2015 (8) TMI 180 - HC - Income Tax

Holding share in the DSE as also membership of DSE - whether were property/assets and transfer thereof was exigible to tax under the Gift-tax Act, 1958? - Whether the Tribunal was justified in opining that composite value of share and ticket was to be adopted? - Held that - In view of the settled legal position as decided in Stock Exchange, Ahmedabad v. ACIT (2001 (3) TMI 2 - SUPREME Court), Techno Shares and Stocks Limited v. ACIT (2010 (9) TMI 6 - SUPREME COURT OF INDIA ), Vinay Bubna v. Stock Exchange, Mumbai AIR 1999 (7) TMI 115 - SUPREME COURT OF INDIA , DCIT v. Ashwin C. Shah (2001 (12) TMI 195 - ITAT BOMBAY-WT) and in light of its analysis of the relevant provisions of the AoA of the DSE, the Court is of the view that the first question requires to be answered in favour of the Assessee. It is accordingly held that the ITAT was not justified in holding that membership of the DSE was an asset of the Assessee and transfer thereof was exigible to gift tax under the taxation under the Gift Tax Act, 1958. Membership of the stock exchange is in the nature of personal permission and is not a tangible asset. The second question is answered in the negative. It is accordingly held that the ITAT was not justified in adopting the composite value of the share as well as the ticket for the purpose of gift tax. This Court is not called upon to examine the correctness valuation of the shares transferred by the assessee in favour of his son for the purposes of gift tax.

Summary

Issues:
1. Whether membership of the Delhi Stock Exchange Ltd. (DSE) and a share in DSE are considered property/assets for gift tax under the Gift Tax Act, 1958?
2. Whether the composite value of a share in DSE and the membership ticket should be adopted for gift tax purposes?

Analysis:

Issue 1:
The Assessee declared a gift of a share of DSE to his son, which included the right to enter the trading ring as a broker. The Assessing Officer valued the gift at Rs. 40 lakhs, considering both the share and the membership rights. The Commissioner of Gift-Tax (Appeals) and the Special Bench, ITAT upheld this valuation. However, the Assessee argued that membership of DSE is distinct from holding shares, citing legal precedents. The High Court examined the Memorandum and Articles of Association of DSE, which clearly distinguished between share transfers and membership conditions. Legal precedents highlighted that membership rights are personal privileges and not tangible assets. The Court held that membership of DSE is not an asset and not subject to gift tax.

Issue 2:
Regarding the composite valuation of the share and membership ticket, the High Court ruled against adopting such a valuation. The Court referenced a previous decision that mandated valuing shares as per Schedule III of the Wealth Tax Act. However, as the Revenue did not raise any specific valuation issue for gift tax purposes, the Court did not delve into the correctness of share valuation for gift tax. Therefore, the Court answered the second question in the negative, rejecting the composite valuation approach.

In conclusion, the High Court held that membership of DSE is not an asset for gift tax purposes and dismissed the composite valuation method for gift tax assessment. The reference under Section 26(1) of the Gift Tax Act, 1958 for Assessment Year 1992-93 was disposed of accordingly.