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1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR.

D.B. Income Tax Appeal No. 17/2006 Shri Ashok Gupta aged about 48 years, S/o late Shri Govind Narayan R/o C-31, Piyush Path, Bapu Nagar, Jaipur. VERSUS Commissioner of Income Tax, Raj-II, Jaipur DATE OF ORDER

:::

30.11.2016

HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DINESH MEHTA

Mr. S.L. Jain for the appellant. Mr. K.D. Mathur on behalf of Mr. R.B. Mathur for the respondent. 1.

By way of this appeal, the assessee has challenged the

judgment and order passed by the Tribunal whereby the Tribunal has reversed the order of the CIT(A) which allowed the appeal of the assessee. 2.

While admitting the appeal, this Court vide order

dated 28.2.2006 framed the following substantial questions of law for consideration:“1. Whether on the facts and in the circumstances of the case the membership seat of a Stock Exchange is a property or merely a personal privilege granted to a member by the stock exchange and whether the same can be treated as “Capital Asset” within the meaning of section 2(14) of the Act? 2. Whether admission fees paid by the appellant can be considered as cost of acquisition within the meaning of section 55 of the Act for the purpose of computing the capital gain u/s 45 of the Act?”

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3.

The facts of the case are that the assessee was a

member of Jaipur Stock Exchange and transferred his membership ticket to Shri Girdhari Lal Singhal for a consideration of Rs. 9,51,000/-. The assessee claimed that he has paid no consideration for acquiring this membership, hence it is not capital assets. 4.

However, the Tribunal has allowed the appeal of the

Department holding as under: “9. From the above, it is clearly emerging that the Hon'ble Supreme Court has not discussed at all the issue pertaining to long term capital gain. In that case the Supreme Court has discussed the question of nomination, their attachment etc. So the ratio laid down by the Supreme Court is not applicable in the instant case as the assessee's case is neither the case of nomination nor the death or attachment in the assessee's case, the assessee has transferred his membership whereas in the case of Stock Exchange, Ahmedabad, supra, the membership was nontransferable. Hence, we are of the view that the ratio laid down by Hon'ble Supreme Court in the cse of Stock Exchange, Ahmedabad, supra, is not applicable to the assessee's case as the facts and issues are quite different. 10.On the other hand, the ITAT Mumbai Bench in the case of Upendra M. Dalal Vs. DCIT, 89 ITD 629 has discussed that when membership of Stock Exchange is put on sale through nomination, a personal privilege is converted into an asset and consequential gain is exigible to tax. The ITAT Mumbai Bench has already discussed the ratio laid down by the Hon'ble Supreme Court in the case of Stock Exchange, Ahmedabad, supra. The Tribunal held that:-

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3 “When the member puts his membership for sale and realizes a substantial value, it is difficult to deny that a valuable asset has been transferred. When membership of the Bombay Stock Exchange is put on sale through the nomination, a personal privilege is converted into an asset and the consequential gain is exigible to tax. That would be in line with the legislative intent as apparent from the provisions of section 47(xi) and the CBDT's circular. That would also be in conformity with the ground realities which show that membership cards are being sold the substantial consideration.”

Similar views were taken by ITAT Jaipur Bench in a number of cases including Shri Pradeep Gupta vs. WTO(WTA Nos. 241/JP/99) dated 13.01.2004.” 5.

Now the issue is settled by the Supreme Court in 248

ITR

209

(Stock

Exchange,

Ahmedabad

Vs.

Assistant

Commissioner of Income Tax) more particularly holding as under:“The appellant was a stock exchange recognised under the securities Contracts (Regulation) Act, 1956, and its rules, regulations and bye-laws were approved by the Government of India under that Act. Under rule 5 of the rules of the Stock Exchange, membership of the stock exchange constituted a personal permission to exercise the rights and privileges attached thereto, under rule 6 the right was inalienable, and under rule 7 the right of nomination was personal and inalienable. Rule 9 provided that on the death or default of a member, his right of nomination would cease and vest in the stock exchange, and rule 10 provided that when the right of membership was forfeited to or vested in the stock exchange it would belong to the stock exchange free of all rights, claims or interest of the member or any person claiming through him. Though the member, and on his death his legal representatives, had a right of nomination, under rule 15, if the member was a defaulter or the legal representatives had not paid the dues in full, any nomination

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would not be approved by the governing body. Under Rule 16 when the governing body exercised the right of nomination vesting in the stock exchange, the consideration had to be applied first towards dues of the member to the stock exchange and clearing house, then towards dues to other members and the disposal of the balance, if any, was at the absolute discretion of the stock exchange in general meeting. R, who became a member of the appellant stock exchange on February 19, 1988, died on February 7, 1994. On February 12, 1994, his heirs and legal representatives wrote to the stock exchange that they were unable to meet the liabilities of the deceased. On the same day, the governing body of the stock exchange declared R a deemed defaulter and resolved that his membership rights which vested in the stock exchange be disposed of, fixing a floor price of Rs. 25 lakhs for purchase of membership. On February 15, 1994, a provisional attachment order was issued under section 281B of the Income-tax Act, 1961, in respect of the stock exchange card in the name of R and margin money and security deposits kept with the stock exchange. The stock exchange took the stand that on the death or default of a member. The member's right of nomination vested in the stock exchange free of all right, claims and interests of the member or persons claiming through him. On December 5, 1994, the stock exchange disposed of the membership right of R for 27 lakhs. A garnishee notice under section 226(3) in the sum of about Rs. 12 lakhs was also issued to the stock exchange and the stock exchange took the stand that no amount was due to R or his heirs. Since the plea of the stock exchange was not acceptable to the Department, the stock exchange filed a writ petition challenging the order of attachment and the garnishee notice ; but the High Court dismissed the writ petition. On appeal to the Supreme Court :

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Held, reversing the decision of the High Court, that the right of membership of the stock exchange was not a private asset. It was merely a personal privilege granted to a member. It was non-transferable and incapable of alienation by the member or his legal representatives except to the limited extent provided in the rules and subject to fulfillment of conditions. The nomination wherever provided was not automatic ; it was hedged by rules. On the right of nomination vesting in the stock exchange under the rules, that right belonged to the stock exchange absolutely. In the case of the death or default of a member, his right of nomination ceased and vested in the stock exchange. The membership right or membership card or R was not the property of R and, therefore, it could not be attached under section 281B ; and, since no amount on account of R was due from or held by the stock exchange, section 226(3) could not be invoked. 6.

In view of decision of Supreme Court reported in[2010]

327 ITR 323 (SC) (Techno Shares and Stocks Ltd. Vs. Commissioner of Income Tax) wherein it has been held as under:“the question was whether the assesseecompany could claim depreciation on the Bombay Stock Exchange membership card held by it on the basis that it was a “licence” or “business or commercial right of a similar nature” under section 32(1)(ii) of the Income-tax Act, 1961. The Assessing Officer and the Commissioner(Appeals) held that the assessee could not claim depreciation on the stock exchange membership card ; but the Appellate Tribunal held that it was an intangible asset and the assessee was entitled to depreciation thereon under Section 32(1)(ii). The High Court, on appeal, held that the BSE membership card was only a personal privilege granted to a

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member to trade in shares on the floor of the stock exchange and that such a privilege was not a “licence” or “any other business or commercial right of a similar nature” under section 32(1)(ii). The assessee appealed to the Supreme Court : Held, reversing the decision of the High Court, on a consideration of the BSE rules, that the right of membership was a “business or commercial right” and could be said to be owned by the assessee and used for business purposes in terms of section 32(1)(ii). The right of membership, which included the right of nomination, was a “licence” or “akin to a licence” which was one of the items which fell in section 32(1)(ii). The right to participate in the market had an economic and money value. It was an expense incurred by the assessee which satisfied the test of being a “licence” or “any other business or commercial right of similar nature” in terms of section 32(1)(ii).” 7.

Respondent was not in a position to dispute the same.

8.

In this view of the matter, we are of the opinion that

the membership of Stock Exchange is a personal privilege or a license and not a Capital Asset within the meaning of sec.2(14) of the Income Tax Act. As such admission fee paid by the assessee cannot be treated to be cost of acquisition. The questions are therefore answered in favour of the assessee and against the department. 9.

Appeal is allowed. The order of the Tribunal dated

12.8.2005 is quashed and set aside.

(Dinesh Mehta), J.

MohitR72

( K.S. Jhaveri), J.

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