2004 (9) TMI 290 - AT - Wealth-tax

Taxability of value of Stock Exchange Membership Card - Definition and valuation of asset u/s 2(e) of the Wealth-tax Act - Applicability of Gift-tax on transfer of stock exchange membership - Valuation aspects of stock exchange membership cards - HELD THAT - A card holder member of the Stock Exchange is given a right of nomination by Rule 11 of the Stock Exchange. That is nothing but nominating or selecting the purchaser or the transferee of the card. He enjoins and has that right until he is declared defaulter or he dies. Till then it vests only in him though subject to and hedged by Rule of Stock Exchange. Nobody can impair that right he alone can exercise that right of transacting the business and of nomination. His nominee cannot be denied the membership of the card unless he is disqualified or not eligible to be member of the Stock Exchange which are the requirements even for becoming an original member. In all the cases cited at the Bar the Stock Exchange has sold/auctioned card and that also is another pointer that the card holder has right in property or so to say the card is property in itself and consequently an asset within the meaning of section 2(e) of the Wealth-tax Act. A membership card which can be sold for a price without with the permission and subject to rules and regulations of stock exchange would undoubtedly be a property and therefore the members right thereon would be an interest in property and consequently the Supreme Court in the case of Prince Muffakham Jah Bahadur Chamlijan 2000 (12) TMI 100 - SUPREME COURT and other-two decisions in the case of Ahmed G.H. Ariffs 1969 (8) TMI 4 - SUPREME COURT and Purshottam N. Amarsay would be clearly applicable wherein it has been held that the right though inalienable and personal privilege would be an asset within the meaning of section 2(e) of the Wealth-tax Act. The case in Prince Muffakham Jah Bahadur Charnlijan was case of a life interest to reside in a property. In the case of Ahmed G.H. A riff there was a right of beneficiary to receive an adequate share of net income of the properties comprised in a Wakf created by a Muslim governed by the Mohammedan law which extends the meaning of property even to a Mahantship or Shebaitship and in the case of Purshottam N. Amarsay 1971 (9) TMI 26 - SUPREME COURT the right of the settler to live as far as possible with the same comforts and to enjoy the life in the same manner as he was accustomed to. In all these three cases the rights and privileges were personal and inalienable and the Supreme Court uniformly held that such interest was an asset within the meaning of section 2(e) of the Act because the language employed shall that it was intended to include the property of every description. Crux of the rules is that the card is valuable property which entitle the members to deal in transactions on the floor of the stock exchange and without which he cannot transact in such business. It can be disposed of by him by nomination though subject to rules and regulations of stock exchange and settlement of debts and liabilities of the members of the stock exchange. One such instance is found in the decision of Rajasthan High Court in the case of Ravindra Kumar Jain v. CIT 2003 (4) TMI 68 - RAJASTHAN HIGH COURT in the case of transfer/sale for inadequate consideration under the Gift-tax Act. Another example is also found in the case of Special Bench before Delhi Tribunal in the case of Jagan Nath Sayal v. Asstt. CGT 1999 (11) TMI 106 - ITAT DELHI again a case under the Gift-tax Act. The third example is found in the case before the Bombay Tribunal in the case of Upendra M. Dalal 2002 (9) TMI 850 - ITAT MUMBAI in connection with capital gain tax liability in transfer of card was upheld. The stock exchange card is a property and consequently an asset u/s 2(e) of the Wealth-tax Act. It can be sold by nomination and its value must be determined considering its market potential. The reopening of assessments based on judicial precedents was upheld and the valuation aspects were remitted back for reassessment. All appeals and COs were partly allowed.

Summary

Issues Involved:
1. Taxability of Stock Exchange Membership Card under the WT Act, 1957.
2. Interpretation of Stock Exchange Rules and Bye-laws.
3. Valuation of Stock Exchange Membership Card.
4. Reopening of assessments based on judicial precedents.

Summary:

1. Taxability of Stock Exchange Membership Card under the WT Act, 1957:
The primary issue is whether the Stock Exchange Membership Card held by the assessees in Ahmedabad Stock Exchange constitutes an asset within the meaning of section 2(e) of the WT Act, 1957 and is liable to tax. The Tribunal held that the membership card is a property and consequently an asset under section 2(e) of the Wealth-tax Act, 1957. The Tribunal emphasized that the card can be sold by nomination for a price, and the sale proceeds are utilized for the discharge of the member's liabilities, indicating that the membership card has economic value and is thus includible in the net wealth of the assessee.

2. Interpretation of Stock Exchange Rules and Bye-laws:
The Tribunal analyzed various rules and bye-laws of the Ahmedabad Stock Exchange, including the eligibility and non-eligibility criteria for membership, the rights and obligations of members, and the procedures for nomination and termination of membership. It was noted that the right of membership is a personal privilege but can be transferred through nomination, subject to certain conditions. The Tribunal concluded that the membership card has economic value, as evidenced by the ability to nominate a successor for consideration, making it a property right.

3. Valuation of Stock Exchange Membership Card:
The Tribunal discussed the valuation of the membership card, noting that the Assessing Officer had estimated the fair market value based on auction prices of similar cards. The Tribunal upheld the valuation of Rs. 10 lakhs as reasonable, considering the auction prices of cards in the financial years surrounding the valuation date. The Tribunal directed the Assessing Officer to follow the procedure laid down in section 16A(1) read with rule 3(b) of the Wealth-tax Rules, 1957, for determining the market value of the card.

4. Reopening of assessments based on judicial precedents:
The Tribunal addressed the issue of reopening assessments based on the Gujarat High Court decision in Stock Exchange, Ahmedabad v. Asstt. CIT, which was later reversed by the Supreme Court. The Tribunal held that the reopening was valid as the membership card is an asset chargeable to wealth-tax, and the Supreme Court decision did not apply to continuing members but only to those declared as defaulters. The Tribunal emphasized that each year and each assessee is separate, and the principle of res judicata does not apply to income-tax proceedings.

Conclusion:
The Tribunal concluded that the Stock Exchange Membership Card is a property and an asset under section 2(e) of the Wealth-tax Act, 1957, and is liable to tax. The valuation of the card should be determined following the prescribed rules, and the reopening of assessments was justified. The appeals and cross-objections were partly allowed.