1. These appeals by the assessee for the assessment years 1988-89 and 1989-90 are directed against the order of the CWT (Appeals) firstly, deciding the issue ex parte and secondly, on merits against inclusion of Rs. 5,75,500 being the value of assessee's membership card of Stock Exchange for assessment year 1988-89 and Rs. 6,75,500 for assessment year 1989-90.
2. Assessee filed return for assessment year 1989-90 on 30-12-1988 disclosing net wealth of Rs. 11,18,117. The Assessing Officer noted that the assessee was holding a Stock Exchange membership card and the same had been claimed as an exempt asset. The claim of the assessee was rejected holding that the Stock Exchange card is a property under the Wealth-tax Act and added the value of the asset.
3. In appeal before the CWT (Appeals), the assessee contended that the membership of the Stock Exchange is a personal privilege and the right of the member is inalienable. Relying upon the decision of the Bombay High Court in the case of Mrs. Sejpal R. Dalai v. Stock Exchange [Writ Petition No. 2084 of 1989], it was contended that the membership of the Stock Exchange is a personal permission and this permission is not a property or an asset which can be transferred. The case of the assesse was distinguished by the CWT (Appeals) from the case relied upon by the assessee, and the issue was decided against the assessee, opining that the membership of Stock Exchange card is a property or an asset as per Section 2(e) of the Wealth-tax Act as the word 'property' is a term of widest import as used in the Wealth-tax Act. She further opined that the membership of the Exchange cannot be equated on par with the membership of professional bodies like Institute of Chartered Accountants of India and Medical Association of India because unlike Chartered Accountants and practitioners, no qualification was necessary to be a nominee or heir of the Stock Exchange card. She further held so, in view of the fact that the membership card issued by the Association bestows upon the holder of the card certain rights and privileges, subject to certain conditions, and it can be transferred to another by way of nomination, or in the case of death it can be passed to the legal heirs. She further opined that in view of the fact that in case of forfeiture of membership in certain cases under Rule 4 the membership card can be forfeited and the sale proceeds received on the auction of the card can be set off against the liabilities of the member and to this extent the card can definitely be said to have the value as it pays off the liabilities of the card holder.
4. The learned CWT (Appeals) distinguishes the case of the assessee from that of the case that was considered by the Hon'ble High Court in Writ Petition No. 2084 of 1989 on the ground that the Stock Exchange Board refused to transfer the membership card to the daughter-in-law of the defaulter member which is a distinguishing feature with that of the instant case of the assessee.
5. The learned Counsel for the assessee relying upon the decision of the Hon'ble jurisdictional High Court in Mrs. Sejpal R. Dalal's case (supra) especially the observation of the High Court as reproduced in para 6 of the Tribunal's order in the case of Asstt. CWT v. Ramdas L.
Dalai, Bombay which runs as under : We have considered the rival submissions and have gone through the documents placed on record; as also the rules of the Bombay Stock Exchange in Writ Petition No. 2084 of 1989, the daughter-in-law of the deceased member had applied for membership of the Stock Exchange, Bombay in place of the deceased member, supported by a nomination from the other legal representatives of the deceased.
This application was rejected by the Stock Exchange and thereupon, the matter was taken before the High Court in writ petition. After considering the rival contentions and the rules of the Bombay Stock Exchange, the High Court had held as under : In order to decide whether there is any property in the membership of the Stock Exchange, it is necessary to refer to rules relating to membership of the Stock Exchange. Under Rule 5, the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the Rules, Bye-laws and Regulations of the Exchange. The membership, therefore, is not a transferable right. It is only a personal permission granted by the Stock Exchange to an individual member. This is brought out further to Rule 6 which states that the right of membership is inalienable. The membership rules give to a member a right of nomination which shall be personal and non- transferable.
This right under Rule 11 can be exercised by a member of not less than 7 years standing who desires to resign. He may in turn nominate a member as set out in Rule 11. In the case of deceased member, under Rule 9, on his death, high right of nomination ceases and vests in the Exchange. There is, therefore, no property in membership.
contended that in spite of the specific finding of the High Court that the membership is not a transferable right, and it is only a personal permission granted by the Stock Exchange to an individual member, the order of the ITO that the Stock Exchange card is a property under the Wealth-tax Act, 1957 (under Section 2(e) of the Wealth-tax Act, and the confirmation of that view by the learned CWT (Appeals) is clearly a finding without merit and liable to be set aside.
6. Learned representative for the Department supported the orders of the revenue authorities. We have heard the rival submissions and gone through the orders of the revenue authorities and the decisions relied upon by the contending parties.
7. Before going through the merits of the contentions we will take the relevant rules and bye-laws of the Bombay Stock Exchange, considered by the CWT (Appeals) while passing ex parte order.
Rule 5 deals with Membership and Nomination. It is stated that the membership is a personal privilege. It is stated that the membership shall constitute a personal permission from the Exchange to exercise the rights and privileges attached thereto subject to the Rules, Bye-laws and Regulations of the Exchange.
Rule 6 states that membership is an inalienable right. A member shall not assign, mortgage, pledge, hypothecate or charge his right of membership or any rights or privileges attached thereto and no such attempted assignment, mortgage, pledge, hypothecation or charge shall be effective as against the Exchange for any purpose nor shall any right or interest in any membership other than the personal right or interest of the member therein be recognised by the Exchange. The Governing Board shall expel any member of the Exchange who acts or attempts to act in violation of the provisions of this rule.
Rule 7 deals with right of nomination. This right of nomination is subject to the provisions of rules.
Rule 8 deals with right of nomination by a former member. It states that the right of nomination shall not be exercised by a former member who had been expelled or who has ceased to be a member under any Rule, Bye-law or Regulation of the Exchange for the time being in force.
Rule 9 states with regard to the right of nomination of a deceased for a defaulter member. It states that on the death or default of a member his right of nomination shall cease and vest with the Exchange.
Rule 10 deals under what circumstances the rights of a member vests with the Exchange when it is forfeited or lapsed his right of membership.
Rule 11(a) deals with the nomination by a member who desires to resign from the membership on the following lines and 11(b) deals with the rights of the legal heirs of the deceased to nominate in certain cases : (a) A member of not less than 7 years' standing who desires to resign may nominate a person eligible under these rules for admission to membership of the Exchange as a candidate for admission in his place: Provided that a member of less than 7 years' standing who desires to resign may with the sanction of the Governing Board nominate his own son eligible under these rules for admission to membership of the Exchange as a candidate for admission in his place.
(b) The legal representatives of a deceased member or his heirs or the persons mentioned in Appendix C to these rules may with the sanction of the Governing Board nominate any person eligible under these rules for admission to membership of the Exchange as a candidate for admission in the place of the deceased member. In considering such nomination the Governing Board shall be guided so far as practicable by the instructions set out in Appendix C to these rules.
Rule 17 deals with conditions of eligibility. It states that any person who is not less than 21 years and an Indian citizen can be elected as a member. It further states that in suitable cases regarding the nationality of a member can be relaxed with the prior approval of the Central Government. 17(iiA) as inserted by a Resolution dated 21 -10-1991 and approved by the Government on 6-11-1991 prescribes educational qualification of a membership. It states that when a person who is either a matriculate of the educational qualification of 10+2+3 years educational system in such educational qualification as may be prescribed by the Board from time to time can be elected as a member.
Rule 17(iii) states that if a member is adjudged as bankrupt or a receiving order in bankruptcy has been made against him or has been provided to be insolvent even though he has obtained his final discharge cannot be a member.
Rule 17(v) states that a person who has been convicted of an offence involving fraud or dishonesty cannot be elected as a member. While rule deals with the conditions of eligibility Rule 18 deals with qualification for membership. The same is reproduced: No person eligible for admission as a member under these rules shall be admitted as a member unless- (i) he worked for not less than two years as a partner with or as an authorised clerk or remisier or apprentice to a member.
(ii) he agrees to work for a minimum period of two years as a partner to work for such period as representative member with another member and enter into bargains on the floor of the Exchange not in his own name but in the name of such other member, or (iii) he succeeds to the established business of a deceased or retiring member who is his father, uncle, brother or any other person who is in the opinion of the Governing Board a close relative, (iv) he has, in the opinion of the Governing Board not less than two years experience in connection with various activities relating to the securities market, and (v) he has a minimum net worth, possesses a minimum working capital of cash and/or marketable securities, and possess assets belonging to himself and/or spouse or children; of such nature and value as the Governing Board may from time to time in its opinion determine and consider acceptable : Provided that the Governing Board may waive compliance with any of the foregoing conditions if the person seeking admission is in respect of means, position, integrity knowledge and experience of business in securities considered by the Governing Board to be otherwise qualified for membership.
Rule 22 deals with Form of Application, while Rule 23 deals with notice on such application. Rule 24 deals with the objections to the admission of a candidate.
8. As seen above it is interesting to note that Rule 5 states that the membership shall constitute a personal permission from the Stock Exchange to exercise the rights and privileges attached thereto subject to the Rules, Bye-laws and Regulations of the Exchange. Rule 6 states that the right of membership is inalienable. Though Rule 6 states the right of membership as inalienable Rule 11 deals with nomination by an existing person. Rule 8 however, states that the right of nomination shall not be exercised by a former member who has been expelled or who has ceased to be a member under certain circumstances. Rule 11(a) deals with right of nomination of existing member. Rule 11(a) stated that any member who has a standing of not less than 7 years, if so desires to resign, be allowed to nominate a person eligible under these rules for admission to a membership of the Exchange as a candidate for admission in his place. In other words, it indirectly states that though Rule 6 says that the right of membership is inalienable, Rule 11 (a) states that a member can select a person he desires. 11 (a) first proviso states that a person of 7 years' standing if so desires to resign may, with the sanction of the Governing Board nominate his own son eligible under the rules for admission to membership of the Exchange as a candidate for admission in his place. Proviso 2 inserted by the Governing Board's resolution dated 25-9-1989 approved by the Government on 14-12-1989 also throws light where it states further that the Governing Board may, at its absolute discretion and in exceptional cases for cogent reasons recorded in writing by a special resolution may permit a member of less than 7 years' standing but not less than 3 years' standing to nominate a person as a candidate e for admission in his place, subject to conditions and terms as the Governing Board may in its absolute discretion think fit to impose.
Rule 11(b) further gives the right of nomination to the legal heirs of a deceased member. The persons in preference is mentioned in Appendix 'C to the rule with the sanction of the Governing Board.
9. A perusal of the rules clearly shows that the argument of the assessee that the membership of Stock Exchange is akin to membership of such other professional bodies like Institute of Chartered Accountants and Medical Association is without basis. By no dint of imagination it would be said that a member or a Chartered Accountant can nominate a person unless he or she possess certain educational qualification. If the educational qualification is possessed by such incumbent person then it is not necessary for anybody to select or elect such persons by vote or some other method. He becomes automatically a member, if he so desires, as in the case of an advocate or a Chartered Accountant or a Doctor. Whereas to become a member of Stock Exchange, a son or other can be selected, or if he so desires, he can select an outsider. Not only that even the legal heirs of a deceased person can also select, by virtue of the deceased member's right, certain person to be a successor-member. In the case of a Doctor or an advocate or a Chartered Accountant no legal heirs got such power or authority to select anyone.
Anyone becomes the member of the Bar Council or a Chartered Accountant or a Doctor only because of certain prescribed qualification by the relevant bodies. The assessee may state that even in the case of the members of the Stock Exchange qualifications are prescribed. But the material difference is that it is not necessary for one existing member or member of a deceased or the legal heirs of the deceased member to select certain persons.
10. Coming to the decision of the Bombay High Court in the case of Mrs.
Sejal R. Dalai (supra) we are of the view that this case is not applicable in the instant case of the assessee. In this case there was a professional misconduct on the part of the deceased member in holding himself as a partner of the firm and doing business in partnership's name, when in fact he was not a member. There was another highly speculative irregular dealing conducted by the deceased in the name of another firm M/s. Haresh & Company. In the second mentioned dealing the amount involved was Rs. 32,34,900. Under these circumstances the Governing Board of the Stock Exchange cannot entertain by virtue of Rule 15, the application approved by the legal heirs of HUFs in favour of the daughter-in-law Mrs. Sejal R. Dalai. As we have noted in the preceding paras, Rule 15 of the Stock Exchange Rules, Bombay deals with dues and claims. This rule stipulates that the Governing Board cannot approve a nomination unless the nominating member or in the case of a deceased member, his legal representatives or heirs or any other persons mentioned in Appendix C paid and satisfied in full dues of the exchange and liabilities relating to contract. In the case of professional bodies such as Institute of Chartered Accountants or Medical Association or Bar Council question of nomination by anyone or the deceased in favour of any person including the legal heirs does not arise. Rule 51 deals with mode of payment of deceased members obligations. It stipulates that if the legal representative of the deceased member or his heirs or the persons mentioned in Appendix C to these rules or any other person on his behalf do not or are unable to pay and satisfy his dues, debts, liabilities, obligations and claims as provided in the Rules, Bye-laws and Regulations of the Exchange the Governing Board shall exercise the right of nomination in respect of such membership and the consideration received therefore shall be applied in the manner provided in these rules. In other words, if the deceased or the legal heirs or some other person entitled to nominate or select some members does not satisfy the conditions stipulated then he is not qualified for such selection. The Board itself assumes that power by virtue of this rule and the provisions received by virtue of such right of nomination can be appropriated towards Board's dues, debts, liabilities, obligations and claims.
11. Before we conclude, we would like to deal with the contention raised by the assessee relying upon the decision of the Tribunal in WT Appeal Nos. 1682 to 1685/Bombay/91 for assessment years 1985-86 to 1988-89 to the effect that the right to membership of the Stock Exchange is a personal right and cannot be treated as 'property' or 'asset' within the meaning of Section 2(e) of the WT Act. Section 2(e) of the WT Act defines asset. It states that the assets includes property or every description movable or immovable. Then it further states what does not include. Property according to Australian Gift Act (Section 4) 'includes real property and personal property and every interest in real property or personal property'. 'Interest in property' means any estate interest, right or power, support, whether at law or in quality, or any other property. As far back as in 1862 in the case of Smelting Company of Australia v. Commissioner of England his Lordship Pollock observed that "the term property is of very general meaning and comprehensiveness. It cannot be precisely defined". This principle is adopted by Hon'ble Supreme Court in the case of J.K. Trust v. CIT (1957] 32 ITR 535.
In the years gone-by there was a notion that any right incapable of transfer or sale cannot be treated as" a property. This notion has been set aside by the decision of the Supreme Court in the case of Purshottam N. Amarsay v. CWT [1973] 88 ITR 417. The old notion conceived from Roman & English Law of property of saleable asset has been replaced by the theory of paper wealth. The latest addition to the property is in the field of "intellectual property". Perhaps, as now it stands this right to intellectual property is the most valuable and precious right.
12. In the preceding para, we have seen that the word 'property' has been widened so as to include even non-transferable assets. As far as the membership right of the Stock Exchange is concerned, it can be sold and the consideration received can be utilised in the manner prescribed in Rules, Bye-laws and Regulations. Under these circumstances the stand of the assessee that membership cannot be treated as a property under Section 2(e) cannot be accepted. It maybe mentioned that before the CWT (Appeals) the assessee did not place any material.
13. For the reasons stated in the preceding para, we are of the view that the appeal by the assessee is without merit. We confirm the exparte order of the CWT (Appeals).