Itxa/773/2012 Of The Commissioner Of Income Tax-4 v. M/S. Tata Securities Ltd

SRK IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.773 OF 2012 Commissioner of Income Tax-4, Mumbai -Versus-M/s.Tata Securities Ltd. ..Appellant ..Respondent Mr. Vimal Gupta, Senior Advocate with Ms. Padma Divakar for the revenue.Mr. P.J. Pardiwalla, Senior Advocate i/by Mr. P.C. Tripathi for the assessee. CORAM: S.C. DHARMADHIKARI AND A.K. MENON, JJ. P.C.: DATE :- 10[th] October, 2014 We have heard Mr. Gupta, learned senior counsel in support of this appeal which challenges the order passed by the Income tax Appellate Tribunal dated 28th December, 2011 in Income tax Appeal No. 3405/Mum/2010. The assessment year is 2006-07. The reframed questions of law and marked “X” are the questions projected before us. 2.Mr. Gupta, appearing for the revenue submits that the substantial questions of law arise out of ground Nos.2,3 and 4 formulated at page 49 of the paper-book by the Tribunal and answered in para 6, page 50 of the order. 5.Grounds no.2,3 and 4, read as follows:- 2. The learned Commissioner of Income-tax (Appeals) erred in confirming the protective addition made by the Assessing Officer on account of the demutualization Scheme of the Bombay Stock Exchange.(Appeals) erred in confirming the protective addition made by the Assessing Officer on account of the demutualization Scheme of the Bombay Stock Exchange. 3. The learned Commissioner of income tax (Appeals) erred in failing to consider that no opportunity whatsoever was granted by the Assessing Officer before making the said protective addition. The said addition is in gross violation of the principles of natural justice.(Appeals) erred in failing to consider that no opportunity whatsoever was granted by the Assessing Officer before making the said protective addition. The said addition is in gross violation of the principles of natural justice. 4. Having regard to the facts and circumstances of the case and the provisions of law, the Appellant submits that the protective addition is uncalled for and is required to be deleted.”the case and the provisions of law, the Appellant submits that the protective addition is uncalled for and is required to be deleted.” 3.Mr. Gupta also invited our attention to the order of the Commissioner and submits that the Assessing Officer and the Commissioner held that in the given facts and circumstances protective addition was justified. The position is that the operations of Bombay Stock Exchange have been corporatised and demutualised resulting in the member being given benefit. The benefit is that the trading right continues but in lieu of the membership card, the shares of the stock exchange are allotted. In that process, the Assessing Officer has come to the conclusion that though the transfer of shares allotted by BSEL has not taken place in the assessment year in question but because the exchange has taken place in the previous year, the benefit of Section 55(ab) accrues in this year, although it may be realized later. Therefore, the Assessing Officer and the Commissioner were justified in holding that two deductions of same expenses cannot be claimed or allowed. Further that the amendment to the statute having been brought in the assessment year in question, the revenue was justified in undertaking a protective assessment. That is to take care of the argument in future that the transfer of the shares and the amendment SRK having been brought in as far back as in 2006-07, it would not be open for the revenue to question the depreciation or the allowance for the same and as claimed then. It is that apprehension which distinguishes this case from that of the other order passed by us viz. in Income tax Appeal No.800 of 2012, decided on 19th September, 2014. SRK having been brought in as far back as in 2006-07, it would not be open for the revenue to question the depreciation or the allowance for the same and as claimed then. It is that apprehension which distinguishes this case from that of the other order passed by us viz. in Income tax Appeal No.800 of 2012, decided on 19th September, 2014. 4.Mr. Pardiwala, learned senior counsel appearing for the assess, on the other hand, invites our attention to the statement of fact in para 7.5 of the memo of appeal at page 9 and urges that the issue raised in this appeal is similar to the one dealt with by us viz. Walfort Shares and Stock Broking Private Limited.Therefore, the order passed on 19th September, 2014 would cover the case and the appeal be dismissed. 5.It is only because the distinction that is sought to be made by Mr. Gupta that we are referring to the facts in this case. A question of law and which is projected on page 3 of the paper-book concerns the addition on account of depreciation on Bombay Stock Exchange card on protective basis under Section 55(2)(ab) of Income tax Act. In fact the reframed question of law says that the Tribunal was not justified in deleting the protective addition made by the Assessing Officer towards depreciation claimed by the assessee of Rs.2,27,50,000/-. 6.The assessee is a company which is engaged in the businessof shares and securities broking, jobbing and investment in shares and securities.The business of the assessee mainly comprises of buying/selling of shares and securities on behalf of the clients. The assessee also trades in self-accounts. The return of income as a member of the Bombay Stock Exchange was filed on 20th October, 2006 declaring the total income of SRK *4*ita-773-12.doc Rs.5,86,07,529/-.The assessment was completed on 18th December, 2008 on a total income of Rs.5,95,57,746/- All that has happened when the case was selected for scrutiny is that the Bombay Stock Exchange was demutualised and its operation was taken over by Bombay Stock Exchange Ltd. with effect from 19th August, 2005. Each holder of the card was given 10000 shares of BSEL in lieu of the membership card and as provided in Section 55(2)(ab) of the Income Tax act, 1961. The cost of acquisition of shares so allotted was to be taken equal to the original cost of acquisition of the card whereas the cost of acquisition of trading rights was deemed to be nil. The protective addition was made of Rs.2,27,50,000/- on the issue of BSE membership card and A.O. held that the original cost of card is allotted on computing capital gain of sale of card. 7.If this is how the A.O. proceeds and the revenue does not dispute it, then, the conceded position is that the card has not been transferred in the year under consideration. That it would be or it may be transferred in future is the assumption on which the A.O. and the Commissioner have proceeded. The Tribunal has held that if what has been transpired in the year under consideration viz. the assessment year in question is the acquisition of 10,000 shares of BSEL in lieu of the membership card, then, that is by itself and without anything more not a case of transfer in the year under consideration. If the transfer has not taken place now but may occur in future then all the issues that have been raised and considered by us in the appeal of Walfort (Supra) are identical. 8.It is precisely this basis on which we have proceeded and, therefore, as held in the other case of Walfort Shares and Stock Broking Private Limitedthat the question of law had projected is purely academic. 8.It is precisely this basis on which we have proceeded and, therefore, as held in the other case of Walfort Shares and Stock Broking Private Limitedthat the question of law had projected is purely academic. 9.We do not think that any deviation is permissible and possible when the revenue itself states that the case is similar to that of Walfort. The distinction as drawn or attempted to be drawn is without any basis. We have amply clarified that the position may be distinct on the transfer of the shares by the assessee. In that event, it would be open for the revenue to take such steps as are permissible in law including questioning the deduction claimed on the basis of the cost of acquisition of the shares allotted. In such circumstances and by keeping the option open so also all contentions of both sides in that regard, we proceed to dismiss this appeal. It does not raise any substantial question of law. 10.It is conceded that as far as reframed question (b) is concerned, that is covered by the judgment of this Court in the case of Deputy Commissioner of Income tax v. Godrej & Boyce Manufacturing Company, 328 ITR 84. 11.Hence, on both reframed questions, the appeal is dismissed and without costs. (A.K. MENON, J.) (S.C. DHARMADHIKARI, J.)