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Issues Involved:
1. Depreciation on the cost of membership card of the Bombay Stock Exchange under section 32(1)(ii) of the Income-tax Act. 2. Disallowance of compensation paid for terminating services of a guarantor under section 40A(2)(vi) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Depreciation on the Cost of Membership Card of the Bombay Stock Exchange: The primary issue was whether the CIT (Appeals) was justified in holding that no depreciation under section 32(1)(ii) of the Income-tax Act is allowable on the cost of the Bombay Stock Exchange membership card. The assessee, Peninsular Capital Market Ltd., a public limited company engaged in stock broking, acquired the membership card for Rs. 2,32,32,321 and claimed depreciation. The Assessing Officer disallowed the depreciation, viewing the membership as a personal privilege rather than a business right or commercial right. The CIT (Appeals), relying on the Supreme Court's judgment in Stock Exchange, Ahmedabad v. Asstt. CIT [2001] 248 ITR 2091, upheld this view, stating that the membership card is not an asset or a business right but a personal privilege. However, the ITAT, following the decision in Techno-Shares & Stocks Ltd. v. ITO, held that the membership card is an intangible asset within the meaning of section 32(1)(ii) and thus eligible for depreciation. The Tribunal emphasized that the membership card provides the right to trade, making it a capital asset, and thus, the assessee is entitled to depreciation. The revenue's appeal was dismissed, and the assessee's claim for depreciation was upheld. 2. Disallowance of Compensation Paid for Terminating Services of a Guarantor: The second issue involved the disallowance of 25% of the compensation paid by the assessee to Select Securities Ltd. for terminating its services as a guarantor for six trading terminals. The Assessing Officer disallowed the compensation, applying section 40A(2)(vi) of the Act, arguing that the payment was excessive and unreasonable due to the common directorship between the assessee and the recipient company. The CIT (Appeals) upheld this disallowance for the assessment year 2001-02 but allowed the claim for the assessment year 2002-03, leading to appeals from both the assessee and the revenue. The ITAT noted that section 40A(2) applies only if the director of the assessee-company holds substantial interest (20% or more) in the recipient company. The Tribunal found insufficient evidence to support the substantial interest claim and restored the issue to the Assessing Officer for fresh consideration. The same approach was applied for the assessment year 2002-03, with the issue being sent back to the Assessing Officer for re-evaluation. Conclusion: In conclusion, the ITAT ruled in favor of the assessee regarding the depreciation on the membership card, recognizing it as an intangible asset eligible for depreciation under section 32(1)(ii). However, the issue of compensation paid for terminating guarantor services was remanded to the Assessing Officer for further examination to determine the applicability of section 40A(2)(vi). The appeals were thus resolved, with the assessee's claims partly allowed and the revenue's appeal partly allowed for statistical purposes.
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