IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH 'D' MUMBAI BEFORE SHRI D.MANMOHAN (VICE PRESIDENT) & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.6710/Mum/2011 - A.Y 2007-08 M/s. Rosy Blue Securities Pvt. Ltd., Vs. Addl. Commissioner of I.T./, 154-C, Mittal Court, Range 4(2), Nariman Point, Mumbai. Mumbai 400 021. PAN: AAACR 4082 Q (Appellant) (Respondent) Appellant by : None Respondent by : Shri V.V.Shastri. Date of Hearing: 15-02-2012. Date of Pronouncement: 15-02-2012. ORDER
Per T.R.SOOD, AM:
In this appeal assessee has raised various grounds which involve two disputes, namely, (1) confirmation of disallowance of depreciation on BSE Membership card and (2) disallowance of claim of expenses u/s.14A.
2. In this case notice was issued through RPAD which has been duly received by the assessee and acknowledgement card duly receipted is on record. However, we find from perusal of records that both the issues are covered, therefore, we proceeded to decide the appeal on ex parte basis.
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3. Issue No.1: After hearing both the parties we find that assessee has claimed depreciation amounting to Rs.15,04,143/- towards depreciation on membership rights which was disallowed by the AO because BSE has been demutualised and assets were taken over by BSE Ltd. w.e.f. 19-8-2005 and as per the scheme trading members may or may not be the shareholders. On demutualisation the asset in the form of BSE card ceased to exist. Therefore, depreciation according to the AO was not allowable.
4. On appeal, the decision of the AO was confirmed by the Ld. CIT(A).
5. The Ld. DR pointed out that this issue is squarely covered in favour of the Revenue by the order of the Tribunal in the case of Sino Securities Pvt. Ltd. vs. ITO in I.T.A.No.6264-Mum-2009 [copy of the order filed].
6. After considering the relevant material on record and the submissions of the Ld. DR, we find that the Tribunal in the case of Sino Securities Pvt. Ltd. vs. ITO in I.T.A.No.6264-Mum-2009 has discussed this issue in detail and found that after demutualisation rights of the members of erstwhile BSE were segregated into (a) right to participate in ownership of assets of the stock exchange and (b) right to trade at stock exchange. The Tribunal observed that as far as right to participate in assets is concerned, same is through holding of the shares and, therefore, no question of depreciation arises. In respect of 3 ITA NO.6710 OF 2010 trading rights it was observed by the Tribunal in paras 31 & 32 as under:
31. Coming to trading rights, we find that the value that can be assigned from out of the value of BSE card is only to the extent of deposit made. Trading right Is no doubt a business in commercial rights but value is equivalent to the quantum of deposit. The assessee is entitled to refund of the deposit. When the value is equal to a refundable deposit, how can such value of refundable deposit be depreciated when the value in reality does not come down. If the refundable deposit is deducted from the value, then the present value of trading right is nil. Under these circumstances, there is no value to the trading in commercial right entitling the assessee for deduction by way of depreciation. Hence, no depreciation can be granted on this right. Thus, we uphold the finding of the Revenue authorities. We now discuss the impact of the following sections:
"55(2) For 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 fndia Act, 1992, (15 of 1992) shall be the cost of acquisition of his original membership of the exchange.
Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil. 2(42)(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to In clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation.
2 (42) (h)in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be induced the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation] 113c[(hb) (ha) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (Including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares.
4 ITA NO.6710 OF 2010 47(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of which an association of persons or body of Individuals is succeeded by such company:] Provided that--
(a) all the assets and liabilities of the firm (or of the association of persons or body of Individuals] relating to the business immediately before the succession become the assets and liabilities of the company;
(b) all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the succession;
(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company; and
(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;.
(e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out 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);] 47(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);]
32. All these sections deal with computation of capital gains under Chapter--IV(E) i.e., section 45 to 55A of the Act. In our considered opinion, sections which are for the computation of capital gains, have no relevance on the allowability of depreciation. The argument of the assessee that it had taken the original cost of the share © 1, while computing capital gain in a latter year, does not effect our decision. Thus, we uphold the order the Assessing Officer as confirmed by the Commissioner (Appeals) wherein depreciation on membership card has been denied.
Therefore, following the above order, we decide this issue against the assessee.
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7. As far as issue regarding disallowance u/s.14A is concerned, since it has been held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [328 ITR 81] that Rule 8D is not applicable retrospectively and only a reasonable disallowance can be made in the year where Rule 8D is not applicable. Therefore, following this decision we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO to decide the reasonable disallowance in terms of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [supra].
8. In the result, appeal is partly allowed for statistical purposes.
Order pronounced in the open Court on this day of 15/2/2012.
Sd/- Sd/- (D.MANMOHAN) (T.R.SOOD) Vice President Accountant Member Mumbai: 15/2/2012. P/-*