2020 (10) TMI 790 - AT - Income Tax

Tribunal Confirms Stock Exchange Fees as Capital Expenditure with Depreciation

BGSE Financials Ltd. Versus Deputy Commissioner of Income Tax, Circle-1 (1) (2), Bengaluru

The Tribunal upheld the decision of the CIT(A) confirming admission fees paid to Stock Exchange as capital expenditure, allowing depreciation on the same. ... Nature of expenditure - admission fees paid to Stock Exchange - Payment made to MCX-SX Stock Exchange towards admission fees and processing charges. revenue or capital expenditure - HELD THAT:-The Hon'ble Apex Court in the case of Alembic Chemical Work Company Ltd. [1989 (3) TMI 5 - SUPREME COURT] had elucidated and affirmed that 'once and for all payment' when it comes into existence, an asset or an advantage of enduring benefit in absence of special circumstances leading to an opposite conclusion is a capital expenditure and not attributable to revenue. This is the primary and basic test. Assessee has not been able to establish any special circumstances for an opposite conclusion in the present case - expenditure incurred was for acquiring and bringing into existence an asset or advantage of enduring benefit and not for running business to produce more profits. Hon'ble Delhi High Court in the case of Abhipra Capital Ltd. v. DCIT (Investigation) [2018 (2) TMI 1294 - DELHI HIGH COURT] on identical facts had decided the issue in favour of the revenue. Cases relied on by the learned A.R., had proceeded on the basis that assessee on incurring the expenditure for acquiring membership of a stock exchange has not become owner of any asset and therefore cannot be said that any enduring benefit had accrued to the assessee. Whereas in light of Hon'ble Supreme Court judgement in the case of Techno Shares and Stocks Limited [2010 (9) TMI 6 - SUPREME COURT] membership of stock exchange is to be treated as a capital asset. Therefore, CIT(A) has rightly treated the admission fee as a membership of the stock exchange capital asset and allowed alternative plea of assessee that depreciation is to be granted on the same. - Decided against assessee. Issues:Whether admission fees paid to Stock Exchange is capital expenditure or revenue expenditure.Analysis:The appeal was against the CIT(A) Order confirming the disallowance of admission fees paid to Stock Exchange as capital expenditure, despite allowing depreciation on the same. The assessee argued that the payment was for permission to trade and not for acquiring a capital asset. The CIT(A) held it to be a capital expenditure based on precedence. The Tribunal analyzed the nature of the expenditure under Section 37 of the Income-tax Act, distinguishing between capital and revenue expenditure. It examined the rules of the stock exchange regarding membership acquisition, concluding that membership created an intangible right transferable by nomination, constituting a capital asset.The Tribunal referred to the definition of 'capital asset' under Section 2(14) of the Act, emphasizing the lasting benefit aspect. It cited case law to support that membership of a stock exchange confers valuable rights, qualifying as a capital asset. The distinction between capital and revenue expenditure was explained, highlighting that capital expenditure leads to lasting value acquisition, while revenue expenditure is operational for immediate returns. The Tribunal relied on the Techno Shares and Stocks case, where the Supreme Court treated stock exchange membership as a business right and a capital asset, allowing depreciation.Further, the Tribunal referenced the Alembic Chemical case, emphasizing that an enduring benefit signifies capital expenditure. It distinguished the Abhipra Capital case, noting that the membership's enduring benefit was crucial in determining capital expenditure. The Tribunal upheld the CIT(A)'s decision, affirming the admission fee as a capital asset and allowing depreciation. The appeal was dismissed, concluding that the admission fee was rightly treated as capital expenditure, and depreciation was to be granted accordingly.