2012 (4) TMI 392 - AT - Income Tax

Addition on account of foreign education expenditure of the son of the Director of the assessee company - Held that The education of the children is sole and exclusive responsibility of the parent and cannot be mixed up with the business of the family owned company - Expenditure on higher education of the son of the director, in the facts and circumstances of the case cannot be said to be wholly and exclusively for the purpose of the business of the assessee and without any extra commercial circumstance Decided against the assessee. Regarding depreciation of BSE card and FEDAI membership - It is clear from the developments of BSE as well as from the amended provisions of the Act that after corporatisation of BSE and corresponding amendment in the relevant provisions of the Income Tax Act, the Membership Card of the erstwhile BSE ceased to exist and the cost of shares of the recognized Stock Exchange allotted in lieu of the card under the scheme of demutualization shall be the cost of acquisition of original membership of the Stock Exchange; whereas the cost of the capital asset being trading or clearing rights of recognized Stock Exchange acquired under the said scheme shall be deemed to be nil. As regards the membership of FEDAI is concerned, despite specific query from the Bench about the status of the membership card of FEDAI; whether the same development/charges as taken place as in the case of membership card of BSE, the ld AR has expressed his inability to say anything and requested that the matter may be remanded to the record of the CIT(A) for consideration of all the relevant facts and decide the same Decided in favor of the assessee by way of remand to AO Deduction for payment of penalty on violation of bye-laws of Stock Exchange - held that - penalty for short payment of margin money was a compensatory payment under rule of stock exchange which is allowable as revenue expenditure. Membership fee paid to Dubai Gold and Commodity exchange. - Held that - the membership expenditure is undoubtedly a capital in nature. The membership of DGCX was once for all and the expenditure would have an enduring benefit. Therefore, in case the assessee would have taken membership, the entire membership fee was to be treated as a capital expenditure.

Issues Involved:
1. Addition made under Section 14A of the Income Tax Act.
2. Addition by treating trading loss as speculation loss.
3. Addition on account of education and training expenses as personal expenses.
4. Disallowance of depreciation on BSE card and FEDAI membership.
5. Disallowance of gratuity deduction.
6. Addition on account of penalty for violation of Stock Exchange bye-laws.
7. Disallowance of club membership charges.
8. Addition of membership fees paid to Dubai Gold and Commodity Exchange.

Issue-wise Detailed Analysis:

1. Addition made under Section 14A of the Income Tax Act:
The Tribunal noted that Rule 8D is applicable prospectively from Assessment Year 2008-09, as held by the jurisdictional High Court. Since the assessment year involved is 2006-07, the matter was remitted back to the Assessing Officer for fresh adjudication in light of the decision in Godrej Boyce Mfg Co. Ltd. v. Dy. CIT.

2. Addition by treating trading loss as speculation loss:
The Tribunal referred to the jurisdictional High Court's decision in Prasad Agents (P.) Ltd. v. ITO, which held that losses in trading by delivery and book value must be considered for speculative business. The Tribunal decided this issue against the assessee and in favor of the Revenue.

3. Addition on account of education and training expenses as personal expenses:
The Tribunal observed that the expenditure on the foreign education of the director's son was personal and not for the business purpose of the assessee company. The Tribunal referred to several High Court decisions, including Hindustan Hosiery Industries and M. Subramaniam Bros., which held that such expenses are not allowable as business expenditure. Therefore, the Tribunal upheld the disallowance by the lower authorities.

4. Disallowance of depreciation on BSE card and FEDAI membership:
The Tribunal noted that after corporatization of the Bombay Stock Exchange, the BSE card ceased to exist and was replaced by shares. The cost of trading rights was deemed to be nil by statute, and thus, no depreciation was allowable. Regarding FEDAI membership, the Tribunal remanded the issue back to the Assessing Officer to ascertain the relevant facts and decide as per law.

5. Disallowance of gratuity deduction:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee had received approval for its Trust from the CIT, and thus, the deduction for gratuity payment was allowable.

6. Addition on account of penalty for violation of Stock Exchange bye-laws:
The Tribunal referred to its earlier decision in the assessee's own case for AY 2005-06, where it was held that penalty for short payment of margin money was compensatory and allowable as revenue expenditure. The Tribunal decided this issue against the Revenue.

7. Disallowance of club membership charges:
The Tribunal referred to its earlier decisions and held that club membership charges are business expenditure. The Tribunal decided this issue in favor of the assessee and against the Revenue.

8. Addition of membership fees paid to Dubai Gold and Commodity Exchange:
The Tribunal held that the membership fee was capital in nature and its forfeiture could not be allowed as a revenue loss but as a capital loss. The Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's decision on this issue.

Conclusion:
The Tribunal partly allowed both the appeals for statistical purposes, remanding certain issues back to the Assessing Officer for fresh adjudication and upholding or reversing decisions on other issues based on legal precedents and statutory provisions.

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