TaxTMI 
TaxTMI 
2013 (9) TMI 608
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....ellant's claim of lower long term capital gains on sale of BSE shares cannot be accepted if the claim is not made by revising the return of income; even though the claim of appellant may have merit. " 3. Ground No.1 of the appeal is general and does not require any specific adjudication. 4. In respect of Ground No.2 of the appeal, the relevant facts are that the assessee is a registered share-broker on recognized stock exchange doing brokerage activities and also trading in shares. 5. In the assessment year under consideration, the assessee has earned dividend income amounting to Rs. 46,5,118/- which is claimed as exempt. AO has stated that assessee has not made any disallowance u/s 14A of Income Tax Act, 1961 (the Act), in respect of expenditure incurred in relation to income which does not form part of the total income under the Act. However, the assessee vide letter dated 7.12.2010 stated that investment was made by the assessee in new shares by paying the application money which remains outstanding pending allotment or refund. That the said application money cannot be considered as investment for the purpose of inclusion in the list of investment under rule 8D. However, ....
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.... assessee is in appeal before the Tribunal. 8. At the time of hearing, ld. AR submitted that the assessee had not made any investment in shares to earn dividend income. That the dividend received was incidental receipts in respect of shares purchased by the assessee during the course of its trading. He submitted that the authorities below applied Rule 8D of the Rules without recording the satisfaction as per Sub-Section (2) of Section 14 of the Act, that AO is not satisfied in respect of correctness of claim of assessee of the expenditure in relation to exempt income. He submitted that disallowance made by authorities below by applying Rule 8D should be deleted. 9. On the other hand, ld. DR supports the orders of authorities below and submitted that Rule 8D is applicable to the assessment year under consideration in view of decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd (supra). 10. We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We observe that the assessee received dividend income in the assessment year under consideration of Rs. 4,65,118/-, which is exempt from tax.....
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....in the assessment year under consideration. AO considering the fact that in the assessment year 2006-07, Membership rights of Bombay Stock Exchange (BSE) got demutualized after corporatization of the Bombay Stock Exchange and the card holders on demutualization of the Bombay Stock Exchange got 10000 shares of Bombay Stock Exchange Ltd. (BSEL) of face value of Rs. 1 each. In view of above, AO stated that Bombay Stock Exchange card ceased to exists on demutualization and as per Section 55(2)(ab) of the Act, the cost of shares allotted to the card holders of the Stock Exchange under the Scheme of demutualization shall be cost of acquisition of the original membership of the Exchange. In view of above, AO disallowed the claim of depreciation of the assessee on Bombay Stock Card. Further, the assessee in the assessment year under consideration sold 4562 shares and determined the capital gain in the return of income as under : i) Proportionate cost of 4562 shares of BSE Ltd, in the hands of assessee Rs.4,562/- ii) Year of purchase in 2006-07 and it's Index is 519 iii) Year of sale is 2007-08 and it's index is 551 iv) Indexed cost of 4562 shares of BSE Ltd is Rs.4,843/....
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.... membership rights of the Stock Exchange card to the cost of shares and computed the Long Term Capital Gain in respect of shares sold by considering the cost of acquisition of shares i.e. Rs. 1 per share. He submitted that the claim of depreciation has been withdrawn, and therefore, the claim by increasing cost of shares was made and the revised statement of Long Term Capital Gain was filed. Ld. AR referred the decision of ITAT, Mumbai in the case of Sino Securities (P.) Ltd. V/s ITO (2011) 134 ITD 321 (Mum), wherein it was held that the depreciation is not available on the erstwhile Bombay Stock Exchange Card after demutualization of the Stock Exchange and the said decision was followed by ITAT, Mumbai in the case of Sunidhi Consultancy Services Ltd V/s DCIT (2012) 50 SOT 223 (Mum). Ld. AR submitted that the matter may be restored to the AO to consider the Long Term Capital Gains as there was no malafide intention in claiming depreciation on membership card after demutualization of the Stock Exchange and it is the evident that the assessee had not allocated to the cost the WDV of the membership card. 14. On the other hand, ld. DR submitted that assessee made wrong Long Term Capit....
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....lization or corporatization of the Bombay Stock Exchange, in the case before us, the cost of acquisition of ownership right and trading rights have been split. The trading rights are based on deposit system and in the case of existing member its cost deemed to be nil. The entire value of Bombay Stock Exchange card, as stands in the books of account of the assessee on the date of demutualization of Bombay Stock Exchange would be assigned to the shares allocated to said members. Therefore, when the membership ceased to exists and in lieu of the card new asset came into existence i.e. 10000 shares as well as rights to trade and clearing in the stock exchange and the acquisition of cost of trade and clearing has been provided to be nil as per proviso to section 55(2)(ab) of the Act, the entire cost of membership as stands in the books of account of the assessee would be treated as cost of acquisition of 10000 shares, which is not a depreciable asset. Hence, the claim of assessee to claim depreciation on demutualization or corporatization of the stock exchange of the Bombay Stock Exchange Card was not justified and legal. Therefore, the same was rightly denied by AO in the assessment ye....