2019 (5) TMI 299 - AT - Income Tax

Acquisition of BSE shares - LTCG OR business income - holding period of capital asset being equity shares allotted in pursuance to demutualisation or corporatisation of a recognised stock exchange in hand - period of holding of asset - Calculation of Indexation benefit cost of acquisition of 'BSE card' - HELD THAT - As per the section 2(42A)(ha) supra, for determining the holding period of capital asset being equity shares allotted in pursuance to demutualisation of a recognised stock exchange in hand, the period for which the assessee was a member of the recognised stock exchange prior to such demutualisation shall also be included. Hence, the holding period of the asset is to be calculated from the acquisition of date of BSE card and not from the date of conversion of BSE card into equity shares. As per the section 55(2)(ab) of the Act, the cost of acquisition in relation to equity shares allotted to a shareholder under a scheme of demutualisation shall be the cost of acquisition of his original membership of the exchange. So from the express provisions, it is clear that the cost of acquisition of BSE card shall be the cost of acquisition of BSE shares and the shares are deemed to be acquired on the date of acquisition of BSE card and not from the date of their conversion. Hence, the date of holding/acquisition of an asset being equity shares allotted pursuant to demutualisation or corporatisation of a recognised stock exchange will be the date of acquisition of original BSE card and we note that CIT(A) have given relief to assessee by following the decision in M/s. Parag Parikh Financial Advisory Services Ltd. No other decision was cited before us by Revenue, to persuade us to to take a different view. Therefore, respectfully following the decision of M/s. Parag Parikh Financial Advisory Services Ltd. 2014 (2) TMI 686 - ITAT MUMBAI the lis is decided in favour of the assessee.

Summary

Issues:
1. Treatment of assessee's income as long term capital gain.

Analysis:
The appeal before the Appellate Tribunal ITAT Kolkata concerned the treatment of the assessee's income as long term capital gain. The revenue disputed the action of the Learned Commissioner of Income Tax (Appeals) in accepting the assessee's claim of ?1,87,17,838/- as long term capital gain. The Assessing Officer (AO) initially allowed the claim but later reopened the case under section 147 of the Income-tax Act, 1961, as the LTCG was earned from the sale of unquoted shares of Bombay Stock Exchange (BSE) without deducting Securities Transaction Tax (STT). The AO contended that the assessee was not eligible for exemption under section 10(38) of the Act. The assessee argued that the transfer of shares was in accordance with section 47(xiiia) of the Act, and even if the claim was not made under the correct provision, the exemption should not be denied. The AO treated the gain as business income, leading to an appeal by the assessee before the Ld. CIT(A), who ruled in favor of the assessee based on a decision of the ITAT Mumbai Bench. The revenue appealed this decision before the ITAT Kolkata.

The Tribunal noted that the assessee, engaged in share trading and broking, acquired membership of BSE under a scheme approved by SEBI. The history of the case revealed that the shares were acquired at a nominal price and later sold back to BSE at a substantial profit. The issue revolved around the period of holding the shares to determine their capital gain treatment. The Tribunal referenced a relevant decision of the ITAT Mumbai Bench which clarified the definition of short-term and long-term capital assets concerning equity shares allotted pursuant to demutualization or corporatization of a recognized stock exchange.

According to the provisions of the Act, the holding period of assets like equity shares allotted during demutualization includes the period the assessee was a member of the stock exchange before demutualization. The cost of acquisition for such shares is based on the original membership cost of the exchange. Therefore, the Tribunal concluded that the cost of acquisition of the shares should be considered from the date of acquiring the membership card, not the conversion date. The decision of the Ld CIT(A) was upheld based on the Mumbai Tribunal's ruling, as no contrary decisions were presented by the revenue. Consequently, the appeal of the revenue was dismissed, affirming the order of the Ld CIT(A).

In summary, the ITAT Kolkata upheld the decision of the Ld CIT(A) regarding the treatment of the assessee's income as long term capital gain, based on the provisions of the Act and a precedent set by the ITAT Mumbai Bench. The Tribunal's analysis focused on the holding period and cost of acquisition of equity shares acquired during the demutualization of a recognized stock exchange, ultimately ruling in favor of the assessee and dismissing the revenue's appeal.