9911796707
TMI Blog2016 (2) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 55(2)(ab) of the act. 2. On the facts and in the circumstances of the case and in law, the CIT(A) further has erred in calculating the indexed cost of acquisition with reference to year of exchange of BSE Membership Card for BSE Ltd.'s shares i.e. FY 2005-06 instead of the year in which the BSE Membership card was purchased i.e. FY 2000-01." 3. The Brief facts of the case are that the assessee company is engaged in the business of share broking. During the course of assessment proceedings u/s 143(3) of the Income Tax Act,1961(hereinafter called "the Act") read with Section 143(2) of the Act, the learned assessing officer (Hereinafter called "the AO") observed that the assessee company has sold 4562 shares of BSE Limited , on which it has earned long term capital gains . The said shares were allotted to the assessee company under the scheme of capitalization and demutualization of Bombay Stock Exchange , in lieu of BSE membership card. The AO asked the assessee company to justify the cost of acquisition claimed for calculating capital gain on sale of BSE shares. The assessee company had claimed the cost of Rs. 2,41,00,000/- for BSE card. The assessee company was asked why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 55(2)(ab) of the Act and held that provisions of Section 50 of the Act is applicable as the assessee company has claimed depreciation on the BSE membership right in the earlier years from which shares have emerged and such depreciation shall be reduced from the cost of acquisition of the shares of BSE Ltd. The Hon'ble Supreme Court has in the case of Techno Shares and Stocks Limited in (2010) 327 ITR 323(SC) has held that membership rights in BSE(AOP) is eligible for depreciation as intangibles. While calculating the long term capital gains on sale of such shares as shares of BSE Ltd are long term capital asset within the meaning of Section 2(42A) explanation1 (ha) of the Act and if the contentions of the assessee company is accepted , Section 50 of the Act will become otiose. The CIT(A) also held that the assessee company will be entitled to take the benefit of indexation u/s 48 of the Act with effect from the assessment year in which status of BSE changed from AOP to company i.e. assessment year 2006-07. Thus, the CIT(A) dismissed the appeal of the assessee company vide orders dated 31/1/2012. 5. Aggrieved by the orders dated 31/1/2012 of the CIT(A), the assessee company f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a consideration of Rs. 2,37,22,400/- leading to present dispute. The assessee company has contended that the original cost of acquisition of BSE membership on 20-07-2000 of Rs. 2,41,00,000/- shall be taken as cost of acquisition of 10000 shares of BSE Ltd on proportionate basis by virtue of Section 55(2)(ab) of the Act and period of holding shall be reckoned from the date of acquisition of original membership of BSE on 20- 07-2000 by virtue of Section 2(42A) explanation 1 (ha) and Section 47(xiiia) of the Act for availing the benefit of cost inflation index u/s 48 of the Act , to compute long term capital gains on sale of 4562 shares of BSE Ltd.. It is contended by the assessee company that in view of the specific provisions of Section 55(2)(ab) of the Act for computing long term capital gains on sale of 4562 shares of BSE Ltd. and also for the purposes of cost inflation index , the period of holding shall be reckoned from the date of acquisition of the original BSE membership by the assessee company on 20-07-2000, in view of the provisions of Section 2(42A) Explanation 1 (ha ) of the Act and Section 47(xiiia) of the Act . While the Revenue on the other hand is contending that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 45 shall apply to the following transfers :- ........ ........ ....... [(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);]" "[Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :- (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atization of the recognized stock exchange in India as referred to in Section 47(xiii) of the Act, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization . The perusal of Section 47(xiiia) of the Act will reveal that for bringing to charge capital gains u/s 45 of the Act, any transfer of capital asset being a membership right held by a member of a recognized stock exchange in India for acquisition of shares and trading or clearing rights acquired by such member in that recognized stock exchange in accordance with scheme of demutualization or corporatization which is approved by the SEBI shall not be regarded as transfer. Perusal of Section 50 of the Act will reveal that it is a special provision for computation of capital gains in case of depreciable assets under the Act under 'Chapter IV E -Computation of Total Income -Capital gains' and starts with a non-obstante clause that notwithstanding anything to contrary contained in clause (42A) of Section 2 of the Act, where the capital asset is an asset forming part of a block of assets in respect of which depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99-00 to 2002-03 dealt with by Hon'ble Supreme Court was prior to demutualization or corporatization of BSE ) is a 'business or commercial right of similar nature' and is a 'license' or 'akin to license' as defined u/s 32(1)(ii) of the Act and is entitled for depreciation as being intangible asset , if acquired on or after 01.04.1998 as provided under the amended Act . The assessee company in the instant case has acquired membership of BSE for Rs. 2,41,00,000/- on 10-07-2000 which is after 1.4.1998 and is an intangible asset as 'business or commercial right of similar nature' and is 'license' or 'akin to license' as stipulated u/s 32(1)(ii) of the Act and shall form part of block of intangible assets as defined u/s 2(11)(b) of the Act and shall be entitled for depreciation u/s 32 of the Act. The assessee company has prior to demutualization or corporatization of BSE, had in-fact claimed depreciation on the membership of BSE in the return of income filed with the Revenue which was allowed by the Revenue. The Section 50 of the Act is a special provision for computing capital gains in case of depreciable assets and in the instant case , the membership of BSE is depreciable asset bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 50 which states that 'notwithstanding anything contained in clause (42A) of Section 2....' And Section 2(42A) of the Act defines short term capital asset and the period of holding relevant for determining the short term capital asset and Explanation 1 (ha) provides that in determining the period of holding for which any capital asset is held by the tax-payer, the capital asset being equity shares or shares in a company allotted in pursuance to the demutualization or corporatization of the recognized stock exchange in India as referred to in Section 47(xiii) of the Act, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization while Section 50 clearly stipulate that the capital gains arising there-from shall be treated as arising from transfer of short term capital assets while Section 48 , inter-alia, provides that benefit of cost inflation index shall only be granted in case of long term capital gains arising from the transfer of a long-term capital assets . On the other hand Section 55(2)(ab) of the Act has explained, inter-alia, the meaning of cost of acquisitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 10000 equity shares of BSE Limited and trading right of BSE Limited . Thus, the cost of acquisition of 10000 equity shares of BSE Limited shall be taken as written down value of the membership of the BSE as at the beginning of previous year i.e. 01.04.2005 while the cost of acquisition of trading rights of BSE acquired in demutualization or corporatization process shall be deemed to be nil , as per the mandate of Section 55(2)(ab) of the Act. The assessee company shall be entitled for working out cost of acquisition of 4562 shares of BSE Limited sold during the previous year on proportionate basis based on the number of shares sold calculated on the total written down value of the 10000 shares of BSE Limited so allotted on 10-10-2005. The assessee company shall not be entitled for claiming benefit of cost inflation indexation from the period 10-07-2000 i.e. date of acquisition of membership of BSE till 10-10-2005 i.e. when the 10000 equity shares are allotted by BSE Limited along with trading rights in BSE Limited, in lieu of membership of BSE. The assessee company on demutualization or corporatization of BSE Limited is holding 10000 equity shares of BSE Limited and trading righ ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
