ACIT 4(1), MUMBAI v. HORNIC INVESTMENT P. LTD, MUMBAI

ITA 6430/MUM/2010 | 2007-2008
Pronouncement Date: 30-11-2011 | Result: Allowed

Appeal Details

RSA Number 643019914 RSA 2010
Assessee PAN AAACH1537N
Bench Mumbai
Appeal Number ITA 6430/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 29 day(s)
Appellant ACIT 4(1), MUMBAI
Respondent HORNIC INVESTMENT P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted H
Tribunal Order Date 30-11-2011
Assessment Year 2007-2008
Appeal Filed On 31-08-2010
Judgment Text
1 HORNIC INVESTMENT P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES MUMBAI BEFORE SHRI PRAMOD KUMAR AM & SHRI VIJAY PAL RAO JM ITA NO. 6430/MUM/2010 (ASST YEAR2007-08) THE ASST COMMR OF INCOME TAX 4(1) MUMBAI VS HORNIC INVESTMENT P LTD 201 FORT FOUNDATION M CC LANE NAGINDAS MASTER ROAD FORT MUMBAI 23 (APPELLANT) (RESPONDENT) CROSS OBJECTION NO. 126/MUM/2011 THE ASST COMMR OF INCOME TAX 4(1) MUMBAI VS HORNIC INVESTMENT P LTD 201 FORT FOUNDATION M CC LANE NAGINDAS MASTER ROAD FORT MUMBAI 23 (CROSS OBJECTOR) (RESPONDENT) PAN NO. AAACH1537N ASSESSEE BY SHRI S L JAIN REVENUE BY SHRI V V SHASTRI DT.OF HEARING 19.10.2011 DT OF PRONOUNCEMENT 30 TH NOV 2011 PER VIJAY PAL RAO JM THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED15.6.2010 OF THE CI T(A) FOR THE AY 2007-08. 2 THE EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAWS THE LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 15 04 818 /- MADE U/S 40(A)(IA) IN RESPECT OF VSAT LEASELINE DEPOSITORY AND TRANSACTI ON CHARGES PAID TO STOCK EXCHANGE WITHOUT APPRECIATING THE FACTS THAT THESE WERE COMPOSITE CHARGERS FOR PROFESSIONAL AND TECHNICAL SERVICES REN DERED BY THE STOCK 2 HORNIC INVESTMENT P LTD EXCHANGE TO ITS MEMBERS AND THE ASSESSEE HAS FAILE D TO DEDUCT TDS THEREON. THOUGH THE REVENUE HAS RAISED VARIOUS GROUNDS IN T HIS APPEAL; HOWEVER THE ONLY ISSUE ARISES FOR OUR CONSIDERATION IS WHETHER THE C IT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. 3 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE CIT(A) HAS DECIDED THIS IS SUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES VS ACIT REPORTED IN 25 SOT 440. THE RELEVANT PART OF THE ORDER OF T HE CIT(A) IS REPRODUCED AS UNDER: 2. GROUND NO. ILLS REGARDING DISALLOWANCE OF RS.15 04 818/- ULS 40(A)(IA) OF VSAT IASEIINE AND TRANSACTION CHARGES. THIS ISSUE IS COVERED IN FAVOUR OF THE APPELLANT IN UIEW OF THE ITAT MUMBAI DECISION IN C ASE OF KOTAK SECURITIES -VS- ADDI. CIT-4(3) ORDER DATED 26-08-2008 (25 SOT 440) WHEREIN IT IS HELD THAT THE STOCK EXCHANGE DOES NOT PROVIDE MANAGERIAL SERVICES AND THE FEES PAID BY THE MEMBER TO THE STOCK EXCHANGE IS NOT FOR ANY TEC HNICAL SERVICES RENDERED SO TDS IS NOT DEDUCTIBLE ON THE SAME. GROUND ILLS THEREFORE ALLOWED. 4 AT THE OUTSET WE NOTE THAT THE HONBLE JURISDICT IONAL HIGH COURT VIDE DECISION DATED 21.10.2011 HAS REVERSED THE FINDINGS OF THE T RIBUNAL IN THE CASE OF CIT VS M/S KOTAK SECURITIES LTD IN PARAS 29 TO 32 AS UNDER: 29 IN THE RESULT WE HOLD THAT WHEN THE STOCK EXCH ANGES ARE ESTABLISHED UNDER THE SECURITIES CONTRACTS (REGULATION) ACT 1956 WITH A VIEW TO PREVENT UNDESIRABLE TRANSACTIONS IN SECURITIES BY REGULATING THE BUSINESS OF DEALING IN SHARES IT IS OBVIOUS THAT THE STOCK EXCHANGES HAVE TO MANAGE THE ENTIRE TRADING ACTIVITY CARRIED ON BY ITS MEMBERS AND ACCORD INGLY MANAGERIAL SERVICES ARE RENDERED BY THE STOCK EXCHANGES. THEREFO RE IN THE FACTS OF THE PRESENT CASE THE TRANSACTION CHARGES WERE PAID BY THE ASSESSEE TO THE STOCK EXCHANGE FOR RENDERING THE MANAGERIAL SERVICES WHICH C ONSTITUTES FEES FOR TECHNICAL SERVICES UNDER SECTION 194J READ WITH EXPLA NATION 2 TO SECTION 9(1)(VII) OF THE ACT AND HENCE THE ASSESSEE WAS LIA BLE TO DEDUCT TAX AT SOURCE BEFORE CREDITING THE TRANSACTION CHARGES TO THE ACCOU NT OF THE STOCK EXCHANGE. 30) THE QUESTION THEN TO BE CONSIDERED IS WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWING THE ENTIRE BUSINESS EXPENSES INCURRED ON ACCOUNT OF TRANSACTION CHARGES ON THE GROUND 3 HORNIC INVESTMENT P LTD THAT THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 194J OF THE ACT? 31) THE OBJECT OF INTRODUCING SECTION 40(A)(IA) AS EXPLAINED IN THE CBDT CIRCULAR NO.5 DATED 15/7/2005 IS TO AUGMENT COMPLIAN CE OF TDS PROVISIONS IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS. MOREOVER THOUGH SECTION 194J WAS INSERTED WITH EFFECT FROM 1/7/1995 TILL T HE ASSESSMENT YEAR IN QUESTION THAT IS AY 2005-06 BOTH THE REVENUE AND TH E ASSESSEE PROCEEDED ON THE FOOTING THAT SECTION 194J WAS NOT APPLICABLE TO THE PAYMENT OF TRANSACTION CHARGES AND ACCORDINGLY DURING THE PER IOD FROM 1995 TO 2005 NEITHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE WHI LE CREDITING THE TRANSACTION CHARGES TO THE ACCOUNT OF THE STOCK EXC HANGE NOR THE REVENUE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDIN GS FOR NOT DEDUCTING THE TAX AT SOURCE. IN THESE CIRCUMSTANCES IF BOTH THE PARTIES FOR NEARLY A DECADE PROCEEDED ON THE FOOTING THAT SECTION 194J IS NOT A TTRACTED THEN IN THE ASSESSMENT YEAR IN QUESTION NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE UNDER SECTION 194J OF T HE ACT AND CONSEQUENTLY NO ACTION COULD BE TAKEN UNDER SECTION 40 (A)(IA) O F THE ACT. IT IS RELEVANT TO NOTE THAT FROM AY 2006-07 THE ASSESSEE HAS BEEN DED UCTING TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO THE ACCO UNT OF THE STOCK EXCHANGE THOUGH NOT AS FEES FOR TECHNICAL SERVICES BUT AS RO YALTY. IT IS FURTHER RELEVANT TO NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT ON ACCOUNT OF THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE THE REVENUE HAS SUFFERED PRESUMABLY BECAUSE THE STOCK EXCHANGE HAS DISCHARGE D ITS TAX LIABILITY FOR THE ASSESSMENT YEAR IN QUESTION. IN ANY EVENT IN TH E FACTS OF THE PRESENT CASE IN VIEW OF THE UNDISPUTED DECADE OLD PRACTICE THE ASSESSEE HAD BONAFIDE REASON TO BELIEVE THAT THE TAX WAS NOT DEDUCTIBLE AT SOURCE UNDER SECTION 194J OF THE ACT AND THEREFORE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING SECTION 40(A)(IA) OF THE ACT AND DISALLOWI NG THE BUSINESS EXPENDITURE BY WAY OF TRANSACTION CHARGES INCURRED BY THE ASSESSE E. (EMPHASIS SUPPLIED) 32) ACCORDINGLY WE HOLD THAT THE TRANSACTION CHARGES PAID BY THE ASSESSEE TO THE STOCK EXCHANGE CONSTITUTE FEES FOR TECHNICAL SERVICES COVERED UNDER SECTION 194J OF THE ACT AND THEREFORE THE ASSESSE E WAS LIABLE TO DEDUCT TAX AT SOURCE WHILE CREDITING THE TRANSACTION CHARGES TO T HE ACCOUNT OF THE STOCK EXCHANGE. HOWEVER SINCE BOTH THE REVENUE AND THE AS SESSEE WERE UNDER THE BONAFIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON PAYMENT OF TRANSACTION CHARGES NO FAULT CA N BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE A SSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE TRANSACTION CH ARGES CANNOT BE SUSTAINED. WE MAKE IT CLEAR THAT WE HAVE ARRIVED AT THE ABOVE CONCLUSION IN THE PECULIAR FACTS OF THE PRESENT CASE WHERE BOTH THE REVENUE AND THE ASSESSEE RIGHT FROM THE INSERTION OF SECTION 194J IN THE YEAR 1995 TILL 2005 PROCEEDED ON THE FOOTING THAT THE ASSESSEE IS NOT L IABLE TO DEDUCT TAX A SOURCE AND IN FACT IMMEDIATELY AFTER THE ASSESSMENT YEAR IN QUESTION I.E. FROM AY 2006-07 THE ASSESSEE HAS BEEN DEDUCTING TAX AT S OURCE THE ACCOUNT OF THE STOCK EXCHANGE. 4 HORNIC INVESTMENT P LTD 4.1 IT IS CLEAR FROM THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF KOTAK SECURITIES LTD (SUPRA) THAT THE TRANSACTIO N CHARGES PAID TO THE STOCK EXCHANGE FOR RENDERING MANAGERIAL SERVICES CONST ITUTES FEE FOR TECHNICAL SERVICES U/S 194J. HOWEVER THE HONBLE JURISDICTIONAL HIGH COURT NOTED THE FACT IN THE SAID CASE THAT FOR THE LAST TEN YEARS NEITHER THE ASSES SEE HAD DEDUCTED THE TDS NOR THE REVENUE HAS RAISED ANY OBJECTION FOR INITIATING ANY PROCEEDINGS FOR NOT DEDUCTING THE TDS AND THEREFORE BOTH ASSESSEE AS SELL AS T HE REVENUE WERE UNDER THE IMPRESSION FOR A DECADE THAT SECTION 194J IS NOT AT TRACTED THE HONBLE JURISDICTIONAL HIGH COURT HAS OBSERVED THAT NO ACTION COULD BE T AKEN U/S 40(A)(IA). IT WAS FURTHER MADE IT CLEAR THAT THIS CONCLUSION HAS BEEN ARRIVED IN THE PECULIAR FACTS OF THE SAID CASE. 4.2 SINCE ON MERITS THE ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE AND NO SUCH FACTS AND CIRCUMSTANCES EXIST IN THE CASE IN HAND F OR SUCH IMPRESSION OF NON APPLICABILITY OF SEC. 194J. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA) THIS ISSU E IS DECIDED AGAINST THE ASSESSEE. THE ORDER OF THE CIT(A) IS SET ASIDE AND ORDER OF T HE ASSESSING OFFICER IS RESTORED QUA THIS ISSUE. CROSS OBJECTION NO. 126/MUM/2011 (BY THE ASSESSEE) 5 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS CROSS OBJECTION: I) THE LD CIT(A) ERRED IN NOT GRANTING DEPRECATION O N BSE CARD PURCHASED BY APPELLANT AFTER 1.4.1998 AT A COST OF RS. 2 06 66 6 66/- WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABL E THERETO. II) IT IS MOST RESPECTFULLY PRAYED THAT APPELLANT IS ENTITLED FOR DEPRECATION ON BOMBAY STOCK EXCHANGE CARD BEING LICENSE GRANTED TO T HE APPELLANT FOR 5 HORNIC INVESTMENT P LTD CARRYING ON BUSINESS AS PER THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCK LTD REPORTED IN 327 I TR 323(SC) 6 WE HAVE HEARD THE LD AR OF THE ASSESSEE AND THE L D DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE CIT(A) HAS DISALL OWED THE CLAIM OF DEPRECIATION ON STOCK EXCHANGE CARD BY FOLLOWING THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD REP ORTED IN 323 ITR 69. THE RELEVANT PART OF THE3 ORDER OF THE CITA) IS REPRODUCED AS UN DER: 1.1 THE BOMBAY HIGH COURT INC CASE OF CIT VS M/S TEC HNO SHARES & STOCK LTD IN INCOME TAX APPEAL NO.971 OF 2006 & 218 OF 2007 A ND LARGE NUMBER OF OTHER APPEALS ON THE QUESTION OF WHETHER DEPRECIATION U/S 32 IS ALLOWABLE ON THE STOCK EXCHANGE MEMBERSHIP CARD ACQUIRED BY AN ASSESSE E ON OR AFTER 1.4.1998 VIDE ORDER DATED 11 TH SEPT 2009 HELD THAT DEPRECIATION CANNOT BE ALLOWED ON STOCK EXCHANGE CARD AND ANSWERED THE QUES TION OF LAW IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE 6.1 THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE LATEST DECISION IN THE CASE OF TECHNO SHARES & STOCKS LTD REPORTED IN 327 ITR 323. 6.2 HOWEVER IT IS TO BE NOTED THAT AFTER CORPORATI SATION OF THE BOMBAY STOCK EXCHANGE THE STOCK EXCHANGE MEMBERSHIP IS NO MORE IN EXISTENCE AND THE CARD HOLDERS HAS BEEN ISSUED 10000 SHARES OF BSE ON FACE VALUE OF RS. 1/- EACH. AS PER THE SCHEME OF DE-MUTUALISATION THE CARD CEASED TO EXIST AND IN LIEU OF MEMBER SHIP THE CARD HOLDER HAS BEEN ISSUED 10000 SHARES OF BSEL. AS PER SECTION 55(2)(AB) THE COST OF THE SHARES ALLOTTED TO THE CARD HOLDERS OF A RECOGNIZED STOCK EXCHANGE UNDER A SCHEME OF DEMUTUALISATION SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF THE EXCHANGE. AS PER PROVISO TO THE SAID CLAUSE THE COST OF THE CAPITAL ASSET BEING TRADING OR CLEARING RIGHTS OF T HE RECOGNIZED STOCK EXCHANGE 6 HORNIC INVESTMENT P LTD ACQUIRED BY A SHARE HOLDER ON ALLOTMENT OF EQUITY O R UNDER THE SCHEME OF DEMUTUALISATION OR CORPORATISATION SHALL BE DEEMED TO BE NIL. 6.3 IT IS CLEAR FROM THE DEVELOPMENTS OF BSE AS W ELL AS FROM THE AMENDED PROVISIONS OF THE ACT THAT AFTER CORPORATISATION OF BSE AND CORRESPONDING AMENDMENT IN THE RELEVANT PROVISIONS OF THE INCOME TAX ACT THE MEMBERSHIP CARD OF THE ERSTWHILE BSE CEASED TO EXIST AND THE COST OF SHARES OF THE RECOGNIZED STOCK EXCHANGE ALLOTTED IN LIEU OF THE CARD UNDER THE SC HEME OF DEMUTUALIZATION SHALL BE THE COST OF ACQUISITION OF ORIGINAL MEMBERSHIP OF T HE STOCK EXCHANGE; WHEREAS THE COST OF THE CAPITAL ASSET BEING TRADING OR CLEARING RIGHTS OF RECOGNIZED STOCK EXCHANGE ACQUIRED UNDER THE SAID SCHEME SHALL BE D EEMED TO BE NIL. 6.3 IT IS PERTINENT TO NOTE THAT THE RIGHTS TO TRAD E STILL VESTED WITH THE ORIGINAL MEMBERS EVEN IF THE 10000 SHARES ALLOTTED UNDER THE SCHEME ARE TRANSFERRED/SOLD BY THE MEMBER. THUS IT IS CLEAR THAT THE ALLOTMENT OF 10000 SHARES IS IN ADDITION TO THE RIGHTS OF TRADING OR CLEARING IN THE STOCK EXCHANGE AND HENCE ARE TWO SEPARATE AND DISTINCT ASSETS ACQUIRED BY THE ORIGINAL MEMBERS HO LDING THE MEMBERSHIP CARD OF THE ERSTWHILE STOCK EXCHANGE. THEREFORE THE TRAN SFER OF SUCH SHARES DOES NOT AFFECT THE RIGHTS OF TRADING IN THE STOCK EXCHANGE WHICH STILL VESTED WITH THE ORIGINAL MEMBER. 6.4 SINCE THE SHARES ARE NOT A DEPRECIABLE ASSET AN D ALSO INDEPENDENT FROM THE RIGHTS TO TRADE; THEREFORE NO DEPRECIATION IS ALLO WABLE. THE RIGHT TO TRADE THOUGH ACQUIRED IN LIEU OF SURRENDER OF MEMBERSHIP CARD BE FORE CORPORATISATION OF BSE. HOWEVER WHEN LEGISLATION AMENDED THE STATUTE AND IT MADE IT CLEAR THAT THE COST OF ACQUISITION OF RIGHT TO TRADE WOULD BE NIL THEN THERE IS NO QUESTION OF ANY DEPRECIATION OF AN ASSET HAVING NO COST OF ACQUISIT ION. MOREOVER THIS AMENDMENT HAS BEEN BROUGHT WITH A VIEW TO AVOID A CONFLICTING SITUATION OF APPORTIONMENT OF 7 HORNIC INVESTMENT P LTD COST OF MEMBERSHIP CARD BETWEEN THE SHARES ALLOTTE D AND RIGHT TO TRADE AND CLEARING. SINCE THE ASSESSEE HAS ALREADY CLAIMED T HE DEPRECIATION ON THE ACQUISITION COST OF BSE CARD AND THE VALUE OF THE B SE CARD HAS BEEN SHOWN AT THE WRITTEN DOWN VALUE IN THE BOOKS OF ACCOUNT; THEREFO RE THE ONLY LOGICAL CONCLUSION ONCE CAN DRAW FROM POST AMENDMENT STATUTORY PROVISI ONS IS THAT THE ENTIRE VALUE OF THE BSE CARD AS STANDS IN THE BOOKS OF ACCOUNT OF T HE ASSESSEE ON THE DATE OF DE- MUTUALISATION/CORPORATISATION OF BSE WOULD BE ASSIG NED TO 10000 SHARES ALLOTTED TO SUCH MEMBERS. ACCORDINGLY WHEN THE MEMBERSHIP CEAS ED TO EXIST AND IN LIEU OF THE CARD NEW CAPITAL ASSET CAME INTO EXISTENCE BEING 1 0000 SHARES AS WELL AS RIGHT TO TRADE AND CLEARING IN THE STOCK EXCHANGE AND THE AC QUISITION COST OF TRADE AND CLEARING HAS BEEN EXPLICITLY PROVIDED AS NIL BY THE STATUTE THEN THE ENTIRE COST OF MEMBERSHIP AS STANDS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WOULD BE TREATED AS COST OF ACQUISITION OF 10000 SHARES WHICH IS NOT A DEPRECIABLE ASSET. 6.5 WE FURTHER NOTE THAT A SIMILAR VIEW HAS BEEN TA KEN BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SINO SECURITIES P LT D IN ITA NOS 6264 AND 6394/MUM/2009 VIDE ORDER DATED 23.11.2001 WHEREIN ONE OF US (JM) IS THE PARTY. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IN THE CASE OF SINO SE CURITIES P LTD IS REPRODUCED HERE UNDER: 25. FROM THE ABOVE FOLLOWING CONCLUSIONS CAN BE D RAWN. I) BSE WHICH WAS A VOLUNTARY NOT FOR PROFIT CHARACTER OF ENTITY GOT CONVERTED INTO A FOR PROFIT AND CORPORATE ACTIVITY; II) BSE MEMBERSHIP CARD IS CANCELLED AND THE TWIN RIG HTS THAT A HOLDER OF BSE CARDHOLDER HAD GOT SEPARATED INTO THE FOLLOWING INDE PENDENT RIGHTS (A) OWNERSHIP RIGHTS AND (B) TRADING RIGHTS. III) THE PREVIOUS RIGHTS OF A BSE MEMBERSHIP CARDHOLD ER GETS EXTINGUISHED AND IN LIEU THEREOF THE BSE MEMBER ACQUIRES SHARES IN BSE L AND TRADING RIGHTS IN BSEL; 8 HORNIC INVESTMENT P LTD 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 OPPO SED TO CARD SYSTEM; VII) THE TRADING CARD SYSTEM IS REPLACED BY THE DEPOS IT SYSTEM; VIII) THE MONEY DEPOSIT BY THE MEMBER TO OBTAIN TRA DING RIGHTS IS BE CONSIDERED AS A DEPOSIT WITH STOCK EXCHANGE FOR TRAD ING PURPOSE; IX) VALUE OF OWNERSHIP RIGHT SHALL BE THE SHARE IN TH E NET ASSETS AND GOODWILL OF THE STOCK EXCHANGE; X) THE VALUE OF DEPOSIT PLACED TO OBTAIN TRADING RI GHTS WILL BE THE VALUE OF THE RIGHT TO TRADE; XI) A TRADING MEMBER HAS TO RETAIN THE DEPOSIT AS LON G AS HE TRADES. IF A TRADING MEMBER WISHES TO TERMINATE HIS MEMBERSHIP H E CAN DEMAND REFUND OF DEPOSIT. 26. HENCE IT IS CLEAR THAT THE ASSET OF THE ASSESSE E AS IT EXISTED WHILE IT WAS A BSE MEMBERSHIP CARDHOLDER IS DIFFERENT FROM THE ASSE TS HELD BY THE ASSESSEE AFTER CORPORATIZATION AND DEMUTUALIZATION OF STOCK EX CHANGES 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 DISCLOSED THEM AS INVESTMENT. RIGHTLY THE ASSESSEE HAS NOT CLAIMED THAT THE SHARES ALLOTTED IN BSEL WAS A BUSINESS AND COMMERCIAL RIGHT OF SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE ACT. 28. COMING TO THE TRADING RIGHTS THE REPORT OF THE G ROUP ON CORPORATIZATION AND DEMUTUALIZATION OF STOCK EXCHANGE FIXED THE VAL UE AS EQUIVALENT TO THE DEPOSIT REQUIREMENT. THE TRADING RIGHT IS A BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NATURE UNDER SECTION 32(1)(II) OF THE ACT. 29. THE BUSINESS AND COMMERCIAL RIGHTS OF SIMILAR NAT URE HELD BY THE ASSESSEE AS A HOLDER OF THE MEMBERSHIP CARD OF THE ERSTWHILE B SE NO LONGER EXISTS. THE SAME GOT EXTINGUISHED. HENCE WE ARE OF THE CONSIDE RED OPINION THAT THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT NO DEPRECI ATION 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 MEMBER S WHICH IS NEWLY ACQUIRED WHICH ASPECT WE WILL DISCUSS HEREAFTER. 30. AS WE HAVE NOTICED THE GROUP ON CORPORATISATION AND DEMUTUALIZATION OF STOCK EXCHANGES HAS SUGGESTED THE MANNER OF VALUATIO N OF OWNERSHIP RIGHTS AND TRADING RIGHTS. IT WAS RECOMMENDED THAT THE VALU E OF TRADING RIGHTS BE FIXED AT THE AMOUNT OF DEPOSIT THAT WAS REQUIRED FOR A CQUIRING TRADING RIGHTS. THE VALUE OF THE BSE CARD TO THE EXTENT ALLOCABLE OR ATTRIBUTABLE TO OWNERSHIP 9 HORNIC INVESTMENT P LTD RIGHTS CAN BE SAID TO HAVE 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 VALU E 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 REFU ND 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. IF THE REFUNDABLE DEPOSIT IS DEDUCTED FROM THE VALUE THEN T HE PRESENT VALUE OF TRADING RIGHT IS NIL. UNDER THESE CIRCUMSTANCES THE RE IS NO VALUE TO THE TRADING IN COMMERCIAL RIGHT ENTITLING THE ASSESSEE FOR DEDU CTION BY WAY OF DEPRECIATION. HENCE NO DEPRECIATION CAN BE GRANTED ON THIS RIGHT. THUS WE UPHOLD THE FINDING OF THE REVENUE AUTHORITIES. WE NO W DISCUSS THE IMPACT OF THE FOLLOWING SECTIONS:- 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 EXCHANGE IN IN DIA UNDER A SCHEME FOR DEMUTUALISATION OR CORPORATISATION APPRO VED 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 MEMBERSHI P OF THE EXCHANGE. PROVIDED THAT THE COST OF A CAPITAL ASSET BEING TRAD ING OR CLEARING RIGHTS OF THE RECOGNISED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUC H SCHEME OF DEMUTUALISATION OR CORPORATISATION SHALL BE DEEMED TO BE NIL. 2(42)(H) IN THE CASE OF A CAPITAL ASSET BEING TRADI NG OR CLEARING RIGHTS OF A RECOGNISED STOCK EXCHANGE IN INDIA ACQUIRED BY A PERSON PURSUANT TO DEMUTUALISATION OR CORPORATISATION OF THE 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 ME MBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IMMEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION. (HA) IN THE CASE OF A CAPITAL ASSET BEING EQUITY S HARE OR SHARES IN A COMPANY ALLOTTED PURSUANT TO DEMUTUALISATION OR CORPO RATISATION OF A RECOGNISED STOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE (XIII) OF SECTION 47 THERE SHALL BE INCLUDED THE PERIOD FOR WHI CH THE PERSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA I MMEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION] 113C[ (HB) IN THE CASE OF A CAPITAL ASSET BEING ANY SPECIFIED SECURITY OR SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED DIRECTLY OR INDIRECTLY BY THE EMPLOYER FREE OF COST OR AT CONCESSIONAL RATE TO HIS EMPLOYEES (INCLUD ING FORMER EMPLOYEE OR EMPLOYEES) THE PERIOD SHALL BE RECKONED F ROM THE DATE OF ALLOTMENT OR TRANSFER OF SUCH SPECIFIED SECURITY OR SWEAT EQUITY SHARES. 10 HORNIC INVESTMENT P LTD 47(XIII) ANY TRANSFER OF A CAPITAL ASSET OR INTANGIB LE ASSET BY A FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY A CO MPANY 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 WHI CH AN ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS IS SUCCEEDED BY SU CH 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 P ROPORTION IN WHICH THEIR CAPITAL ACCOUNTS STOOD IN THE BOOKS OF T HE FIRM ON THE DATE OF THE SUCCESSION; (C) THE PARTNERS OF THE FIRM DO NOT RECEIVE ANY CONSI DERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY FORM OR MANNER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; AND (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPANY 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 S UCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSION; (E) THE DEMUTUALISATION OR CORPORATISATION OF A RECOG NISED STOCK EXCHANGE IN INDIA IS CARRIED OUT IN ACCORDANCE WITH A SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVED B Y THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 (15 OF 1992);] 47(XIIIA) ANY TRANSFER OF A CAPITAL ASSET BEING A MEM BERSHIP 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 SCHEME FOR DEMUTUALISATION OR CORPORATISATION WHICH IS APPROVED B Y THE SECURITIES AND EXCHANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT 1992 (15 OF 1992);] 32. ALL THESE SECTIONS DEAL WITH COMPUTATION OF CAP ITAL GAINS UNDER CHAPTER- IV(E) I.E. SECTION 45 TO 55A OF THE ACT. IN OUR CON SIDERED OPINION THESE SECTIONS WHICH ARE FOR THE COMPUTATION OF CAPITAL GAI NS HAVE NO RELEVANCE ON THE ALLOWABILITY OF DEPRECIATION. THE ARGUMENT O F THE ASSESSEE THAT IT HAD TAKEN THE ORIGINAL COST OF THE SHARE @ RS.1 WHILE C OMPUTING CAPITAL GAIN IN A LATTER YEAR DOES NOT EFFECT OUR DECISION. THUS WE U PHOLD THE ORDER OF THE ASSESSING OFFICER AS CONFIRMED BY THE COMMISSIONER ( APPEALS) WHEREIN DEPRECIATION ON MEMBERSHIP CARD HAS BEEN DENIED 11 HORNIC INVESTMENT P LTD 7 IN VIEW OF THE ABOVE DISCUSSION WE DECIDE THIS IS SUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 8 IN THE RESULT THE APPEAL FILED BY THE REVENUE IS ALLOWED WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 30 TH DAY OF NOV 2011. SD/ SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH NOV 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI