Tribunal: BSE shares cost based on WDV of membership card at demutualization.

The Tribunal held that the cost of acquisition of BSE shares should be the written down value (WDV) of the BSE membership card as at the beginning of the previous year of demutualization and indexation should start from the year of demutualization (FY 2005-06). This decision aligns with Sections 50, 55(2)(ab), and 2(42A) of the Income Tax Act, preventing double deduction and ensuring accurate computation of capital gains. The appeal was dismissed.

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Issues Involved:
1. Determination of the cost of acquisition of BSE shares received in demutualization.
2. Calculation of indexed cost of acquisition for long-term capital gains.

Issue-Wise Detailed Analysis:

1. Determination of the Cost of Acquisition of BSE Shares Received in Demutualization:
The primary issue was whether the cost of acquisition of BSE shares should be the original cost of the BSE membership card or its written down value (WDV) after claiming depreciation. The assessee company argued that the cost of acquisition should be the original cost of Rs. 2,41,00,000 as per Section 55(2)(ab) of the Income Tax Act, 1961. The AO and CIT(A) disagreed, noting that the assessee had claimed depreciation on the BSE membership card in earlier years, and thus, taking the original cost would amount to a double deduction. They held that the WDV should be the cost of acquisition, as per Section 50 of the Act, which applies to depreciable assets. The Tribunal upheld this view, emphasizing that the special provisions of Section 50, which start with a non-obstante clause, override the general provisions and mandate the use of WDV for depreciable assets.

2. Calculation of Indexed Cost of Acquisition for Long-Term Capital Gains:
The second issue was whether the indexed cost of acquisition should be calculated from the year the BSE membership card was purchased (FY 2000-01) or from the year of demutualization (FY 2005-06). The assessee contended that the period of holding should include the time from the original acquisition of the BSE membership card, allowing for indexation from FY 2000-01. The Revenue argued, and the Tribunal agreed, that since the BSE membership card was a depreciable asset, the cost of acquisition should be the WDV as at the beginning of the previous year when demutualization occurred (FY 2005-06). Consequently, indexation should be applied from FY 2005-06, not from FY 2000-01. The Tribunal noted that Section 50, which deals with depreciable assets, precludes the application of cost inflation index benefits for the period before demutualization.

Conclusion:
The Tribunal dismissed the appeal, holding that the cost of acquisition of BSE shares should be the WDV of the BSE membership card as at the beginning of the previous year in which demutualization occurred, and indexation should be applied from the year of demutualization (FY 2005-06). The decision harmonizes the application of Sections 50, 55(2)(ab), and 2(42A) of the Income Tax Act, ensuring no double deduction and proper computation of capital gains.

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