Shri Ashok Gupta v. Commissioner Of Income Tax, Raj-Ii, Jaipur

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. D.B. Income Tax Appeal No. 17/2006 Shri Ashok Gupta aged about 48 years, S/o late Shri GovindNarayan 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. JHAVERIHON'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 thejudgment and order passed by the Tribunal whereby theTribunal has reversed the order of the CIT(A) which allowedthe appeal of the assessee. 2.While admitting the appeal, this Court vide orderdated 28.2.2006 framed the following substantial questionsof law for consideration:- “1.Whether on the facts and in thecircumstances of the case the membershipseat of a Stock Exchange is a property ormerely a personal privilege granted to amember by the stock exchange andwhether the same can be treated as“Capital Asset” within the meaning ofsection 2(14) of the Act?2.Whether admission fees paid by theappellant can be considered as cost ofacquisition within the meaning of section55 of the Act for the purpose of computingthe capital gain u/s 45 of the Act?” 2 3.The facts of the case are that the assessee was amember of Jaipur Stock Exchange and transferred hismembership ticket to Shri Girdhari Lal Singhal for aconsideration of Rs. 9,51,000/-. The assessee claimed thathe has paid no consideration for acquiring this membership,hence it is not capital assets. 4.However, the Tribunal has allowed the appeal of theDepartment holding as under: “9.From the above, it is clearly emergingthat the Hon'ble Supreme Court has notdiscussed at all the issue pertaining to longterm capital gain. In that case the SupremeCourt has discussed the question ofnomination, their attachment etc. So theratio laid down by the Supreme Court is notapplicable in the instant case as theassessee's case is neither the case ofnomination nor the death or attachment inthe assessee's case, the assessee hastransferred his membership whereas in thecase of Stock Exchange, Ahmedabad,supra, the membership was non-transferable. Hence, we are of the view thatthe ratio laid down by Hon'ble SupremeCourt in the cse of Stock Exchange,Ahmedabad, supra, is not applicable to theassessee's case as the facts and issues arequite different. 10.On the other hand, the ITAT MumbaiBench in the case of Upendra M. Dalal Vs.DCIT, 89 ITD 629 has discussed that whenmembership of Stock Exchange is put onsale through nomination, a personalprivilege is converted into an asset andconsequential gain is exigible to tax. TheITAT Mumbai Bench has already discussedthe ratio laid down by the Hon'ble SupremeCourt in the case of Stock Exchange,Ahmedabad, supra. The Tribunal held that:- “When the member puts his membership for saleand realizes a substantial value, it is difficult todeny that a valuable asset has been transferred.When membership of the Bombay Stock Exchangeis put on sale through the nomination, a personalprivilege is converted into an asset and theconsequential gain is exigible to tax. That would bein line with the legislative intent as apparent fromthe provisions of section 47(xi) and the CBDT'scircular. That would also be in conformity with theground realities which show that membership cardsare being sold the substantial consideration.” Similar views were taken by ITAT JaipurBench in a number of cases including ShriPradeep 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. AssistantCommissioner of Income Tax) more particularly holding asunder:- Similar views were taken by ITAT JaipurBench in a number of cases including ShriPradeep 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. AssistantCommissioner of Income Tax) more particularly holding asunder:- “The appellant was a stock exchangerecognised under the securities Contracts(Regulation) Act, 1956, and its rules,regulations and bye-laws were approved bythe Government of India under that Act.Under rule 5 of the rules of the StockExchange, membership of the stockexchange constituted a personal permissionto exercise the rights and privilegesattached thereto, under rule 6 the right wasinalienable, and under rule 7 the right ofnomination was personal and inalienable.Rule 9 provided that on the death ordefault of a member, his right ofnomination would cease and vest in thestock exchange, and rule 10 provided thatwhen the right of membership was forfeitedto or vested in the stock exchange it wouldbelong to the stock exchange free of allrights, claims or interest of the member orany person claiming through him. Thoughthe member, and on his death his legalrepresentatives, had a right of nomination,under rule 15, if the member was adefaulter or the legal representatives hadnot paid the dues in full, any nomination would not be approved by the governingbody. Under Rule 16 when the governingbody exercised the right of nominationvesting in the stock exchange, theconsideration had to be applied firsttowards dues of the member to the stockexchange and clearing house, then towardsdues to other members and the disposal ofthe balance, if any, was at the absolutediscretion of the stock exchange in generalmeeting. R, who became a member of theappellant stock exchange on February 19,1988, died on February 7, 1994. OnFebruary 12, 1994, his heirs and legalrepresentatives wrote to the stockexchange that they were unable to meetthe liabilities of the deceased. On the sameday, the governing body of the stockexchange declared R a deemed defaulterand resolved that his membership rightswhich vested in the stock exchange bedisposed of, fixing a floor price of Rs. 25lakhs for purchase of membership. OnFebruary 15, 1994, a provisionalattachment order was issued under section281B of the Income-tax Act, 1961, inrespect of the stock exchange card in thename of R and margin money and securitydeposits kept with the stock exchange. Thestock exchange took the stand that on thedeath or default of a member. Themember's right of nomination vested in thestock exchange free of all right, claims andinterests of the member or personsclaiming through him. On December 5,1994, the stock exchange disposed of themembership right of R for 27 lakhs. Agarnishee notice under section 226(3) inthe sum of about Rs. 12 lakhs was alsoissued to the stock exchange and the stockexchange took the stand that no amountwas due to R or his heirs. Since the plea ofthe stock exchange was not acceptable tothe Department, the stock exchange filed awrit petition challenging the order ofattachment and the garnishee notice ; butthe High Court dismissed the writ petition.On appeal to the Supreme Court : Held, reversing the decision of the HighCourt, that the right of membership of thestock exchange was not a private asset. Itwas merely a personal privilege granted toa member. It was non-transferable andincapable of alienation by the member orhis legal representatives except to thelimited extent provided in the rules andsubject to fulfillment of conditions. Thenomination wherever provided was notautomatic ; it was hedged by rules. On theright of nomination vesting in the stockexchange under the rules, that rightbelonged to the stock exchange absolutely.In the case of the death or default of amember, his right of nomination ceased andvested in the stock exchange. Themembership right or membership card or Rwas not the property of R and, therefore, itcould not be attached under section 281B ;and, since no amount on account of R wasdue 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 asunder:- “the question was whether the assessee-company could claim depreciation on theBombay Stock Exchange membership cardheld by it on the basis that it was a“licence” or “business or commercial rightof a similar nature” under section 32(1)(ii)of the Income-tax Act, 1961. TheAssessingOfficerandtheCommissioner(Appeals) held that theassessee could not claim depreciation onthe stock exchange membership card ; butthe Appellate Tribunal held that it was anintangible asset and the assessee wasentitled to depreciation thereon underSection 32(1)(ii). The High Court, onappeal, held that the BSE membership cardwas only a personal privilege granted to a member to trade in shares on the floor ofthe stock exchange and that such aprivilege was not a “licence” or “any otherbusiness or commercial right of a similarnature” under section 32(1)(ii). Theassessee appealed to the Supreme Court : Held, reversing the decision of theHigh Court, on a consideration of the BSErules, that the right of membership was a“business or commercial right” and couldbe said to be owned by the assessee andused for business purposes in terms ofsection 32(1)(ii). The right of membership,which included the right of nomination,was a “licence” or “akin to a licence” whichwas one of the items which fell in section32(1)(ii). The right to participate in themarket had an economic and money value.It was an expense incurred by theassessee which satisfied the test of being a“licence” or “any other business orcommercial right of similar nature” interms 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 thatthe membership of Stock Exchange is a personal privilegeor a license and not a Capital Asset within the meaning ofsec.2(14) of the Income Tax Act. As such admission fee paidby the assessee cannot be treated to be cost of acquisition.The questions are therefore answered in favour of theassessee and against the department. 9.Appeal is allowed. The order of the Tribunal dated12.8.2005 is quashed and set aside. (Dinesh Mehta), J. (K.S. Jhaveri), J.