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TMI Blog2019 (8) TMI 1770X X X X Extracts X X X X X X X X Extracts X X X X ..... y paying the total consideration of Rs. 94.50 Lakhs. At that point of time, BSE was a mutual association and accordingly, by paying the aforesaid consideration, the assessee became the member of the association and was entitled to carry on the trading activity. The assessee treated the rights acquired by it on payment of Rs. 94.50 Lakhs as 'intangible right' and claimed depreciation on the same, which was disallowed by the Revenue. The issue of claim of depreciation was ultimately settled by the Hon'ble Supreme Court in the assessee's case reported in 327 ITR 323, wherein the Hon'ble Supreme Court held that the membership card acquired by the assessee was an intangible asset as per Section 32(1)(ii) of the Act. Accordingly, the assessee was claiming depreciation on such assets and the Written Down Value ("WDV") of the membership card as on 31st March 2005 was Rs. 12,61,422/-. 3. In the meantime, it was proposed by the Government to demutualize and corporatize the stock exchange. The sequence of event was as under:- a. On 20th May 2005, the BSE (Corporatization and Demutualization) Scheme, 2005 was announced by the Security Exchange Board of India ("SEBI"). b. On 8th Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation on the trading right, being intangible asset, does not arise. 7. During the financial year relevant to assessment year 2008-09, the assessee has transferred 4,562 shares of BSE Ltd. under the Scheme of Buyback of shares by BSE Ltd. The assessee had received total consideration of Rs. 20,37,22,400/- at Rs. 5,200/- per share. In the return of income, the assessee computed the cost of shares by taking the proportionate of 4,562 over 10,000 shares over the original cost of acquiring the membership right of Rs. 94,50,000/-. The assessee indexed the said cost from the date of acquisition of the membership right, i.e. 1998 and determined the total cost at Rs. 67,67,552/- and offered Long Term Capital Gain of Rs. 1,69,54,848/-. 8. The Assessing Officer, vide order dated 08.12.2010, accepted the asset being long term capital asset and the gains being chargeable to tax as Long Term Capital Gains; however, held that cost of the asset, i.e. the shares, is to be determined as per the WDV of the membership right as the assessee had claimed depreciation on such membership right. The Assessing Officer also held that although Section 55(2)(ab) of the Act provides that cost of the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of opinion between the learned Judicial Member and learned Accountant Member, the matter has been referred by the Hon'ble President to me for my opinion. 12. The question to be answered by me in this order, as framed by the learned Members and reproduced above, is what should be the cost of acquisition of shares of BSE Ltd. sold by the assessee in a situation wherein assessee had claimed depreciation on the cost of membership card. Is the cost of acquisition to be computed as per Section 50 of the Act or Section 55(2)(ab) of the Act. Further, what should be the period of holding of shares of BSE Ltd.; will it be computed from date of acquisition of membership card or from date of allotment of shares in BSE Ltd. 13. At the outset, I make it clear that so far as the relevant factual matrix is concerned, which has been discussed in the above paras, there is no dispute and, therefore, I refrain from adverting to the same in detail again. 14. Before me, the learned Representative for the assessee has argued to support the order proposed by the learned Judicial Member. At the outset, it was argued that the consequence of demutualization and corporatization of the stock exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act as 'tangible assets' are defined as "building, machinery, plant or furniture". Admittedly, shares are not one of these. There can be no dispute that shares are not 'intangible assets'. Therefore, the question of applicability of Section 50 of the Act to the shares of BSE Ltd. does not arise. Section 50 of the Act applies only when the capital asset is an asset forming part of block of assets in respect of which depreciation has been allowed. This has been categorically held by the Hon'ble Supreme Court in the case of Nectar Beverages Pvt. Ltd. vs. DCIT, 314 ITR 314 (SC) at Para 12 which provides that 'bottles', which did not form part of block of assets, was not chargeable to tax under Section 50 of the Act. 17. Therefore, it was submitted that the finding of the learned Accountant Member that Section 50 of the Act was applicable as the assessee had been allowed deprecation on the membership card is not sustainable in law. The applicability of Section 50 of the Act is to be seen qua the assets which have been transferred for which the Capital Gain has to be computed. There can be no dispute that the share of BSE Ltd. is an asset which is completely different from the me ..... 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. The assessee submitted that the expression of the legislature is clear from the wording of the section which provides that cost of acquisition of the shares of BSE Ltd. will be the cost of the membership rights and not the WDV of the membership rights. Further, the 'double taxation', if any, is on account of non-taxability of the transfer of membership rights, which has been specifically provided by the legislature in Section 47(xiiia) of the Act. Therefore, it was argued that there is a clear provision for non-taxability of transfer of membership card and the cost of acquisition of shares to be the original cost and not the WDV of the membership rights. 21. In view of the aforesaid, it has been vehemently canvassed that even on an application of the dictum of the decision of Escorts Ltd. (supra), it is clear that cost of acquisition of instant shares would be the original cost and not the WDV. The learned Representative relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Rajasthan and Gujarati Charitable Foundation, 402 ITR 441 (SC) wherein the Supreme Court has held that it is permissible for an assessee, being a charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 50 over the provisions of Section 55(2)(ab) of the Act in a case where the capital asset was being claimed as a depreciable asset. Similarly, the Hon'ble Bench held that the indexation benefit on sale of such share would be available from date of corporatisation of BSE and not from the date of acquisition of original membership of BSE. It was pointed out that though the learned Judicial Member has extensively referred to the decision in the case of Twin Earth Securities (P) Ltd. (supra), but without giving any cogent reasons, he has chosen to disagree with the decision of the co-ordinate Bench. It has been asserted that the learned Judicial Member has also not cited any decision in favour of assessee which was delivered by any Tribunal or High Court after the date on which the order in the case of Twin Earth Securities (P) Ltd. (supra) has been passed. The learned DR further pointed out that the instant assessee had waged a long battle on the issue of whether the BSE membership was entitled to depreciation or not, and, which has been finally settled by the Hon'ble Supreme Court, which held that the said asset was indeed entitled for depreciation. Thus, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of sections 48 and 49, "cost of acquisition"- .... [( ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for [demutualisation or] corporatisation 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), shall be the cost of acquisition of his original membership of the exchange;] (underlined for emphasis by me) From above, it is amply clear that in terms of Section 55(2)(ab) of the Act, the cost of shares allotted to the assessee pursuant to the demutualisation and corporatisation has to be as per the original cost of acquisition of his original membership card of BSE. The section does not prescribe for any pre-condition to claim the cost of acquisition as the cost of shares allotted to the assessee. Thus, I find that language of Section 55(2)(ab) of the Act is unambiguous and clear. 25. Now, the grievance of the Assessing Officer is that since the assessee has claimed depreciation on the cost of membership card, the computation of Capital Gains on sale of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unambiguous, the same should be adhered to, even when the same results in double deduction in the hands of the assessee. In this regard, it would be pertinent to refer to the remark made by the Hon'ble Supreme Court in the case of Yokogawa India Ltd. (supra), which is reproduced hereunder:- "The cardinal principles of interpretation of taxing statues centers around the opinion of Rowalatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioner [1921] 1 KB 64 which has virtually become the locus classicus. The above would dispense with the necessity of any further elaboration of the subject notwithstanding the numerous precedents available inasmuch as the evolution of all such principles are within the four corners of the following opinion of Rowlatt, J. "........in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." (underlined for emphasis by me) The above analysis clearly reveals that while interpreting the taxing statute, nothing is to be assumed, nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court after a long drawn litigation and as such, the legislature at the time of insertion of Section 55(2)(ab) of the Act might not have envisaged the situation that the depreciation could be claimed by the assessee on cost of membership card. This doubt also gets repelled, once it is appreciated that the courts do not write the law, but only interpret the law in the correct perspective. Thus, the law remains the same and there is no change in the law consequent to a court judgment. So, the argument of the learned DR that first the assessee claimed the depreciation on the cost of membership card after long drawn litigation till Hon'ble Supreme Court and thereafter, claiming cost of the same at the time of sale of shares, has no substance. Thus, it will be wrong to say that the legislature must not have envisaged the present situation while amending Section 55 of the Act. 28. If for a moment, the argument of the learned DR is accepted that provisions of Section 50 of the Act and not Section 55(2)(ab) of the Act are applicable, then the moot question which arises is as to what was the purpose of insertion of Section 55(2)(ab) of the Act. It is a well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 32 and section 35. Both these provisions form a part of Chapter IV, which deals with the computation of business income. While arriving at the total income of an assessee, certain deductions are allowed as set out in the said Chapter itself. Section 29 of the Act which forms part of Chapter IV states that: "Income from profits and gains of business or profession, how computed.- The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43C." These sections include, inter alia, deduction of depreciation under section 32 and deduction regarding expenditure on scientific research in the manner set out in section 34. Therefore, the deductions which the Supreme Court was concerned with, were the deductions which were within the scheme of Chapter IV, to be taken into account while computing the income under section 28 of the Act. Section 80J. on the other hand, forms part of Chapter VIA which provides for certain additional deductions which are to be made from the gross total income of the assessee as computed under Chapter IV. Thus, for example, section 80A provides : "In computing total income of an assessee, there shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court has made this clear (page 874) when it says that the two deductions, i.e., deductions under sections 32 and 35 are, 'basically of the same nature intended to enable the assessee to write off certain items of capital expenditure against his business profits'. A deduction under section 80J is not of the same nature as a deduction under section 35. Therefore, in our view, the ratio of the Supreme Court judgment in Escorts Ltd. 's case ( supra)will not apply to the computation of capital under section 80J for the purpose of determining the quantum of deduction under section 80J." (underlined for emphasis by me) The above analysis of the Hon'ble High Court clearly answers the question that even if for the time being it is assumed that there is a double deduction, the nature of deduction claimed, i.e. as cost of shares under the head 'Capital Gains' and nature of deduction claimed earlier, i.e. depreciation on cost of membership card under the head 'Income from Business and Profession' is quite different and cannot be said to be of the same nature and thus, the ratio of the Hon'ble Supreme Court in the case of Escorts Ltd. (supra) cannot be said to be milit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, we find that the Hon'ble Supreme Court in the case of J. K. Synthetic Ltd. has not laid down a law that double deduction is not permissible. It only stated that the same should be expressly provided for under the Act. In the present case, admittedly Section 32 of the Act provides for allowance of depreciation of cost of membership card. Further, Section 55(2)(ab) of the Act provides that cost of shares of BSE Ltd. shall be the cost of acquisition of membership card. Section 55(2)(ab) of the Act does not prescribe any reservation or exception for cases wherein assessee has already claimed depreciation on the cost of membership card. This implies that the legislature in its wisdom has considered the scenario of double deduction while bringing in such amendment. In such cases, it cannot be inferred that the benefit granted to the assessee was unintentional and shall not be allowed to the assessee. When the language of the section is so clear and no conditions are attached with the allowance available to the assessee, while interpreting the section this bench cannot suo-moto put certain conditions to take away the benefit granted by the statute even when the same may lead to dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that case, assessee had not argued and claimed that it was eligible to claim entire cost of acquisition of membership card while computing Long Term Capital Gains. Rather, assessee itself chose to claim only the WDV as the cost of acquisition of membership card. Such an action on the part of the assessee in that case cannot be said to be a valid binding precedent and thus, the same cannot help the cause of Revenue in the present case. 34. In light of the above discussion, I hereby hold that the cost of acquisition of shares of BSE Ltd. shall be the original cost of acquisition of membership card in terms of Section 55(2)(ab) of the Act even though assessee has claimed depreciation on the cost of membership card in the earlier years. 35. As regards the period of holding of shares of BSE Ltd., I find that as per clause (ha) inserted in Explanation 1 to Section 2(42A) of the Act by the Finance Act, 2003, period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation shall also be included in period of holding of shares. In terms of the clear and unambiguous language of the section, I hold that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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