DECIDED BY: ITAT `B’ BENCH, AHMEDABAD
IN THE CASE OF: Madhur Shares & Stock Pvt. Ltd. Vs. ACIT
APPEAL NO: ITA Nos. 615/Ahd/2005 and 704/Ahd/2005,
DECIDED ON May 31, 2005
ORDER
PER SHRI D.C. AGRAWAL.
These are the two appeals for the assessment year 2001-02 arising from the order of Ld. C.I.T.(A) dated 24-12-2004, one filed by the assessee and the other filed by the Revenue. ITA.615-704-05 A.Y.01-02
2. Since common issues and arguments are involved they are taken up together for the sake of convenience.
3. In the Departmental appeal following grounds are raised :-
1. The CIT(A) has erred in law and on facts in the case in deleting the following additions made by the A.O. i) Depreciation on
membership card of Rs.1,89,844/- ii) Rs. 4,46,18,417/-allowing as trading loss out of bad debts disallowance of Rs.5,77,44,844/-.
iii) Sundry creditors treated as unexplained cash credits u/s.63 – Rs.14,07,751/-.
2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer.”
4. Whereas in assessee’s appeal following grounds are raised :-
1. On the facts and in the circumstances of the case, the assessment completed is not in accordance with law in so far as neither the assessment order nor the demand notice contains the break-up of total sum demanded Rs.98,68,345/-. It deserves to be annulled.
2. Without prejudice, on facts and in the circumstances of the case, the CIT (A) has erred in holding that though the assessee is a stock broker deduction for bad debts of its clients is not allowable u/s. 36(1)(vii) r.w.s. 36(2).
3. Without prejudice, on facts and in the circumstances of the case, the CIT (A) should have held that for a stock broker amounts not recovered from its clients satisfy the condition laid down in section 36(2)(i) and hence they are allowable u/s. 36(1)(vii) of the Act. ITA.615-704-05 A.Y.01-02
4. Without prejudice, on facts and in the circumstances of the case, the CIT(A) has erred in upholding the dis allowance of Rs.1,31,36,427/- out of total claim of Rs.5,77,84,844/- by purportedly applying section 28.
5. Without prejudice, on facts and in the circumstances of the case, the CIT (A) has erred in restricting the deduction to Rs.4,46,18,417 while he should have held that the whole sum of Rs. 5,77,44,844 was allowable as deduction even under section 28.
6. Without prejudice, on facts and in the circumstances of the case, the CIT (A) should have held that it was not a fit case for levy of interest u/s. 234A or 234B or u/s.C or u/s. 234D.”
5. The facts involved are that assessee is a company registered as share broker with Ahmedabad Stock Exchange. The assessee is carrying on business of share broking, and therefore, declared income from earning brokerage. The assessee- company during the year in question declared a loss of Rs. 47,51,790/-
ITA. No.704/Ahd/05. (Revenue’s Appeal)
6. The first issue is about allowing depreciation on Membership Card of Stock Exchange. The A.O. mentioned in his order that the assessee acquired membership card right in Ahmedabad Stock Exchange on 26-2-1997 long before 1-4-1998 when amendment in section-32 had taken place to the effect that depreciation will be allowed on know-how, patents, copy-rights, trade marks, licenses, franchises or any other business or commercial rights of similar nature acquired on or after 1st day of April,1998. According to the A.O. since this right in the form of membership card was acquired prior to 1-4-1998 assessee will not be entitled to depreciation on it. Further, according to the A.O. stock exchange card is not an asset, u/s. 2(e) of Wealth tax Act. It is not franchises, or license, but it is only an identity proof of assessee’s membership into the stock exchange.
7. However, the Ld. CIT(A) allowed the claim relying on the decision of Tribunal in the case of V.G. Gajjar & Others in W.T.A.No.07/A/2001 dated 30-9-2004 wherein the Tribunal has held that Stock Exchange Card is a property and an asset u/s. 2(e) of Wealth Tax Act. Further depreciation has been permitted on intangible asset after 1-4-1998. The Ld. C.I.T.(A) mentioned that assessee acquired this card after 1-4-98 and not on 26-2-97. The Ld. C.I.T.(A) has verified this fact from the record of that year and other years from the audited accounts submitted by the assessee. According to the Ld. C.I.T.(A) membership card of Ahmedabad Stock Exchange is granted by Stock Exchange to carry on share transactions at its own in the exchange.
8. We have heard learned D.R. and Ld. A. R. According to Ld. D.R. as per the decision in CIT vs. Techno Shares & Stock Ltd., & Others(2009) 32 DTR 201(Mumbai)/ (2009) 225 CTR-337(Mum.) depreciation will not be admissible on membership card of Stock Exchange. On the other hand Ld. A.R. submitted that once membership card is acquired after 1-4-98 then as per latest decision of ITAT Bombay Bench in Kotak Securities Ltd. vs. Addl. CIT (2009) 318 ITR-80; 268 ITD (ITAT) Mumbai, depreciation on the membership card would be available.
9. After hearing the rival submissions we are of the considered view that depreciation cannot be allowed on the membership card of Stock Exchange. However the ITAT Mumbai Bench in the case of Kotak Securities Ltd., (Supra) has allowed the claim holding it as intangible asset and that the card would fall within the parameter of section 32(1)(ii) of the I.T. Act,1961, it is also held to be a capital asset which confers the right to trade on the floor of the stock exchange, when acquired by the assessee, such right becomes an intangible asset. It has also been so held in Dy. CIT vs. Khandwala Pvt. Ltd., (2009) 309 ITR-80 (08 ITAT Mum.) and also in R.M. Vallippan vs. ACIT (2006) 287 ITR-80 (203) ITAT Chennai Special Bench that membership card/stock exchange is a capital asset.
10. But the latest decision of Hon’ble Bombay High Court in CIT vs. Techno Shares & Stock Ltd. and others (supra) has held that Stock exchange card is neither business or commercial right nor any intellectual property and also not a license therefore, depreciation would not be available on it. Hon’ble Bombay High Court rejected the argument that stock exchange card being capital asset is entitled to depreciation by holding that u/s.32 not all capital assets are entitled to depreciation. As stock exchange card does not fall in any of the categories fixed u/s.32(1)(ii) depreciation thereon would not be admissible. In this regard we refer to the observations in paragraphs 26, 31 to 33 of that Judgement as under:-
“Depreciation under s. 32 is restricted to a class of tangible/ intangible assets specifically enumerated therein. All the intangible assets specifically enumerated in s./32(1)(ii) in s. 32(1)(ii) (except the expression ‘licenses’) belong to the class of intellectual properties. The expression ‘licenses’ ins. 32(1)(ii) has to be construed restrictively so as to apply to licenses relating to acquisition/user of intellectual property rights, because, firstly, plain reading of s. 32 makes it clear that the depreciation is restricted to the categories of intangible assets specifically enumerated therein and not to all intangible assets. In such a case, construing the expression ‘licenses’ widely so as to cover all types of intangible assets acquired under a license would amount to enlarging the scope of depreciation. Secondly, the categories of intangible assets specifically enumerated in s. 32(1)(ii) (barring the expression ‘licenses’) are all relatable to intellectual properties. Since the common thread in almost all the expressions used in s. 32(1)(ii) relate to the class of intellectual property rights,it is reasonable to construe that the expression ‘licenses’ in s. 32(1)(ii) relates to the class of intellectual property rights. Thirdly, the rule of noscitur a sociis would apply to the facts of the present case, because, the expression ‘licenses’ in s. 32(1)(ii) is preceded and succeeded by the expressions which are all relatable to intellectual properties and therefore, the expression ‘licenses’ in s. 32(1)(ii) would take colour from those expressions and accordingly apply only to licenses relating to intellectual properties. Construing the expression ‘licenses’ in s. 32(1)(ii) widely so as to apply to all types of licenses relating to intangible assets would defeat the object of the Act, because, depreciation under s. 32 is intended to a limited category of intangible assets and not to a wider category of intangible assets. Therefore, it is reasonable to construe that the expression ‘licenses’ is used in s. 32(1)(ii) to apply to licenses relatable to intellectual properties only and not to all licenses. The above reasoning is further fortified by the expression ‘any other business or commercial rights of similar nature’ used in s. 32(1)(ii). The said expression clearly postulates that the business or commercial rights which are not similar to the categories specified in s. 32(1)(ii) are not entitled to depreciation. In other words, the expression business or commercial rights of similar nature’ clearly shows that all business or commercial rights are not entitled to depreciation. Therefore, construing the expression ‘licenses’ widely so as to apply to all licences/permissions and all business or commercial rights would be ex facie contrary to express intention of the legislature. Accordingly, the alternative argument of the assesses that the BSE card is a business or commercial right and therefore entitled to depreciation is liable to be rejected, because, what s. 32(1)(ii) contemplates is the business or commercial rights relating to intellectual properties and not all categories of business or commercial rights. Since the BSE card is not a business or commercial right relating to intellectual property rights depreciation cannot be allowed on the BSE card.”
Respectfully following above decision we disallow the claim of the assessee, reverse the order of the Ld. C.I.T.(A) and restore the order of A.O. Accordingly, this ground of appeal is allowed.
11. Next ground of appeal is that Ld. CIT(A) has partly allowed the trading loss out of bad debt claim of Rs.5,77,44,844/-. The facts of the case are that assessee has claimed bad debt or in the alternative, trading loss u/s. 28 in respect of the following amounts :-
