TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 164
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....contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of share broking, trading and dealing in shares and securities. During the scrutiny assessment, the AO observed that the assessee company had purchased 1000000 equity shares of the face value of Rs. 10/- each of M/s. G. Das Shares & Stock Brokers Pvt Ltd (GDSS) on 10.05.2005 at a premium at Rs. 20/- per share. M/s. G. Das Shares & Stock Brokers Pvt Ltd issued the shares at a premium of Rs. 20/- on 10.05.2005 as the company was having profitability for earlier years and had chance of earning from dividend on investment. Therefore, cost of acquisition of these shares in the hands of the assessee company was Rs. 3 crores. During the year relevant to A.Y.2008-09 under consideration, the assessee company sold these equity shares of GDSS for a sum of Rs. 1 crore which resulted in the capital loss of Rs. 2 crores. The AO further observed that shares purchased by the assessee company from GDSS are not listed on any stock exchange as they are issued by private Itd company and they are unquoted equity shares. During the year, the assessee company claimed STCG of Rs. 31172981/- in t....
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.... 3. The AO observed that the question of any deduction/discount for non declaration of dividend by the company whose share are sold does not arise at all. The publication of ICAI relied upon by the assessee also does not contain any such provision for discounting / deduction. The valuation of unquoted equity shares on the basis of breakup value of the shares is a recognised method under the Gift Tax Act as well as Schedule III of the Wealth Tax Act. However, under these provisions there is no room for discounting / deduction for nonpayment of dividend. Hence, the claim of the assessee company for such discount/deduction was rejected by the AO. Accordingly loss of Rs. 2.00 crore claimed by assessee was held to be bogus. 4. By the impugned order, loss disallowed by the AO was allowed by CIT(A) after having following observation :- "5.3(i) I have considered the facts of the case carefully. The appellant purchased 10,00,000 shares of GDSS having face value of Rs. 10/- each on 10/5/2005 at a premium of Rs. 20/ - each by making total payment of Rs. 3,O000,000/ - During the year, the appellant sold these shares at par i e @ 10/- each for a total consideration of Rs. 1 crore. This has re....
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....O's observation appears to be not correct . The appellant has satisfactorily proved that on account of merger duly approved by Bombay High Court, its share holding in M/s. GDSS would have stand cancelled and no benefit or advantage would have accrued to the appellant. In case, such merger had taken place without appellant selling of shares of M/s GDSS, even the sale consideration of Rs. 1 crore received by the appellant would have been lost. In the facts and circumstances, the selling, of shares was incidental to merger scheme and not connected with the earning of short term capital gain. In any case, sale of shares of M/s. GDSS at a loss of Rs .2 crores was not connected with the earning of short term capital gain for the reason that the short term capital gain on sale of shares of BSE Ltd, took place subsequently Therefore, by considering these two aspects of firstly sale of shares of M/s GDSS in view of merger scheme and secondly the short term capital gain earned subsequent to sale of shares of M/s GDSS, it cannot be said that the loss of Rs. 2 crores was specifically, artificially earned to set off against short term capital gain. There was no immediate link between these ....
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....e CIT(A) to the effect that loss on sale of shares of GDSS was not bogus loss and directing the AO to treat the same as long term capital loss since shares were held more than 12 months. 6. On the other hand, learned DR relied on the order of AO and contended that assessee has sold the shares to close relative at a loss just to set up the capital gains earned on sale of shares allotted by BSE. 7. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that assessee is engaged in the business of share broking, trading and dealing in shares and securities. The assessee has purchased 10,00,000 shares of face value of Rs. 10/- of GDSS on 10-5-2005 at a premium of Rs. 20/- per share. Thus, the purchase cost of Rs. 10 lacs shares worked out to be Rs. 3 crores. During the year under consideration, assessee has alleged to have sold these shares at a price of Rs. 10/- as against cost of acquisition at Rs. 30/- to relatives of Director thereby shown a capital loss of Rs. 2 crores. The assessee adjusted this loss against the capital gains earned by it on the sale of shares allotted by BSE in lieu of BSE Membership card. The ....
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....n. These shares were allotted to the assessee company under the scheme of capitalization and demutualisation of Bombay Stock Exchange, in lieu of BSE membership card. During the course of assessment proceedings, the assessee was required to justify the cost of acquisition claimed for calculating capital gain on sale of BSE shares. The assessee has claimed the cost at Rs. 49,21,875/- for BSE card. The assessee was asked to explain why the above cost be accepted, since the assessee has already claimed depreciation on the same in the earlier years. Taking the original cost of the BSE card as the amount of cost of acquisition amounts to claiming double deduction on the same asset. The assessee submitted that the above cost is taken in accordance with the provisions of section 55(2)(ab). 10. The AO held that assessee cannot take double deduction on the same asset under two different provisions of I.T. Act. Since, the assessee was allowed claim of written down value of BSE card as the cost and indexation is also allowed from 2005-06, the long term capital gains was worked out as under :- Calculation of Capital gain on sale of BSE Shares. Sales Value 9123 5200 47439600 Less : Cost of a....
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....appeal already taken in the appeal memo and therefore admissible as additional ground. 6.3(ii) The question for consideration is as to whether the cost/indexation cost of acquisition of shares sold should be considered as the WDV of the shares after reducing depreciation already allowed or the cost/index cost should be considered on the actual/original cost paid without reducing therefrom the WDV already allowed to the appellant. This issue has been considered and decided by the undersigned in the case of M/s Sino Securities Pvt. Ltd. For Asst. Year 2009-10 as under :- (i) The appellant became member of BSE by acquiring BSE membership card on 20.9.2000 for Rs. 2,50,00,100/-. The Hon'ble Supreme Court in the appellant's own case for AYrs.2002-03 to 2005-06 has held that the appellant is entitled for depreciation on BSE membership card treating the same as "Intangible asset" u/s.32(1)(ii) of the Act. (ii) The BSE on it corporatization into BSEL on 19.8.2005 allotted each holder of the BSE membership card 10,000 equity shares of face value of Rs. 1/-each of newly incorporated company. (iii) The Hon'ble ITAT Mumbai in appellant's own case has held that the company is not entitled f....
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.... exchange from a mutual form to a business corporation form is referred to as demutualization. The above, in effect means that after demutualization, the ownership, the management and the trading rights at the exchange are segregated from one another. A demutualised exchange is way different from a mutual exchange; the three functions of ownership, management and trading are intervened into a single Group in a mutual exchange. The brokers members of the exchange over here are both the owners and the traders on the exchange and they further manage the exchange as well. A demutualised exchange has all these three functions clearly segregated. 2.8 The exchange values all its assets including the value of seats and arrives at a total value. This is then divided into different shares and offered to the public. Later, the shares are listed on the stock exchange itself, and the funds got by selling the shares will be distributed among the members of the exchange as payment for their seats. If the company is not being listed, the shares may be offered to the members, not for transfer. On the other hand, Corporatization of Stock Exchanges is the process of converting the organizational str....
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.... trading or clearing rights of a recognized stock exchange in India acquired by a person pursuant to demutualization or corporatization of the of the recognized stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization; and the clause (ha) stipulates that in the case of a capital asset, being equity shares in a company allotted pursuant to demutualization or corporatization of a recognized stock exchange, in India as referred to in clause (xiii) of-section 47, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization. 2.12 The above provision of the Income Tax laid down the complete details and mode of computation of income from capital gain in case of shares of BSE are sold after demutualization or corporatization of stock exchange. It is also made clear as to what should be the treatment of the cost of acquisition. Now the position of law therefore, is very clear that the assessee will....
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....23D) of Section 10 or a zero coupon bond the provisions of this clause shall have effect as if for the words "thirty-sex months", the words "twelve months" had been substituted. The Finance Act, 2003 with effect from 1st April, 2004 inserted two new sub-clauses in Explanation 1; namely "(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation; (ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation;". 2.13 The Finance Act, 2003 also bring in the statute new sections such as....