1999 (11) TMI 106 - AT - Income Tax

DSE Share & Membership Valuation Criteria under Wealth-tax Act: Tribunal Decision & Transfer Rules

The Tribunal held that a share in the Delhi Stock Exchange (DSE) is a capital asset under the Wealth-tax Act, with a dormant right essential for ... Assets, Valuation Of Assets, Membership Of Stock Exchange Issues Involved:1. Whether the share in Delhi Stock Exchange constitutes wealth and, if so, how to value the sameRs.2. Whether the membership card entitling a person to transact business after entering the trading circle in the Exchange Building at New Delhi is wealth and, if so, what is the proper method of valuation to be adoptedRs.3. Whether the share of Delhi Stock Exchange or membership of Delhi Stock Exchange is transferableRs.4. Whether the gift of Delhi Stock Exchange Card of the share of Delhi Stock Exchange is valid under law and whether it can be treated as a perquisite and how to value the said gift for purposes of gift-taxRs.Summary:Issue 1: Whether the share in Delhi Stock Exchange constitutes wealth and, if so, how to value the sameRs.The Tribunal held that a share in the Delhi Stock Exchange (DSE) is a capital asset within the meaning of section 2(e) of the Wealth-tax Act (WT Act). The share in DSE, though not yielding dividends, is essential for becoming a member of the Stock Exchange and thus has a dormant right. The value of the share is to be determined with reference to its purpose, and a composite value of the share and ticket is to be considered for realistic valuation.Issue 2: Whether the membership card entitling a person to transact business after entering the trading circle in the Exchange Building at New Delhi is wealth and, if so, what is the proper method of valuation to be adoptedRs.The Tribunal concluded that the membership card of DSE, which grants the right to transact business as a stock broker, is an asset with economic value. The value of the membership ticket should be estimated as the price it would fetch if sold in the open market on the valuation date. The Tribunal emphasized that the value of the ticket is determined by its potential to generate income and not by the individual broker's business acumen.Issue 3: Whether the share of Delhi Stock Exchange or membership of Delhi Stock Exchange is transferableRs.The Tribunal noted that while there are restrictions on the transfer of shares and membership in DSE, these assets are not entirely non-transferable. The shares can be transferred to a person qualified to become a member of the stock exchange, and the membership right is automatically transferred when the shareholding changes with the approval of the Stock Exchange.Issue 4: Whether the gift of Delhi Stock Exchange Card of the share of Delhi Stock Exchange is valid under law and whether it can be treated as a perquisite and how to value the said gift for purposes of gift-taxRs.The Tribunal held that the transfer of shares along with the membership rights constitutes a valid gift under the law. The valuation of such a gift should be done in accordance with the provisions of Schedule III of the WT Act, considering the composite value of the share and the membership ticket.Conclusion:The Tribunal concluded that the membership right held by the assessee in DSE constitutes an asset and is exigible to tax. The composite value of the share and ticket is to be adopted for valuation purposes. The matter was remanded to the Assessing Officer to determine the valuation afresh in accordance with the law, ensuring adequate opportunity for the assessee to be heard. The Tribunal also addressed the procedural irregularities and emphasized the importance of following the correct valuation procedures.