2017 (1) TMI 177 - HC - Income Tax

Capital asset treatment - transfer of membership ticket of stock exchange - Held that - The membership of Stock Exchange is a personal privilege or a license and not a Capital Asset within the meaning of sec.2(14) of the Income Tax Act. As such admission fee paid by the assessee cannot be treated to be cost of acquisition. See M/s Techno Shares & Stocks Ltd. Versus The Commissioner of Income Tax IV 2010 (9) TMI 6 - SUPREME COURT OF INDIA and Stock Exchange, Ahmedabad Versus Assistant Commissioner of Income-Tax 2001 (3) TMI 2 - SUPREME Court . The questions are therefore answered in favour of the assessee and against the department.

Summary

Issues:
1. Whether the membership seat of a Stock Exchange is a property or a personal privilege under section 2(14) of the Income Tax Act?
2. Whether admission fees paid by the appellant can be considered as the cost of acquisition for computing capital gains under section 45 of the Act?

Analysis:
1. The appellant challenged the Tribunal's decision where the CIT(A) allowed the appeal, questioning whether a Stock Exchange membership seat is a capital asset. The Tribunal held that the Supreme Court's ruling in a similar case was not applicable as the facts differed. The ITAT Mumbai Bench and ITAT Jaipur Bench's decisions were cited, emphasizing that when a membership is sold, it becomes a valuable asset subject to tax. However, the Supreme Court's decision clarified that a Stock Exchange membership is a personal privilege, non-transferable, and not a private asset. The right of membership is not a property and cannot be attached or considered a capital asset.

2. The appellant's argument regarding the admission fees as the cost of acquisition for computing capital gains was analyzed. The Supreme Court's decision in another case involving a Stock Exchange membership card established that such a right is a business or commercial right, qualifying for depreciation under section 32(1)(ii) of the Income Tax Act. The High Court initially ruled against depreciation, but the Supreme Court reversed the decision, recognizing the membership as a valuable right used for business purposes. This ruling supported the appellant's claim that the membership is not a capital asset, and the admission fees cannot be treated as the cost of acquisition.

In conclusion, the High Court held that a Stock Exchange membership is a personal privilege or license, not a capital asset under section 2(14) of the Income Tax Act. Therefore, the admission fee paid by the appellant cannot be considered the cost of acquisition. The judgment favored the appellant, quashing and setting aside the Tribunal's order.