Tribunal affirms LTCG calculation based on WDV for BSE shares in demutualization scheme

The tribunal upheld the AO's decision to calculate the Long-Term Capital Gain (LTCG) based on the Written Down Value (WDV) of the Bombay Stock Exchange (BSE) card for shares acquired under a demutualization scheme. The tribunal rejected the assessee's argument to use the original cost of acquisition of the BSE card, citing relevant provisions and previous tribunal decisions. Consequently, the department's appeal was allowed, affirming the use of WDV in computing capital gains and reversing the decision of the ld. CIT(A).

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Issues involved:
1. Determination of the original cost of acquisition of Bombay Stock Exchange (BSE) Card or Written Down Value (WDV) of BSE Card for calculating capital gain on the sale of shares acquired under a demutualization scheme.

Analysis:
The appellate tribunal ITAT Mumbai heard an appeal by the department against the order of the ld. CIT(A) for the assessment year 2008-09. The main issue revolved around whether the original cost of acquisition of BSE Card or the WDV of BSE Card should be considered for computing capital gain on the sale of shares acquired under a demutualization scheme of the Bombay Stock Exchange. The assessee, a BSE member, had claimed depreciation on the stock exchange card before the demutualization. The department argued that considering the original cost of the BSE card as the cost of acquisition of shares would amount to double deduction on the same asset, thus advocating for the use of WDV. The AO calculated the LTCG based on WDV and added it to the assessee's total income, leading to an appeal by the assessee.

The ld. CIT(A) accepted the assessee's contention to use the original cost of acquisition of the BSE card for calculating capital gain, citing section 55(2)(ab) of the Income Tax Act, 1961. During the hearing, the ld. DR relied on a previous Mumbai Bench Tribunal order to support the department's stance, while the ld. AR supported the ld. CIT(A)'s decision, emphasizing the entitlement to claim depreciation on the BSE Card. The tribunal noted that the assessee had availed depreciation on the BSE card until demutualization, and the WDV of the card should be considered as the cost of membership shares allotted. Referring to relevant provisions, the tribunal held that the WDV of the BSE card should be assigned to the cost of shares, as done in a previous case, ultimately confirming the AO's computation of LTCG based on the WDV.

In line with previous tribunal decisions, the tribunal upheld the AO's action, reversing the ld. CIT(A)'s order and allowing the department's appeal. The appeal of the department was consequently allowed, affirming the AO's approach in calculating the LTCG based on the WDV of the stock exchange card.

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