TaxTMI 
TaxTMI 
2008 (2) TMI 653
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.... the assessment year under appeal. The assessee had paid membership fees to the National Stock Exchange and Vadodara Stock Exchange towards subscription and non-adjustable interest-free security deposit, etc., to the extent of Rs. 65,50,000 and claimed the same as revenue expenditure in the computation of total income filed along with the return of income. The break-up of payments made and their treatment by the assessee in its books of account as culled out from the paper book filed by the assessee-company are as follows:- Item Treated as Expenditure Treated as Deferred Expenditure (Rs. in lakhs) Shown in B/S as Deposits I. Payment for acquiring membership to the Wholesale Debt Market of NSE: (a) Annual Subscription for 1994-95 5.00 (b) Non-adjustable deposit for Membership subscription and Other dues 25.00 II. Payment for acquiring membership to the Capital Market Segme....
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....e deposits made for acquiring membership of a stock exchange. Inviting our attention to the order of the learned CIT(A), he submitted that the learned CIT(A), without rebutting the finding recorded by the Assessing Officer to the aforesaid effect, has allowed deduction in respect of the deposits made by the assessee with the Stock Exchange which was untenable in law. 5. Without prejudice to the aforesaid submissions, Shri Shukla took us through the assessment order in which the Assessing Officer has held that the membership of a stock exchange conferred upon the assessee a benefit of enduring nature in that it enabled the assessee to trade in shares and securities and, therefore, the impugned expenditure was in the nature of capital expenditure. In support of his submissions, he relied upon the following decisions referred to in the assessment order and also referred to by him before us : 1.R.B. Seth Moolchand Suganchand v. CIT [1972] 86 ITR 647 (SC); 2.J.K. Chemicals Ltd. v. CIT [1994] 207 ITR 725 (Bom.); 3.Mewar Sugar Mills Ltd. v. CIT [1973] 87 ITR 400 (SC); 4.Stock Exchange v. Asstt. CIT [1998] 231 ITR 906 (Guj.); 5.Jagan Nath Sayal v. Asstt. CIT [1998] 72 ITD....
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....een held to be in the nature of revenue expenditure. He also relied on the decision in Magnum Equity Broking Ltd. in which the admission fee paid has been held to be revenue expenditure. 9. With regard to the amendment in section 47(xi) and 47(xiii), Shri Pardiwala submitted that these amendments were made subsequent to the assessment year 1995-96 and, hence, would not be applicable to the assessment year under appeal. He invited our attention to the Circular No. 671, dated 20-7-1993 issued by the Central Board of Direct Taxes in which the Board has directed to treat the amount paid for acquiring a telephone under OYT scheme and Tatkal telephone deposit scheme respectively as deductible in the year in which the deposit is made. He also invited our attention to another CBDT Circular No. 420, dated 4-6-1985 wherein security deposit paid to secure telex connection is allowed as revenue expenditure. According to him, similar logic would be applicable for treating the impugned deposits as revenue expenditure. 10. We have heard both the parties and considered their rival submissions including the authorities cited by them. Section 37 of the Income-tax Act provides that any expendit....
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....tal asset'. In order to constitute a 'capital asset', the asset should generally have an element of permanency about it and should be capable of being a source of income. This distinction is well brought out by the definition of 'capital asset' given in section 2(14) of the Income-tax Act. Section 2(14) of the Income-tax Act defines 'capital asset' as 'property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects ...'. Assets, like stock-in-trade, consumable stores or raw materials held for the purposes of the business or profession have no element of permanency in the hands of a trader in them and, therefore, they are excluded from the ambit of 'capital asset'. Tested on the aforesaid parameters, the membership of a stock exchange confers a valuable right on its holder to enjoy the rights and privileges of a trading member and also to carry on the trade as a Member of the Stock Exchange. It has been held in R.C. Cooper v. Union of India AIR 1970 SC 564, 591 that the term 'property', in its o....
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....ership of a recognised stock exchange' in the aforesaid provisions is clear indication and affirmation of the legal position that membership of a recognised stock exchange is a capital asset. 14. Shri Shukla is right in placing reliance on the decision of a Special Bench of this Tribunal in R.M. Valliappan's case (supra) in which it has been held that the membership card issued by a stock exchange is a capital asset. We are in respectful agreement with the aforesaid view. In fact, judicial discipline also requires us as a Division Bench of this Tribunal to follow the orders of a Special Bench. We hold accordingly. 15. The next issue that arises for consideration is whether the expenditure incurred by the assessee for acquiring the membership of a stock exchange, which has been held by us to be a capital asset, is capital expenditure. As stated earlier, the word 'capital' connotes permanency. 'Capital expenditure' is, therefore, closely akin to the concept of securing something, whether tangible or intangible property, or corporeal or incorporeal rights, which confer lasting or enduring benefit to the enterprise. An expense made by a business to derive a long-term benefit is, ....
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.... made by the assessee. 'Expenditure' is, thus, the core element in section 37(1). For claiming deduction as 'expenditure' the amount should have been spent by the assessee as an amount paid out or paid away and should be something which is gone irretrievably. To be a payment which is made irretrievably, there should not be any possibility of the money forming once again a part of the funds of the assessee. If this condition is not fulfilled and there is a possibility of there being a resulting trust in favour of the assessee, the money cannot be considered to have been spent by the assessee. In such a case, the assessee cannot claim that he had spent out or paid away the amount which he seeks to get deduction of. 'Deposit', on the other hand, represents money placed (i) with a person as earnest money or security for the performance of a contract; or (ii) with another who promises to preserve it or to use it and return it; or (iii) in a bank for safety and convenience. Thus, 'deposits' made by the assessee cannot be termed as 'expenditure' in the same way as 'expenditure' cannot be termed as 'deposits'. Quite logically, deposits made by the assessee cannot be termed as 'expenditure'....