2015 (5) TMI 922 - AT - Income Tax

Receipt from demutualization of stock exchange - whether receipt did not constitute long term capital gain? - issue of notice U/S 143(2) beyond the period of 12 months - Held that - CIT(A) has dismissed this ground of appeal holding that the notice was issued within the prescribed period of time. He has not mentioned about service of the said notice, therefore, we deem it appropriate to set aside this ground or appeal to the office of A.O. who on the basis of record will find out as to whether the service of notice u/s 143(2) was within the prescribed period of time and accordingly will decide this legal issue as per law. Taxability of receipt on account of demutualization DSE scheme 2005 - Held that - CIT(A) has dismissed this ground of appeal relying upon the earlier order of the tribunal in the case of assessee itself for Assessment Year 1997-98 2010 (5) TMI 785 - ITAT DELHI wherein find that during that year, the assessee had received an amount of ₹ 25 lacs on account of sale of membership card and, therefore, the Tribunal had held that membership card to be capital asset and therefore had decided the issue holding that the assessee was liable to pay capital gain tax. However, in the present case, the assessee had not sold the membership card but had received the amount on account of demutualization of stock exchange and, therefore the facts of the present case are distinguishable from the facts of the case for the Assessment Year 1997-982010 . CIT(A) has also held that the judgement of Stock Exchange Ahmedabad Vs ACIT 2001 (3) TMI 2 - SUPREME Court apply in the cases where the membership had seized and was surrendered with the stock exchange authorities. We have already held that facts of the present case are distinguishable from the facts of the case in 1997-98. Therefore in view of above, we deem it appropriate to set aside this issue also to the office of A.O. should also enquire from Delhi Stock Exchange or from other members of stock exchange who also must have received similar amounts regarding taxability of such amounts in their cases. The A.O. should also examine the claim of assessee that Delhi Stock Exchange was a charitable organization. Needless - Decided in favour of assesse for statistical purposes.

Summary

Issues Involved:
1. Non-service of notice under Section 143(2) within the prescribed period.
2. Taxability of the receipt of Rs. 44 lakhs from the Delhi Stock Exchange on account of demutualization.

Detailed Analysis:

1. Non-service of Notice under Section 143(2) within the Prescribed Period:

The assessee argued that the notice under Section 143(2) was not served within the prescribed period, making the assessment invalid. The CIT(A) dismissed this ground, stating that the notice was issued within the permissible period. The CIT(A) noted that the return was filed on 25/07/2008, and the notice was issued on 24/09/2009, which was within the six months from the end of the financial year in which the return was filed, as per the amended provisions of Section 143(2). The Tribunal referred to the case of Amit Jain Vs ACIT, where a similar issue was addressed, and it was held that the notice was validly served within the prescribed time. Therefore, the Tribunal found no merit in the assessee's contention and upheld the CIT(A)'s decision. However, the Tribunal deemed it appropriate to remand this issue to the AO to verify whether the notice was served within the prescribed period and to decide the legal issue accordingly.

2. Taxability of the Receipt of Rs. 44 Lakhs from Delhi Stock Exchange on Account of Demutualization:

The assessee contended that the Rs. 44 lakhs received from the Delhi Stock Exchange (DSE) on account of demutualization should not be taxed as long-term capital gain, arguing that DSE was a charitable organization, and the receipt was exempt under Section 11 of the IT Act. The CIT(A) rejected this claim, stating that the amount received was taxable as long-term capital gain. The CIT(A) referred to the Tribunal's earlier decision in the assessee's case for AY 1997-98, where a similar issue was adjudicated, and it was held that the membership card of the stock exchange was a capital asset, and any amount received on its transfer was liable to capital gains tax. The CIT(A) also referred to the Special Bench decision in R M Valliappan Vs ACIT, which distinguished the Supreme Court's decision in Stock Exchange Ahmedabad Vs ACIT, stating that the latter applied only to cases where the membership had ceased and vested with the stock exchange authorities.

The Tribunal noted that the facts of the present case were distinguishable from the earlier case for AY 1997-98, as the amount received was on account of demutualization and not the sale of the membership card. The Tribunal deemed it appropriate to remand this issue to the AO to examine the applicability of various provisions of the IT Act and relevant case laws, including the Supreme Court's decision in Stock Exchange Ahmedabad Vs ACIT. The AO was also directed to inquire from the DSE or other members regarding the taxability of similar amounts received and to examine the claim that DSE was a charitable organization. The AO was instructed to provide the assessee with sufficient opportunity to present their case.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, remanding both issues to the AO for further examination and appropriate decision based on the law and relevant facts. The AO was directed to verify the service of notice under Section 143(2) and to reassess the taxability of the Rs. 44 lakhs received from the DSE on account of demutualization, considering the relevant legal provisions and case laws.