2013 (8) TMI 1024 - AT - Income Tax

Admission fees for taking membership of MCX and NCDEX - allowable deduction - Held that - We find that the assessee had made payments towards membership fees of two exchanges Fees paid by it was onetime payment and as a result assessee was allowed to carry out business on both the exchanges. Such a right has to considered a capital asset. In the cases of Techno Shares and Stocks Ltd. (2010 (9) TMI 6 - SUPREME COURT OF INDIA ) and Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT ) Hon ble Apex court has held that Stock exchange membership cards were assets eligible for depreciation under section 32 of the Act. In our opinion membership fees paid by the assessee under the head exchanges cards fees is squarely covered by the above judgments. FAA has already directed the AO to allows depreciation. Therefore we are of the opinion his order does not suffer from any infirmity - Decided against the assessee

Summary

Issues: Disallowance of admission fees paid to commodity exchanges as revenue expenditure.

The assessee, a commodity broker, appealed against the disallowance of Rs. 6,99,000 and Rs. 5,00,000 paid to MCX and NCDEX, respectively, as admission fees, arguing that the payments were revenue expenditure, not capital. The Assessing Officer (AO) held that the payments provided an enduring benefit by granting membership to carry out transactions, thus capitalizing the amounts. The First Appellate Authority (FAA) upheld the AO's decision, considering the membership as a capital asset, directing depreciation allowance. The Authorized Representative (AR) contended that the expenditure was revenue in nature, while the Departmental Representative (DR) supported the AO and FAA decisions.

The ITAT Mumbai analyzed the case, noting that the payments were one-time fees granting the right to conduct business on the exchanges, akin to a capital asset. Referring to legal precedents, the ITAT cited cases where stock exchange membership cards were considered depreciable assets. Upholding the FAA's decision, the ITAT concluded that the membership fees were capital in nature, affirming the disallowance and dismissal of the appeal.

In conclusion, the ITAT Mumbai upheld the disallowance of admission fees paid to commodity exchanges as revenue expenditure, considering them capital assets eligible for depreciation, in line with legal precedents and the FAA's directive. The appeal was dismissed, affirming the decision of the lower authorities.