9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (2) TMI 653 - AT - Income TaxNature of expenditure ''Capital or Revenue'' - Membership fees paid to National Stock Exchange and Vadodara Stock Exchange - subscription and non-refundable security deposit - permanent cash deposit. HELD THAT - Whether expenditure incurred to acquire membership of a stock exchange is capital expenditure? - Applying the principles laid down in R.C. Cooper v. Union of India 1970 (2) TMI 130 - SUPREME COURT It is clear that the t erm property includes even rights in personam capable of being transferred or transmitted. Rights conferred by the Stock Exchange on its members are in the nature of rights in personam which are capable of being transferred and transmitted and, therefore, they constitute property and thereby a capital asset within the meaning of section 2( 14 ) of the Income-tax Act. Membership of a Stock Exchange is not in the nature of stock-in-trade, consumable stores or raw materials held for the purposes of the business or profession or in the nature of personal effects and, hence, it cannot be excluded from the purview of being called a capital asset within the meaning of section 2( 14 ). Membership of a stock exchange not only has an element of permanency but also has the element of being a source of income and, therefore, it must be held to be in the nature of a capital asset. We hold accordingly. Whether the deposits placed by the assessee with the Stock Exchange constitute expenditure u/s 37? - For claiming deduction as expenditure the amount should have been spent by the assessee as an amount paid out or paid away and should be something which is gone irretrievably. To be a payment which is made irretrievably, there should not be any possibility of the money forming once again a part of the funds of the assessee. If this condition is not fulfilled and there is a possibility of there being a resulting trust in favour of the assessee, the money cannot be considered to have been spent by the assessee. In such a case, the assessee cannot claim that he had spent out or paid away the amount which he seeks to get deduction of. 'Deposit , represents money placed ( i ) with a person as earnest money or security for the performance of a contract; or ( ii ) with another who promises to preserve it or to use it and return it; or ( iii ) in a bank for safety and convenience. Thus, deposits made by the assessee cannot be termed as expenditure in the same way as expenditure cannot be termed as deposits . Quite logically, deposits made by the assessee cannot be termed as expenditure and, hence, they fall completely outside the scope of deductions admissible under section 37. Non-adjustable deposits - In the case before us, the assessee has placed a sum of Rs. 30 lakhs in non-adjustable deposits and a further sum of Rs. 20 lakhs in interest-free deposits. Non-adjustable deposits are not in the nature of non-refundable deposits. Both the Departmental authorities have concurrently recorded a finding that the said deposits are refundable. The assessee has placed no material before us to disprove the aforesaid finding. Be whatever it may, the said sum of Rs. 50 lakhs represents deposits and not expenditure and, hence, they are not eligible for deduction u/s 37. Hence, we hold that the deposits amounting to Rs. 50 lakhs placed with the Stock Exchange are not eligible for deduction on the ground that they do not constitute expenditure in the hands of the assessee and also on the ground that they are in the capital field. Admission fee amounting to Rs. 10.50 lakhs paid to Vadodara Stock Exchange is also not allowable as it is in the nature of capital expenditure. In this view of the matter, the order of the learned CIT(A) allowing deduction for the aforesaid sum of Rs. 60.50 lakhs is reversed and that of the Assessing Officer disallowing the same is restored. Allowability of Rs. 5 lakhs being annual subscription for 1994-95 for wholesale debt market - AO is directed to verify all the aspects. If it is found that it was first allotted to M/s. Khandwala Securities Pvt. Ltd. and, thereafter, transferred to the assessee-company, then it would be a case of purchase of a right and, hence, the entire amount of Rs. 30 lakhs paid for wholesale debt market shall be treated as capital expenditure. However, if it is found that the licence was granted first to the assessee-company, then the annual subscription for the financial year 1994-95 amounting to Rs. 5 lakhs should be allowed as revenue expenditure. To this limited extent (annual subscription of Rs. 5 lakhs paid for wholesale debt market), the matter goes back to the file of the Assessing Officer for a fresh decision in terms of the aforesaid directions after giving a reasonable opportunity of hearing to the assessee. Appeal filed by the Department is partly allowed in terms of the aforesaid directions.
Issues Involved:
1. Whether the expenditure incurred to acquire membership of a stock exchange is capital expenditure. 2. Whether the deposits placed by the assessee with the Stock Exchange constitute 'expenditure' under section 37 of the Income-tax Act. Issue-wise Detailed Analysis: Issue No. 1: Whether expenditure incurred to acquire membership of a stock exchange is capital expenditure? The core issue is whether the membership fee paid by the assessee to the National Stock Exchange (NSE) and Vadodara Stock Exchange should be treated as capital expenditure or revenue expenditure. The assessee treated the payment as deferred revenue expenditure in its books but claimed it as revenue expenditure for tax purposes. The Assessing Officer (AO) treated it as capital expenditure, which was upheld by the Tribunal. The Tribunal analyzed the nature of the membership card, referring to the rules of the National Stock Exchange. Rule 18(a) states that a trading member is issued a certificate or entitlement slip, which is transferable by nomination as per Rule 18(b). Rule 20 prohibits assigning, mortgaging, pledging, hypothecating, or charging the membership rights. The Tribunal concluded that the membership card is an intangible right, which is a capital asset as it has an element of permanency and can be a source of income. This aligns with the definition of 'capital asset' under section 2(14) of the Income-tax Act. The Tribunal also referred to legislative provisions such as section 47(xi) and 47(xiiia), which treat the membership of a recognized stock exchange as a capital asset. The Tribunal upheld the AO's view that the expenditure incurred for acquiring membership is capital in nature, as it secures an intangible right with lasting benefits, and hence, is not allowable under section 37(1). Issue No. 2: Whether the deposits placed by the assessee with the Stock Exchange constitute 'expenditure'? The Tribunal examined whether the deposits made by the assessee with the Stock Exchange could be considered 'expenditure' under section 37. The Tribunal noted that 'expenditure' implies an amount paid out or paid away, which is gone irretrievably. Deposits, on the other hand, are refundable and do not meet this criterion. The Tribunal held that the deposits made by the assessee are not 'expenditure' and thus do not qualify for deduction under section 37. The assessee placed Rs. 30 lakhs in non-adjustable deposits and Rs. 20 lakhs in interest-free deposits, which were found to be refundable. The Tribunal concluded that these deposits are not eligible for deduction as they do not constitute 'expenditure' and are in the capital field. Therefore, the order of the CIT(A) allowing deduction for these amounts was reversed, and the AO's disallowance was restored. Additional Consideration: The Tribunal also addressed the allowability of Rs. 5 lakhs being the annual subscription for 1994-95 for the wholesale debt market. The Tribunal noted that annual subscriptions are recurring and can be claimed as revenue expenditure. However, it directed the AO to verify certain factual aspects, such as the treatment of the annual subscription as deferred revenue expenditure and whether the license was first allotted to M/s. Khandwala Securities Pvt. Ltd. or the assessee-company. If the license was first allotted to the assessee-company, the annual subscription should be allowed as revenue expenditure. This part of the matter was remanded to the AO for fresh decision. Conclusion: The Tribunal partly allowed the appeal filed by the Department, reversing the CIT(A)'s order on the deduction of deposits and admission fees but remanding the issue of annual subscription for further verification by the AO.
|
