TO THE TRA DING RIGHTS. HE POINTED OUT THAT THE SHARES IN BSEL HAD A HIGH INTRINSIC VA LUE BECAUSE OF ACCUMULATED RESERVES AND SURPLUS. HENCE HE SUBMITT ED THAT THE RIGHT OF TRADING CANNOT BE CONSIDERED AS HAVING ANY VALUE M UCH LESS WRITTEN DOWN VALUE AND HENCE QUESTION OF GRANT OF DEPRECIATION ON SUCH NIL VALUE DOES NOT ARISE. HE RELIED ON THE PROVISIONS OF SECTION 5 5(2)(AB) OF THE ACT. 19. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF T HE ACT THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SECTION 14A DOES NOT PROVIDE FOR ANY EXCEPTION AND IF EXEMPT INCOME IS EARNED T HE EXPENDITURE INCURRED IN RELATION TO INCOME SHOULD ALSO BE EXCLUDED. 20. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD AS WELL AS THE CASE LAWS CITED BEFORE US WE HOLD AS FOLLOW S:- 21. THE FIRST ISSUE IS WHETHER THE ASSESSEE IS ENTITLE D TO DEPRECIATION ON THE WDV OF THE ERSTWHILE BSE CARD AFTER BECOMING A MEMBER OF BSEL. THE ASSESSEE CONSEQUENT TO DEMUTUALIZATION HAS ACQUIR ED TWO SEPARATE RIGHTS SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 8 IN NEW COMPANY BSEL. THESE RIGHTS ARE (I) OWNERSH IP RIGHTS AND (II) TRADING RIGHTS. 22. THESE ASSETS ARE HELD AS A CONSEQUENCE TO THE ASSES SEE BEING A BSE MEMBERSHIP CARDHOLDER. THE HON'BLE SUPREME COURT IN TECHNO SHARES AND STOCK LTD. (SUPRA) HELD THAT THE BSE MEMBERSHIP CAR D CONFERRED CERTAIN RIGHTS TO THE MEMBERS IN TERMS OF RULES AND BYLAWS OF BSE AS THEY STOOD DURING THE RELEVANT YEARS AND THAT THIS WAS A BUSI NESS IN COMMERCIAL RIGHT. PARAS-19 AND 25 OF THE JUDGMENT OF HON'BLE SUPREME COURT IN TECHNO SHARES AND STOCKS LTD. (SUPRA) READS AS FOLLOWS:- 19. THE NEXT QUESTION IS - WHETHER THE MEMBERSHIP R IGHT COULD BE SAID TO BE OWNED BY THE ASSESSEE AND USED FOR THE B USINESS PURPOSE IN TERMS OF SECTION 32(1)(II). OUR ANSWER IS IN THE AF FIRMATIVE FOR THE REASON THAT THE RULES AND THE BYE-LAWS HEREINABOVE INDICATE THAT THE RIGHT OF MEMBERSHIP (INCLUDING THE RIGHT OF NOMINAT ION) VESTS IN THE EXCHANGE ONLY WHEN A MEMBER COMMITS DEFAULT. OTHERW ISE HE CONTINUES TO PARTICIPATE IN THE TRADING SESSION ON THE FLOOR OF THE EXCHANGE; THAT HE CONTINUES TO DEAL WITH OTHER MEMB ERS OF THE EXCHANGE AND EVEN HAS THE RIGHT TO NOMINATE SUBJECT TO COMPLIANCE OF THE RULES. MOREOVER BY VIRTUE OF EXPLANATION 3 TO SECTION 32(1) (II) THE COMMERCIAL OR BUSINESS RIGHT WHICH IS SIMILAR T O A LICENCE OR FRANCHISE IS DECLARED TO BE AN INTANGIBLE ASSET. MOREOVER UNDER RULE 5 MEMBERSHIP IS A PERSONAL PERMISSION FROM THE EXCH ANGE WHICH IS NOTHING BUT A LICENCE WHICH ENABLES THE MEMBER TO EXERCISE RIGHTS AND PRIVILEGES ATTACHED THERETO. IT IS THIS LICENCE WHICH ENABLES THE MEMBER TO TRADE ON THE FLOOR OF THE EXCHANGE AND TO PARTICIPATE IN THE TRADING SESSION ON THE FLOOR OF THE EXCHANGE. IT IS THIS LICENCE WHICH ENABLES THE MEMBER TO ACCESS THE MARKET. THEREFORE THE RIGHT OF MEMBERSHIP WHICH INCLUDES RIGHT OF. MEMBERSHIP WHI CH IS A LICENCE OR AKIN TO A LICENCE WHICH IS ONE OF THE ITEMS WH ICH FALLS IN SECTION 32(1) (II) OF THE 1961 ACT THE RIGHT TO PARTICIPATE IN THE MARKET HAS AN ECONOMIC AND MONEY VALUE IT IS AN EXPENSE INCURRED BY THE ASSESSEE WHICH SATISFIES THE TEST :::OF. BEING A LICENCE O R ANY OTHER :BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE IN TERMS OF SECTION 32(1)(II). 24. BEFORE CONCLUDING WE WISH TO CLARIFY THAT OUR PRESENT JUDGMENT IS STRICTLY CONFINED TO THE RIGHT OF MEMBERSHIP CON FERRED UPON THE MEMBER UNDER THE BSE MEMBERSHIP CARD DURING THE REL EVANT ASSESSMENT YEARS . WE HOLD THAT THE SAID RIGHT OF MEMBERSHIP IS A BUSINESS OR COMMERCIAL RIGHT WHICH GIVES A NON-DE FAULTING CONTINUING MEMBER A RIGHT TO ACCESS THE EXCHANGE AND TO PARTIC IPATE 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 BSE AS SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 9 THEY STOOD AT THE RELEVANT TIME. OUR JUDGMENT SHOUL D NOT BE UNDERSTOOD TO MEAN THAT EVERY BUSINESS OR COMMERCIA L RIGHT WOULD CONSTITUTE A LICENCE OR A FRANCHISE IN TERMS OF SECTION 32(1) (II) OF THE 1961 ACT. [EMPHASIS ADDED ] 23. THE QUESTION BEFORE US IS WHETHER THIS RIGHT I.E. THE RIGHTS CONFERRED UPON THE MEMBERS AS A BSE MEMBERSHIP CARDHOLDER WHICH WAS HELD TO BE A DEPRECIABLE ASSET CONTINUES TO BE HELD IN THE SAME FORM BY THE ASSESSEE. THE JUDGMENT OF HON'BLE SUPREME COURT AS IT IS CLE AR DOES NOT EXTEND TO THE CURRENT ASSESSMENT YEAR. THIS RIGHT AS A BSE ME MBERSHIP CARD HOLDER HAS UNDERGONE A CHANGE CONSEQUENT TO CORPORATIZATIO N AND DEMUTUALIZATION OF BSE. THE RIGHTS IN QUESTION ARE NOT HELD IN THE SAME FORM. 24. TO UNDERSTAND CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHANGE WE EXTRACT CERTAIN PORTIONS OF THE GROUP REPORT FOR READY REFERENCE:- REPORT OF THE GROUP ON CORPORATISATION & DEMUTUALISATION OF STOCK EXCHANGE S 1. INTRODUCTION 1.1 THE GOVERNMENT HAD ANNOUNCED ITS PROPOSAL TO CORPOR ATISE THE STOCK EXCHANGES BY WHICH OWNERSHIP MANAGEMENT AND TRADING RIGHTS WOULD BE SEGREGATED FROM EACH OTHER AND LEGI SLATIVE CHANGES IF REQUIRED WOULD BE PROPOSED ACCORDINGLY TO GIVE EFFECT TO THE CORPORATISATION AND DEMUTUALISATION O F STOCK EXCHANGES. THE FINANCE MINISTER HAS ALSO EMPHASIZED IN HIS BUDGET SPEECH FOR THE YEAR 2002-03 THAT THIS PROCES S WOULD BE COMPLETED DURING THE COURSE OF THE YEAR TO IMPLEMEN T THE DECISION TO SEPARATE OWNERSHIP MANAGEMENT AND OPER ATION OF THE STOCK EXCHANGES. DEMUTUALISATION THE NEW GOVERNANCE STRUCTURE 5.6 THIS REDEFINITION OF THE ROLES AND THE NEW PARA DIGM OF COMPETITION FORCED CHANGES IN THE TRADITIONAL GOVERNANCE STRUCT URES OF STOCK EXCHANGES. COUNTRIES RESPONDED TO THESE PRESSURES B Y CONVERTING THEIR TRADITIONAL 'NOT FOR-PROFIT' STOCK EXCHANGES INTO A 'FOR PROFIT' COMPANY. THIS PROCESS OF TRANSITION FROM 'MUTUALLY-OWNED' AS SOCIATION TO A COMPANY 'OWNED BY SHAREHOLDERS' IN OTHER WORDS TRA NSFORMING THE LEGAL STRUCTURE FROM A MUTUAL FORM TO A BUSINESS CO RPORATION FORM AND PRIVATISING THE CORPORATIONS SO CONSTITUTED IS REF ERRED TO AS DEMUTUALISATION. FURTHER THE COMPANY SO CONSTITUTE D MAY CHOOSE TO SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 10 BE A LISTED OR AN UNLISTED CLOSELY HELD PUBLIC COM PANY. THE CONCEPT OF DEMUTUALISATION CAN BE APPLIED TO ANY 'NON-PROFIT' ORGANISATION OR ASSOCIATION AS WELL. 5.7 DEMUTUALISATION INVOLVES THE SEGREGATION OF MEM BERS' RIGHT INTO DISTINCT SEGMENTS VIZ. OWNERSHIP RIGHTS AND TRADIN G RIGHTS. IT CHANGES THE RELATIONSHIP BETWEEN MEMBERS AND THE STOCK EXCH ANGE. MEMBERS WHILE RETAINING THEIR TRADING RIGHTS ACQUIRE OWNERS HIP RIGHTS IN THE STOCK EXCHANGE WHICH HAVE A MARKET VALUE AND THEY ALSO ACQUIRE THE BENEFITS OF LIMITED LIABILITY . THE SHAREHOLDERS IN A CORPORATISED STOCK EXCHANGE MAY BE A DIVERSE GROUP AS MEMBERS MAY DEC IDE TO RETAIN THEIR SHARES OR TO SELL THEM. DEMUTUALISATION HOWEV ER DOES NOT INSULATE THEM FROM COMPETITION. A STOCK EXCHANGE WH OSE MANAGEMENT DOES NOT EFFECTIVELY WORK TO MAINTAIN ITS POSITION IN THE MARKET MAY SOON BECOME A TAKE-OVER TARGET. 9.6 THE GROUP NOTED THAT THERE ARE TWO PARTS TO THI S TRANSITION. ONE WHICH INVOLVES THE CHANGING THE VOLUNTARY NOT-FOR-P ROFIT CHARACTER OF THE ENTITY INTO A FOR-PROFIT ONE (IN SOME CASES INT O A CORPORATE BODY AS WELL) AND SECOND IS THE PROCESS OF DELINKING OF OW NERSHIP OF THE ENTITY BY THE MEMBERS FROM THEIR TRADING RIGHTS . THE FIRST WOULD INVOLVE THE MANNER IN WHICH ASSETS WOULD BE TRANSFERRED FROM TH E EXISTING ENTITIES TO THE NEW CORPORATE ENTITY WHEREVER DEMUTUALISATI ON HAS TO BE ACCOMPANIED BY CORPORATISATION AS IN THE CASE OF BS E ASE AND MPSE. 9.7 THE SECOND WOULD INVOLVE THE ALLOCATION OF THES E ASSETS TO THE MEMBERS. ALL STOCK EXCHANGES WITH THE EXCEPTION OF THE NSE OTCEI AND ICSEI HAVE THE CONCEPT OF MEMBERSHIP CARDS FOR THEIR MEMBERS. THE TWIN RIGHTS OF TRADING AND AN UNDIVIDED INTERES T IN THE OWNERSHIP OF THE STOCK EXCHANGE ARE EMBEDDED IN THE MEMBERSHIP C ARD OF A STOCK EXCHANGE. THE TRANSITION TO A DEMUTUALISED STOCK EX CHANGE WOULD INVOLVE THE SEGREGATION OF THESE TWIN RIGHTS INTO T WO SEPARATE AND INDEPENDENT RIGHTS VIZ . A. THE RIGHT TO PARTICIPATE IN THE OWNERSHIP OF THE AS SETS OF THE STOCK EXCHANGE AND B. THE RIGHT TO TRADE ON THE STOCK EXCHANGE . 9.8 THIS DECOUPLING OF THE TWO RIGHTS WOULD HAVE TO BE EFFECTED THROUGH THE CANCELLATION OF THE CARD AGAINST A CONS IDERATION OF CREATION OF TWO ASSETS OR TWO RIGHTS - ONE AN INTEREST IN T HE ASSETS OF THE STOCK EXCHANGE AND THE OTHER INTEREST IN THE TRADING RIGH T. THE INTEREST IN THE ASSET IS CREATED BY ISSUANCE OF SHARES IN THE N EW ENTITY IN LIEU OF THE CONSIDERATION OF EXTINGUISHMENT OF CARDS CURREN TLY OWNED BY THE MEMBERS IN THE MUTUAL ENTITY . INTERNATIONALLY ALSO STOCK EXCHANGES HAVE FOLLOWED THE SAME PROCEDURE FOR DEMUTUALISATIO N. THE MANNER IN WHICH THE INTEREST IN THE TRADING RIGHTS WOULD BE C REATED IS DISCUSSED IN PARAGRAPHS 9.20 TO 9.22 OF THIS REPORT. 9.9 AT THE POINT OF TIME WHEN A TRADING RIGHT IS A CQUIRED AND A SHARE IS ALLOTTED TO A MEMBER OF AN STOCK EXCHANGE BY VIR TUE OF WHICH HE SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 11 ACQUIRES A MEMBERSHIP PRIVILEGE AGAINST THE EXTINGU ISHMENT OF THE PREVIOUS RIGHT OF MEMBERSHIP NO TRANSFER OF ASSETS EFFECTIVELY TAKES PLACE AND NEITHER OF THE ACQUISITIONS SHOULD THEREF ORE BE DEEMED TO BE A TRANSFER WITHIN THE MEANING OF THE WORD IN THE IN COME TAX ACT. HOWEVER AT THE POINT OF SALE OF ANY OF THESE TWO R IGHTS CAPITAL GAINS TAX WOULD BE ATTRACTED. THIS WOULD ALSO IMPLY THAT THE COST OF ACQUISITION WOULD HAVE TO BE SPLIT AND VALUED . THE MANNER IN WHICH THIS COULD BE DONE HAS BEEN ELABORATED IN PARAGRAPH 9.22 OF THIS REPORT. SEGREGATION OF TRADING RIGHTS AND OWNERSHIP 9.19 FOR THE PURPOSE OF SEGREGATION OF OWNERSHIP AN D TRADING RIGHTS THE GROUP EXAMINED THE PRESENT SYSTEMS OF MEMBERSHI P PREVAILING IN THE STOCK EXCHANGES IN THE COUNTRY. IT WAS NOTED TH AT EXCEPT FOR NSE WHICH OFFERS TRADING RIGHTS AGAINST DEPOSITS ALL O THER STOCK EXCHANGES HAVE THE CONCEPT OF MEMBERSHIP CARDS FOR THEIR MEMB ERS. IN SOME STOCK EXCHANGES E.G. BSE THE TRADING RIGHT IS EXER CISED THROUGH THE OWNERSHIP OF A TRADING CARD WHICH SUBJECT TO BSE'S APPROVAL CAN BE TRANSFERRED FOR A CONSIDERATION. CARDS CAN BE SOLD BY MEMBERS AND ALSO BY THE STOCK EXCHANGE WHEN NEW MEMBERS ARE INT RODUCED. 9.20 THE REPRESENTATIONS RECEIVED BY THE GROUP FROM THE STOCK EXCHANGES BROKERS' ASSOCIATION AND INVESTORS' ASSO CIATION SUGGEST THAT THERE ARE SEVERAL ADVANTAGES IN THE DEPOSIT SYSTEM AS OPPOSED TO THE CARD SYSTEM. THE MAJOR ADVANTAGES ARE:- I. THE DEPOSIT PROVIDES A VALUABLE SOURCE OF FUNDIN G FOR THE STOCK EXCHANGE WHICH NEEDS TO MAKE LARGE INVESTMENTS IN TECHNOLOGY. II. THE DEPOSIT IS CONSIDERED AS PART OF THE DEPOSI T REQUIRED BY THE MEMBER FOR HIS TRADING OPERATIONS AS ALSO AS PART O F HIS 'NET WORTH' UNLIKE THE CARD SYSTEM WHERE THE AMOUNT INVESTED BY A MEMBER IN THE PURCHASE OF THE CARD IS NOT CONSIDERED FOR EITHER P URPOSE. IT NEITHER FORMS A PART OF MEMBERS CAPITAL FOR THE PURPOSE OF COMPUTING HIS BASE MINIMUM CAPITAL NOR IS IT TAKEN INTO ACCOUNT FOR EXPOSURE NORMS. 9.21 THE GROUP NOTED FROM THE REPRESENTATIONS RECEI VED BY IT THAT THE STOCK EXCHANGES FAVOURED THE DEPOSIT SYSTEM AS OPPO SED TO THE CARD OR THE SEAT SYSTEM. THE GROUP THEREFORE RECOMMENDS THAT- A) THE TRADING CARD SYSTEM BE REPLACED BY THE DEPOS IT SYSTEM WHEREIN THE MONEY DEPOSITED BY THE MEMBER TO OBTAIN TRADING RIGHTS ONLY BE CONSIDERED AS DEPOSIT WITH THE STOCK EXCHANGE FOR T RADING PURPOSE . WHILE THE GROUP FAVORS THE DEPOSIT SYSTEM IT WOULD LIKE TO LEAVE THE CHOICE OF ADOPTING EITHER THE CARD OR THE DEPOSIT S YSTEM TO THE STOCK EXCHANGES; AND B) THE FOLLOWING PROCEDURES BE ADOPTED IF THE DEPOS IT SYSTEM IS ACCEPTED BY AN STOCK EXCHANGE FOR THE PURPOSE OF SE GREGATION OF THE TRADING RIGHTS AND OWNERSHIP. AS AN ILLUSTRATION ON LY SOME FIGURES HAVE BEEN ASSUMED. SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 12 MEMBERS OF AN STOCK EXCHANGE CURRENTLY OWN AN ASSET VIZ. A CARD WHOSE VALUE CAN BE ASSESSED ON TWO DIFFERENT PARAME TERS VIZ.:- I. THE MARKET VALUE OF THE CARD AS EVIDENCED BY THE AC TUAL TRANSACTIONS WHICH HAVE TAKEN PLACE IN RECENT YEARS . II. THE FAIR VALUE OF THE CARD DERIVED BY DIVIDING THE FAIR VALUE OF THE STOCK EXCHANGE BY THE NUMBER OF CARDS. THIS VALUE C AN BE DETERMINED BY USING SOME OF THE WELL-ESTABLISHED BA SES LIKE 'THE UNDERLYING ASSET' APPROACH THE 'INCOME' APPROACH E TC. AND THE TASK CAN BE ENTRUSTED TO PROFESSIONAL VALUERS. III. BASED ON THE ABOVE A VALUE OF THE CARD CAN BE DETE RMINED. THE VALUE OF THE CARD REPRESENTS THE AGGREGATE VALU E OF TWO INDEPENDENT RIGHTS OF THE HOLDER VIZ. (A) THE RIGHT TO A SHARE IN THE NET ASSETS AND GOOD WILL OF THE STOCK EXCHANGE AND (B) THE RIGHT TO TRADE ON THE STOCK EXCHANGE. SINCE TRADING RIGHTS ARE IN FUTURE TO BE MADE CONDI TIONAL ON THE PLACEMENT OF A DEPOSIT WITH THE STOCK EXCHANGE AND SUCH DEPOSIT WILL ALSO BE COLLECTED FROM NEW MEMBERS THE AMOUNT OF S UCH DEPOSIT MAY BE CONSIDERED AS THE VALUE OF THE RIGHT TO TRADE AN D THE EXCESS OF THE FAIR VALUE OF THE CARD OVER THAT AMOUNT MAY BE CONS IDERED AS THE VALUE OF THE RIGHT TO SHARE IN THE NET ASSETS AND GOODWIL L OF THE STOCK EXCHANGE . ASSUMING PURELY FOR THE PURPOSE OF ILLUSTRATION TH AT THE VALUE OF A CARD IS DETERMINED AT RS.125 LAKH AND THE AMOUNT OF DEPO SIT AT RS.75 LAKH THE VALUE OF THE CARD CAN BE APPORTIONED AS UNDER : - (A) VALUE OF SHARE IN NET ASSETS AND GOODWILL OF THE STOCK EXCHANGE RS.50 LAKH (B) VALUE OF TRADING RIGHTS RS. 75 LAKH RS.125 LAKH THE STOCK EXCHANGE WILL THEREFORE ISSUE TO EACH MEM BER ON CANCELLATION OF THE CARD SHARES WHICH HAVE AN AGG REGATE VALUE OF RS.50 LAKH AND A DEPOSIT RECEIPT OF RS.75 LAKH. THE SHARES MAY BE ISSUED AT PAR OR AT PREMIUM AS MAY BE CONSIDERED AP PROPRIATE. IN THE BOOKS OF THE STOCK EXCHANGE THE AGGREGATE V ALUE OF THE SHARES ISSUED AND DEPOSIT RECEIPTS ISSUED WILL REPRESENT T HE TOTAL CONSIDERATION. THE EXCESS OF TOTAL CONSIDERATION OV ER THE BOOK VALUE OF SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 13 THE NET ASSETS WILL REPRESENT GOODWILL AND WILL BE RECORDED AS SUCH. GOODWILL WILL HAVE TO BE WRITTEN OFF OVER A SPECIFI ED PERIOD SAY 20 YEARS. A TRADING MEMBER CAN LIQUIDATE A PART OF HIS INVEST MENT BY SELLING ALL OR PART OF THE SHARE CAPITAL. HOWEVER SO LONG AS H E REMAINS A TRADING MEMBER HE HAS TO RETAIN THE DEPOSIT. IF THE MEMBER WISHES TO TERMINATE HIS MEMBERSHIP H E CAN DEMAND REFUND OF THE DEPOSIT BUT IN ORDER TO ENSURE THE LI QUIDITY OF THE STOCK EXCHANGE THERE SHOULD BE AN INITIAL 'LOCK-IN' PERI OD OF THREE YEARS AND THEREAFTER SUCH 'LOCK-IN' PERIOD AS THE STOCK EXCHA NGE MAY STIPULATE TO PROVIDE ASSURANCE AGAINST NON-NOTIFIED CLAIMS. RELEVANT PORTION OF THE NOTIFICATION OF SEBI IN TH IS REGARD IS EXTRACTED BELOW FOR READY REFERENCE:-` SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION MUMBAI THE 20 TH MAY 2005 SECURITIES AND EXCHANGE BOARD OF INDIA MUMBAI ORDER UNDER SECTION 4B (6) READ WITH SECTION 4B (7) OF THE SECURITIES CONTRACTS (REGULATION) ACT 1956 IN THE MATTER OF THE BSE (CORPORATISATION AND DEMUTUALISATION) SC HEME 2005. S. O. 684(E). 1.0 BSE (ALSO KNOWN AS THE STOCK EXC HANGE MUMBAI) IS AN ASSOCIATION OF PERSONS AND A RECOGNISED STOCK EXCHANGE HAVING ITS PRINCIPAL PLACE OF BUSINESS AT PHIROZE JEEJEEBH OY TOWERS DALAL STREET FORT MUMBAI 400 001. IT IS REQUIRED TO BE CORPORATISED AND DEMUTUALISED UNDER THE SECURITIES CONTRACTS (REGULA TION) ACT 1956 (HEREINAFTER REFERRED TO AS THE SC(R)A). 3. INCORPORATION OF BOMBAY STOCK EXCHANGE LIMITED 3.1 THE FIRST SHAREHOLDERS SHALL INCORPORATE A PUBL IC COMPANY LIMITED BY SHARES UNDER SECTION 12 OF THE COMPANIES ACT 19 56 IN THE NAME AND STYLE OF 'BOMBAY STOCK EXCHANGE LIMITED'. 3.2 THE FIRST SHAREHOLDERS SHALL EACH SUBSCRIBE TO AND PAY FOR 10 000 FULLY PAID-UP EQUITY SHARES OF THE FACE VALUE OF RE .1/- EACH FOR CASH AT PAR OF BOMBAY STOCK EXCHANGE LIMITED. 8. TRADING RIGHTS SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 14 8.1 A MEMBER OR A LIMITED TRADING MEMBER OF BSE WH O IS REGISTERED AS A STOCK BROKER ON THE DAY PRECEDING THE DUE DATE SHALL BECOME A TRADING MEMBER OF THE CASH SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON THE DUE DATE; 8.2 A MEMBER WHO IS NOT REGISTERED AS A STOCK BROKE R ON THE DAY PRECEDING THE DUE DATE SHALL BECOME A TRADING MEMBE R OF THE CASH SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON BEING R EGISTERED AS A STOCK BROKER UNDER THE SEBI (STOCK BROKERS AND SUB- BROKERS) REGULATIONS 1992 WITHIN 3 MONTHS FROM THE DUE DATE . 8.3 A TRADING MEMBER AND/OR A CLEARING MEMBER OF TH E DERIVATIVES SEGMENT OF BSE ON THE DAY PRECEDING THE DUE DATE SH ALL BECOME A TRADING MEMBER AND/OR A CLEARING MEMBER OF THE DERI VATIVES SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED ON THE DUE DATE. 8.4 AFTER THE DUE DATE A PERSON DESIROUS OF BECOMI NG A TRADING MEMBER OF ANY SEGMENT OF BOMBAY STOCK EXCHANGE LIMI TED SHALL BE ADMITTED IF HE COMPLIES WITH REQUIREMENTS AND BRING S IN SPECIFIED FEES AND DEPOSITS AS SPECIFIED IN THE RULES BYE-LAWS AN D REGULATIONS OF BOMBAY STOCK EXCHANGE LIMITED. 8.5 BOMBAY STOCK EXCHANGE LIMITED SHALL FOR THE PU RPOSE OF ADMITTING ANY PERSON AS A TRADING MEMBER OF A SEGMENT FOLLOW UNIFORM STANDARDS IN TERMS OF CAPITAL ADEQUACY DEPOSITS F EES ETC. IRRESPECTIVE OF MODE OF ACQUISITION OF TRADING RIGHT BY THAT PER SON: PROVIDED THAT DIFFERENT STANDARDS MAY BE FOLLOWED F OR ADMISSION OF A PERSON AS A TRADING MEMBER WHO HAS ACQUIRED TRADING RIGHT BY WAY OF TRANSMISSION ; PROVIDED FURTHER THAT DIFFERENT STANDARDS MAY BE FO LLOWED FOR ADMISSION OF TRADING MEMBERS IN DIFFERENT SEGMENTS. 8.6 A TRADING MEMBER MAY SURRENDER HIS MEMBERSHIP O F ANY SEGMENT TO BOMBAY STOCK EXCHANGE LIMITED IN THE MANNER SPEC IFIED IN THE RULES BYE-LAWS AND REGULATIONS OF BOMBAY STOCK EXC HANGE LIMITED 8.7 TRADING MEMBERS OF THE CASH SEGMENT OF BOMBAY S TOCK EXCHANGE LIMITED AND THE CLEARING MEMBERS OF THE DERIVATIVES SEGMENT OF BOMBAY STOCK EXCHANGE LIMITED SHALL CLEAR AND SETTL E TRADES RESPECTIVELY TILL THE CLEARING AND SETTLEMENT FUNCT ION IS TRANSFERRED TO A RECOGNIZED CLEARING CORPORATION UNDER CLAUSE 13.1 O F THIS SCHEME. 8.8 IRRESPECTIVE OF THE DATE OR MODE OF ACQUISITION OF TRADING RIGHT THE TRADING MEMBERS IN A SEGMENT OF BOMBAY STOCK EXCHAN GE LIMITED SHALL HAVE UNIFORM RIGHTS AND PRIVILEGES. SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 15 PROVIDED THAT BOMBAY STOCK EXCHANGE LIMITED MAY WI TH THE PRIOR APPROVAL OF SEBI GRANT ADDITIONAL PRIVILEGES TO TH OSE TRADING MEMBERS WHO WERE MEMBERS ON THE DAY PRECEDING THE DUE DATE. 8.9 TRADING MEMBERS OF BOMBAY STOCK EXCHANGE LIMITE D ON THE DUE DATE SHALL CONTINUE TO HAVE THE SAME RIGHTS AND PRI VILEGES IN RESPECT OF THEIR CLIENTS AND CONSTITUENTS AND OTHER MEMBERS AR ISING OUT OF OR UNDER ANY ACT OMISSION OR CONTRACT OR LAW NOTIFIC ATION ORDER DIRECTION ETC. AS HAD ACCRUED TO THEM WHILE BEING MEMBERS OR LIMITED TRADING MEMBERS OF BSE OR TRADING MEMBERS AND OR CL EARING MEMBER OF DERIVATIVE SEGMENT OF BSE ON OR BEFORE THE DUE D ATE. 8.10 TRADING MEMBERS OF BOMBAY STOCK EXCHANGE LIMIT ED SHALL BE BOUND BY ALL OBLIGATIONS AND LIABILITIES TOWARDS TH EIR CLIENTS AND CONSTITUENTS SEBI BSE AND OTHER AUTHORITIES OR OT HER PERSONS ARISING OUT OF OR UNDER ANY ACT OMISSION OR CONTRACT OR LA W NOTIFICATION ORDER DIRECTION ETC. WHILE BEING MEMBERS OR LIMIT ED TRADING MEMBERS OF BSE OR TRADING MEMBERS AND OR CLEARING MEMBERS O F DERIVATIVE SEGMENT OF BSE ON OR BEFORE THE DUE DATE. 25. FROM THE ABOVE FOLLOWING CONCLUSIONS CAN BE DRAWN. I) BSE WHICH WAS A VOLUNTARY NOT FOR PROFIT CHARACTER OF ENTITY GOT CONVERTED INTO A FOR PROFIT AND CORPO RATE ACTIVITY; II) BSE MEMBERSHIP CARD IS CANCELLED AND THE TWIN RIGHT S THAT A HOLDER OF BSE CARDHOLDER HAD GOT SEPARATED INTO T HE FOLLOWING INDEPENDENT RIGHTS (A) OWNERSHIP RIGHTS AND (B) T RADING RIGHTS. III) THE PREVIOUS RIGHTS OF A BSE MEMBERSHIP CARDHOLDER GETS EXTINGUISHED AND IN LIEU THEREOF THE BSE MEMBER ACQ UIRES SHARES IN BSEL AND TRADING RIGHTS IN BSEL; IV) UNDER SECTION 47(XIIIA) SUCH EXTINGUISHMENT OF RIG HTS AND ACQUISITION OF SHARES AND TRADING RIGHTS IN BSEL IS NOT REGARDED AS TRANSFER. V) THAT COST OF ACQUISITION OF OWNERSHIP RIGHTS AND TR ADING RIGHTS WOULD HAVE TO BE SPLIT AND VALUED ON TRANSMI SSION. SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 16 VI) TRADING RIGHTS ARE BASED AS DEPOSIT SYSTEM AS OPPOS ED TO CARD SYSTEM; VII) THE TRADING CARD SYSTEM IS REPLACED BY THE DEPOSIT SYSTEM; VIII) THE MONEY DEPOSIT BY THE MEMBER TO OBTAIN TRADING RIGHTS IS BE CONSIDERED AS A DEPOSIT WITH STOCK EX CHANGE FOR TRADING PURPOSE; IX) VALUE OF OWNERSHIP RIGHT SHALL BE THE SHARE IN THE NET ASSETS AND GOODWILL OF THE STOCK EXCHANGE; X) THE VALUE OF DEPOSIT PLACED TO OBTAIN TRADING RIGHT S WILL BE THE VALUE OF THE RIGHT TO TRADE; XI) A TRADING MEMBER HAS TO RETAIN THE DEPOSIT AS LONG AS HE TRADES. IF A TRADING MEMBER WISHES TO TERMINATE HIS MEMBERSHIP HE CAN DEMAND REFUND OF DEPOSIT. 26. HENCE IT 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 HOL DER IN BSEL. 27. THE OWNERSHIP RIGHTS OF THE ASSESSEE GIVES IT A RIG HT TO PARTICIPATE IN THE OWNERSHIP OF THE ASSETS AND MANAGEMENT OF THE S TOCK EXCHANGE. THE ASSESSEE HAS BEEN GRANTED CERTAIN SHARES IN BSEL AT PAR. THE ASSESSEE HAS DISCLOSED THEM AS INVESTMENT. RIGHTLY THE ASSESSEE HAS NOT CLAIMED THAT THE SHARES ALLOTTED IN BSEL WAS A BUSINESS AND COMMERCI AL RIGHT OF SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE ACT. 28. COMING TO THE TRADING RIGHTS THE REPORT OF THE GRO UP ON CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHAN GE FIXED THE VALUE AS SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 17 EQUIVALENT TO THE DEPOSIT REQUIREMENT. THE TRADING RIGHT IS A BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NATURE UNDER SECTION 3 2(1)(II) OF THE ACT. 29. THE BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NATUR E 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 THA T NO DEPRECIATION CAN BE GRANTED ON THE WRITTEN DOWN VALUE OF THE BSE MEMBER SHIP 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 HEREAF TER. 30. AS WE HAVE NOTICED THE GROUP ON CORPORATISATION AN D DEMUTUALIZATION OF STOCK EXCHANGES HAS SUGGESTED THE MANNER OF VALU ATION OF OWNERSHIP RIGHTS AND TRADING RIGHTS. IT WAS RECOMMENDED THAT THE VALUE OF TRADING RIGHTS BE FIXED AT THE AMOUNT OF DEPOSIT THAT WAS R EQUIRED FOR ACQUIRING TRADING RIGHTS. THE VALUE OF THE BSE CARD TO THE EX TENT ALLOCABLE OR ATTRIBUTABLE TO OWNERSHIP RIGHTS CAN BE SAID TO HA VE BEEN TRANSMITTED BY WAY OF ALLOTMENT OF SHARES IN BSEL. THE VALUE IS TO BE DETERMINED BY THE UNDERLYING VALUE OF ASSETS OF BSEL OR THROUGH SOME OTHER APPROVED METHOD. 31. COMING TO TRADING RIGHTS WE FIND THAT THE VALUE TH AT CAN BE ASSIGNED FROM OUT OF THE VALUE OF BSE CARD IS ONLY TO THE EX TENT 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 REFUNDABL E DEPOSIT HOW CAN SUCH VALUE OF REFUNDABLE DEPOSIT BE DEPRECIATED WHEN THE VALUE IN REALITY DOES NOT COME DOWN. IF THE REFUNDABLE DEPOSIT IS DEDUCTED FR OM THE VALUE THEN THE PRESENT VALUE OF TRADING RIGHT IS NIL. UNDER THESE CIRCUMSTANCES THERE IS NO VALUE TO THE TRADING IN COMMERCIAL RIGHT ENTITLING THE ASSESSEE FOR DEDUCTION BY WAY OF DEPRECIATION. HENCE NO DEPRECIATION CAN BE GRANTED ON THIS RIGHT. THUS WE UPHOLD THE FINDING OF THE REVENUE AUTHORIT IES. WE NOW DISCUSS THE IMPACT OF THE FOLLOWING SECTIONS:- SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 18 55(2) FOR THE PURPOSES OF SECTIONS 48 AND 49 'COST OF ACQUISITION' (AB) IN RELATION TO A CAPITAL ASSET BEING EQUITY S HARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNISED STOCK EXC HANGE IN INDIA UNDER A SCHEME FOR DEMUTUALISATION OR CORPORATISATION APP ROVED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 199 2 (15 OF 1992) SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL ME MBERSHIP OF THE EXCHANGE. PROVIDED THAT THE COST OF A CAPITAL ASSET BEING TR ADING 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. 2(42)(H) IN THE CASE OF A CAPITAL ASSET BEING TRADING OR C LEARING RIGHTS OF A RECOGNISED STOCK EXCHANGE IN INDIA ACQUIRED BY A PERSON PURSUANT TO DEMUTUALISATION OR CORPORATISATION OF THE RECOGN ISED 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 MEMB ER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IMMEDIATELY PRIO R 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 COR PORATISATION OF A RECOGNISED STOCK EXCHANGE IN INDIA AS REFERRED TO I N 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 CORPORATISATION] 113C[(H B) IN THE CASE OF A CAPITAL ASSET BEING ANY SPECIFIED SECURITY OR SWEA T EQUITY SHARES ALLOTTED OR TRANSFERRED DIRECTLY OR INDIRECTLY BY THE EMPLOYER FREE OF COST OR AT CONCESSIONAL RATE TO HIS EMPLOYEES (INCL UDING FORMER EMPLOYEE OR EMPLOYEES) THE PERIOD SHALL BE RECKONE D FROM THE DATE OF ALLOTMENT OR TRANSFER OF SUCH SPECIFIED SECURITY OR SWEAT EQUITY SHARES. 47(XIII) ANY TRANSFER OF A CAPITAL ASSET OR INTANG IBLE ASSET BY A FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF 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 CORPORA TISATION OF A RECOGNISED STOCK EXCHANGE IN INDIA AS A RESULT OF W HICH AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IS SUCCEEDED BY S UCH 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 BUS INESS IMMEDIATELY BEFORE THE SUCCESSION BECOME THE ASSETS AND LIABILI TIES OF THE COMPANY; (B) ALL THE PARTNERS OF THE FIRM IMMEDIATELY BEFORE THE SUCCESSION BECOME THE SHAREHOLDERS OF THE COMPANY IN THE SAME PROPORTION IN SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 19 WHICH THEIR CAPITAL ACCOUNTS STOOD IN THE BOOKS OF THE FIRM ON THE DATE OF THE SUCCESSION; (C) THE PARTNERS OF THE FIRM DO NOT RECEIVE ANY CON SIDERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY FORM OR MAN NER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; AND (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPA NY OF THE PARTNERS 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 SUCCESSIO N; (E) THE DEMUTUALISATION OR CORPORATISATION OF A R ECOGNISED STOCK EXCHANGE IN INDIA IS CARRIED OUT IN ACCORDANCE WITH A SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVE D BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTI ON 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 (1 5 OF 1992);] 47(XIIIA) ANY TRANSFER OF A CAPITAL 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 S UCH MEMBER IN THAT RECOGNISED STOCK EXCHANGE IN ACCORDANCE WITH A SCHE ME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVE D BY THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTI ON 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 (1 5 OF 1992);] 32. ALL THESE SECTIONS DEAL WITH COMPUTATION OF CAPITAL GAINS UNDER CHAPTER-IV(E) I.E. SECTION 45 TO 55A OF THE ACT. I N OUR CONSIDERED OPINION THESE SECTIONS WHICH ARE FOR THE COMPUTATION OF CAP ITAL GAINS HAVE NO RELEVANCE ON THE ALLOWABILITY OF DEPRECIATION. THE ARGUMENT OF THE ASSESSEE THAT IT HAD TAKEN THE ORIGINAL COST OF THE SHARE @ ` 1 WHILE COMPUTING CAPITAL GAIN IN A LATTER YEAR DOES NOT EFFECT OUR DECISION . THUS WE UPHOLD THE ORDER OF THE ASSESSING OFFICER AS CONFIRMED BY THE COMMIS SIONER (APPEALS) WHEREIN DEPRECIATION ON MEMBERSHIP CARD HAS BEEN DE NIED. 33. COMING TO DISALLOWANCE UNDER SECTION 14A THE ARGUM ENT OF THE ASSESSEE THAT THIS IS INCIDENTAL INCOME AND THAT IT HAS NOT INCURRED ANY DIRECT OR INDIRECT EXPENDITURE IS NOT IN ACCORDANCE WITH L AW. THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO . LTD. V/S DCIT (2010) 328 ITR 081 (BOM.) HAS HELD THAT RULE-8D CANNOT BE APPLIED RETROSPECTIVELY. AS IN THE CURRENT YEAR RULE-8D CA NNOT BE APPLIED WE SET SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 20 ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FO R DISALLOWING REASONABLE AMOUNT IN ACCORDANCE WITH LAW. 34. IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOWED. 35. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.6934/MUM. /2009. GROUND NO.1 READS AS FOLLOWS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F RS.1 80 79 337/- MADE ON ACCOUNT OF PROTECTIVE ADDITION ON BSE CARD. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) ERRED IN IGNORING THE PROVISION OF SE CTION 41(1) AND 28(IV) OF THE INCOME-TAX ACT. 36. AFTER HEARING BOTH THE PARTIES WE FIND THAT THE IS SUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DE CISION OF MUMBAI C BENCH OF THE TRIBUNAL IN ITA NO.5538/MUM./2009 FOR ASSESSMENT YEAR 2006- 07 IN ACIT V/S M/S. OMNISCIENT SECURITIES P. LTD. ORDER DATED 16 TH MARCH 2011 WHEREIN THE TRIBUNAL VIDE PARA-10 DISMISSED THE GROUND RAISED BY THE REVENUE WHICH READS AS FOLLOWS:- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ENTIRE CASE OF THE AO IS ON THE PREMISE THAT IN THE EVENT OF SALE OF THE SHARES WHICH THE ASSESSEE ACQUIRED ON CORPORATIZATI ON AND DEMUTUALIZATION OF BSE AS A COMPANY THE ASSESSEE W OULD TAKE THE BENEFIT OF THE PROVISIONS OF SECTION 55(2)(AB) OF T HE ACT AND CLAIM THE COST OF ACQUISITION AT THE PRICE AT WHICH THE ASSES SEE ORIGINALLY PAID FOR ACQUIRING BSE CARD IGNORING THE DEPRECIATION ON THE BSE CARD WHICH THE ASSESSEE AVAILED FROM THE PERIOD OF ACQUISITION OF THE BSE CARD TILL EXCHANGE OF SHARES FOR THE BSE CARD. THIS APPREHENS ION OF THE AO WHICH HAS BEEN THE BASIS OF PROTECTIVE ASSESSMENT M ADE IN THE ORDER OF ASSESSMENT IS ERRONEOUS BECAUSE THE ASSESSEE HAS SOLD 6386 SHARES OF BSE LTD. OUT OF 10000 SHARES OF BEE LTD. WHICH IT HAD GOT ON CORPORATIZATION AND DEMUTUALIZATION OF THE BSE AS A LIMITED COMPANY IN THE ASSESSMENT YEAR 2008-09. WHILE COMPUTING CAP ITAL GAIN ON SUCH TRANSFER THE ASSESSEE CALCULATED ITS COST OF ACQUIS ITION ON THE BASIS OF THE WRITTEN DOWN VALUE AND RE.1 WHICH HAD PAID PER SHARE AT THE TIME OF ISSUE OF SHARES BY BSE LTD. THUS THE GRIEVANCE O F THE REVENUE AS PROJECTED BY THE AO IS FOUND TO BE NON-EXISTENT IN THIS CASE. WITH REGARD TO THE REMAINING SHARES OF BSE LTD. WHICH TH E ASSESSEE HOLDS SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 21 THE QUESTION OF COMPUTATION OF CAPITAL GAIN WOULD C ONTINUE TO BE THE SAME BASIS ON WHICH THE ASSESSEE HAS COMPUTED CAPIT AL GAIN IN A.Y 2008-9. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THA T THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUE NTLY GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 37. KEEPING THE AFORESAID FINDINGS OF THE TRIBUNAL IN V IEW WE DISMISS THE GROUNDS RAISED BY THE REVENUE. 38. GROUND NO.3 READS AS FOLLOWS:- 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) ERRED IN GIVING RELIEF ON ACCOUNT OF TRAN SACTION CHARGES AS PAYMENTS MADE ON ACCOUNT OF TRANSACTION CHARGES ARE TECHNICAL SERVICES WITHIN THE PURVIEW OF SEC. 194J AND THEREF ORE LIABLE FOR DEDUCTION OF TAX. 39. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S KO TAK SECURITIES LTD. IN ITA NO.3111/2009 JUDGMENT DATED 21 ST OCTOBER 2011 HELD THAT TRANSACTION CHARGES PAID TO BSE IS FEES FOR TECHNICAL SERVICES UNDER SECTION 194J. THE HON'BLE COURT REVERSED THE DECISION OF THE TRIBUNAL AND HELD AS FOLLOWS:- THE ASSESSEES ARGUMENT BASED ON SKYCELL COMMUNICA TIONS V/S DCIT 251 ITR 53 (MAD) THAT THE STOCK EXCHANGE DOES NOT RENDER MANAGERIAL OR TECHNICAL SERVICES IS NOT ACCEPTABL E BECAUSE WHILE IN THAT CASE THE SUBSCRIBER HAD PAID A FIXED AMOUNT FO R THE USE OF AIR TIME ON THE MOBILE PHONE AND WAS NOT CONCERNED WITH THE TECHNOLOGY OR THE SERVICES RENDERED BY THE MANAGERIAL STAFF IN KEEPING THE CELLULAR MOBILE PHONE ACTIVATED IN THE CASE OF A STOCK EXCH ANGE THERE IS DIRECT LINKAGE BETWEEN THE MANAGERIAL SERVICES R ENDERED AND THE TRANSACTION CHARGES LEVIED BY THE STOCK EXCHANGE . THE BOLT SYSTEM PROVIDED BY THE BSE IS A COMPLETE PLATFORM FOR TRAD ING IN SECURITIES . A STOCK EXCHANGE MANAGES THE ENTIRE TRADING ACTIVITY CARRIED ON BY ITS MEMBERS AND ACCORDINGLY RENDERS MANAGERIAL SERVICE S. CONSE- QUENTLY THE TRANSACTION CHARGES CONSTITUTED FEES FOR TECHNICAL SERVICES U/S 194-J AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS . HOWEVER ON FACTS BECAUSE FROM 1995 TO 2005 NO TAX WAS DEDUCTED AND NO OBJECTION WAS RAISED BY THE AO AND BECAUSE F ROM AY 2006-07 ONWARDS THE ASSESSEE HAD DEDUCTED TDS NO DISALLOWA NCE U/S 40(A)(I) CAN BE MADE FOR AY 2005-06. 40. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT WE A LLOW THIS GROUND RAISED BY THE REVENUE. SINO SECURITIES PVT. LTD. ITA NO. 6264/MUM./2009 ITA NO. 6394/MUM./2009 22 41. IN THE RESULT REVENUES APPEAL IS ALLOWED IN PART. 42. TO SUM UP ASSESSEES APPEAL AS WELL AS REVENUES A PPEAL ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER 2011. SD/- VIJAY PAL RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI DATED: 23 RD NOVEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A) MUMBAI CONCERNED; (4) THE CIT MUMBAI CITY CONCERNED; (5) THE DR H BENCH ITAT MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT MUMBAI BENCHES MUMBAI