Judgment:
1. The only question in all these appeals is whether the stock exchange card held by the assessees in the Bombay Stock Exchange is an asset within the meaning of Section 2(e) of the Wealth-tax Act, 1957, and consequently wealth-tax is payable thereon.
2. This issue had arisen in a number of appeals before the Bombay Benches of the Tribunal and in view of conflicting views and the importance of the issue, the matter was referred to a Special Bench in the case of Shirish C. Dave, Mumbai in W. T. A. Nos. 442 to 444/Bom of 1993. While the matter was pending before the Special Bench, the Supreme Court rendered a decision in the case of Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248ITR 209, in which it was held that the stock exchange card is not a property and therefore cannot be attached under Section 281B of the Income-tax Act, 1961. Thereafter, when the appeals concerning this issue came up before the Bombay Benches of the Tribunal, the Tribunal purporting to follow the above decision of the Supreme Court held that no wealth-tax was payable on the stock exchange card. Further, by notification dated July 24, 2001, issued by the Deputy Registrar, Income-tax Appellate Tribunal, it was informed that in view of the judgment of the Supreme Court the appeal in the case of Shirish C. Dave pending before the Special Bench for hearing has been delisted by the order of the President, Income-tax Appellate Tribunal.
3. Thereafter, when the matter came up for consideration in some of the appeals before the Tribunal, a prayer was made on behalf of the Department to the effect that it should be given an opportunity to contest the applicability of the judgment to the Wealth-tax Act and, that it should be permitted to argue the matter afresh and distinguish the judgment of the Supreme Court. Even though in the meantime some orders had been passed by the Tribunal following the judgment of the Supreme Court cited supra, to the effect that the stock exchange card was not an asset under the Wealth-tax Act and in the normal course such orders would have had to be followed in the interests of judicial propriety, discipline and decorum, but considering the nature of the prayer made on behalf of the Department, it was considered proper to have the benefit of the arguments of all concerned so that the viewpoints of both the sides--The Department's as well as the assessees'--with regard to the applicability of the judgment to the Wealth-tax Act are taken note of. Therefore, all the appeals were clubbed and posted together.
4. Before the arguments commenced, it was announced by the Bench that if the judgment of the Supreme Court cited above is found to be applicable, then the view taken in the orders of the Tribunal passed earlier following the said judgment would be followed and, on the other hand, if the said judgment was found not applicable to the Wealth-tax Act consistent with the principles of judicial discipline and decorum and also consistent with the practice adopted in the Tribunal in such cases, the matter would be placed again before the President of the Income-tax Appellate Tribunal with a request to constitute a Special Bench.
5. Accordingly, the appeals were heard at length. Broadly speaking, while the contention of learned counsel appearing for the assessees, led by Mr. V. H. Patil, was that the judgment of the Supreme Court cited supra was fully applicable to the Wealth-tax Act, since the fundamental question decided therein was whether the stock exchange card was property the contention of Mr. Dave, the learned Commissioner of Income-tax (Departmental Representative) was that, the judgment was rendered under a different text (the Constitution of India) and in a different context (in civil litigation) and therefore was not applicable to the Wealth-tax Act and that under Section 2(e) the stock exchange card would constitute property. Various other subsidiary contentions were also advanced by both the sides which have also been duly taken into consideration. The written notes and "elde memoir" filed by Mr. Dave have also been duly considered.
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.
Right of membership in alienable : 6. 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. Right of nomination : 7. Subject to the provisions of these rules a member shall have the right of nomination which shall be personal and non-transferable.
Right of nomination not to be exercised by former member : 8. 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 any rule, bye-law or regulation of the exchange for the time being in force. Right of nomination of deceased or defaulter member : 9. On the death of a member his right of nomination shall cease and vest in the exchange.
10. When a right of membership is forfeited to or vest in the exchange under any rule, bye-law or regulation of the exchange for the time being in force, it shall belong absolutely to the exchange free of all rights, claims or interest of such member or any person claiming through such member and the governing board shall be entitled to deal with or dispose of such right or membership as it may think fit. Nomination by member : 11. (a) A member of not less than three 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 three 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 : Provided further that the governing board may, at its absolute discretion and in exception cases and for cogent reasons to be recorded in writing/permit by a special resolution, a member of less than three years standing, who desires to resign, to nominate a person as a candidate for admission in his place, subject to such terms and conditions as the governing board may in its absolute discretion think fit to impose : Provided further that a member of less than three years' standing may resign and exercise his right of nomination in favour of a company with the sanction of the governing board on the following conditions, namely : (i) He shall be a director of such company for a period of such number of years as would have brought him three years standing had he not resigned from the membership ; (ii) He shall not hold less than 51 per cent, of the paid up equity capital of the company for the period mentioned in sub-clause (i) ; and (iii) The company is eligible for membership in accordance with Rule 19A; Nomination in case of a deceased member : (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 as far practicable by the instructions set out in Appendix C to these Rules ; (c) The forfeited right of membership of a defaulter shall be restored to him if he be re-admitted as a member within six months from the date of default but if an application by a defaulter for re-admission be rejected by the governing body or if no such application be made within six months of the declaration of default the governing board may at any time exercise the right of nomination in respect of such membership. Fresh nomination : 12. If a nominee be not eligible under these rules or if a nominee be rejected by the governing board a fresh nomination may be submitted to the exchange. Form of nomination : 13. The nomination shall be in the form prescribed in Appendix B to these rules or in such other form as the governing board may from time to time prescribed and the form shall only be issued on receipt of a written application signed by the naminator and containing the full name of and signed by the nominee. Notice of nomination : 14. A notice of the proposed nomination shall be posted on the notice board of the exchange for not less than fifteen days. Within fourteen days of the posting of such notice members shall file their claims against the member by or in respect of whom the nomination has been made and any claim not so filed may not be considered by the governing board. Dues and claims : 15. The governing board shall not approve a nomination unless the nominating member or in the case of a deceased member his legal representatives or heirs or the persons mentioned in Appendix C to these rules or any other person on his behalf shall have paid and satisfied in full. Dues of the exchange : (i) such subscriptions, debts, fines, fees, charges and other monies as shall have been determined by the governing board to be due to the exchange or the clearing house by the nominating or deceased member. Liabilities relating to contracts: (ii) such debts, liabilities, obligations and claims arising out of any contracts made by such member subject to the rules, bye-laws and regulations of the exchange as shall have been admitted by the governing board ; and (iii) all amounts due or payable by the nominating or deceased member to the Trade Guarantee Fund. Allocation in order of priority : 16. (1) When as provided in these rules the governing board has exercised the right of nomination in respect of a membership vesting in the exchange the consideration received therefor shall be applied to the following purposes and in the following order of priority, namely :--Dues of exchange and clearing house : (i) first the payment of such subscriptions, debts, fines, fees, charges and other monies as shall have been determined by the governing board to be due to the exchange, to the clearing house or to the Trade Guarantee Fund by the former member whose right of membership vests in the exchange.
(ii) Second the payment of such debts, liabilities, obligations and claims arising out of any contracts made by such former member subject to the rules, bye-laws and regulations of the exchange as shall have been admitted by the governing board ; Provided that if the amount available be insufficient to pay and satisfy all such debts, liabilities obligations and claims in full they shall be paid and satisfied pro rata ; and (iii) third the payment of the surplus if any to the funds of the exchange: Provided that the exchange in general meeting may at its absolute discretion direct that such surplus be disposed of or applied in such other manner as it may deem fit." There is no dispute before us that the rules of the Ahmedabad Stock Exchange (ASE) are the same as those of the Bombay Stock Exchange (BSE) and the arguments as well as our decision are also based on this premise.
(B) Ratio of the judgment of the Supreme Court in Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248 ITR 209 : We may briefly notice the facts in this case. One Rajesh Shah, who became a member of the ASE on February 19, 1988, died on February 7, 1994. On February 12,1994, his heirs and legal representatives wrote to the Stock Exchange that they were unable to meet the liabilities of Rajesh Shah. The governing body of the ASE declared "R" to be a deemed defaulter and that the membership rights which vested in the stock exchange under Rule 9 may be disposed of for a price of Rs. 25 lakhs. On February 15, 1994, a provisional order of attachment was issued by the income-tax authorities under Section 281B of the Income-tax Act in respect of the stock exchange card in the name of Rajesh Shah and also the margin money and security deposit kept by him with the ASE. The stock exchange took the stand that on the death or default of a member, his right of nomination vested in the stock exchange free of all rights, claims, etc. of the member or persons claiming through him. On December 5, 1994, during the pendency of the attachment the stock exchange disposed of the membership right for Rs. 27 lakhs. A garnishee notice under Section 226(3) for Rs. 12 lakhs was also issued to the stock exchange. The stock exchange took the stand that no amount was due to Shri Rajesh Shah or his heirs out of the amount of Rs. 27 lakhs received for the membership right. The Department rejected the stand of the stock exchange. The stock exchange therefore filed a writ petition before the High Court challenging both the attachment order and the garnishee notice. The writ was dismissed by the Gujarat High Court and the decision is reported as Stock Exchange, Ahmedabad v. Asst.
CIT [1998] 231 ITR 906. The stock exchange thereafter carried the matter in appeal to the Supreme Court. This is the judgment which is reported as Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248 ITR The Supreme Court reversed the Gujarat High Court decision. After considering the facts, the provisions of the Income-tax Act relating to attachment as well as the rules of the ASE, it was held that the right of membership of the stock exchange is not a private asset but was merely a personal privilege granted to a member. The privilege is not transferable or alienable by the member or his legal representatives, except to a limited extent provided in the rules and subject to fulfilment of conditions. The right of nomination given under Rule 7 was not automatic, but was hedged in by rules. Once the right of nomination vests, in the stock exchange under certain conditions envisaged by the rules, that right belonged to the stock exchange absolutely. As per Rule 9 on the death or default of a member, his right of nomination would cease and shall vest in the stock exchange.
It was therefore held that the membership right or membership card of Rajesh Shah was not his property and therefore it could not be attached under Section 281B of the Income-tax Act and since no amount on account of Rajesh Shah was due from or held by the stock exchange, the garnishes order was also invalid.
As already stated the rules of the BSE and the ASE are same and this position was not disputed by the parties before us. The question for consideration is whether this judgment can be applied to the present appeals which arise under the Wealth-tax Act. It is to be noted that in coming to the above conclusion, the Supreme Court has relied on its own earlier judgment in the case of Vinay Bubna v. Stock Exchange, Mumbai [1999] 97 Comp Cas 874. This decision may be briefly noticed. Section 281B of the Income-tax Act confers power on the income-tax authorities to effect provisional attachment of "any property belonging to the assessee" in the manner provided in the Second Schedule if they are of the opinion that it is necessary to do so for the purpose of protecting the interests of the Revenue. It may be noted that this section uses the expression, "any property belonging to the assessee". The definition contained in Section 2(e) of the Wealth-tax Act is that "assets" includes "property of every description, movable or immovable". Substantially, both the expressions signify the same concept. A careful reading of the judgment of the Supreme Court in the case of Vinay Bubna [1999] 97 Comp Cas 874, shows that in that case the Supreme Court was dealing with a case arising under the BSE rules. The constitutional validity of Rule 16 of the BSE rules was under challenge. One Yogish Mehta, was a member of the BSE. He was declared a defaulter by the exchange. A huge sum was due and payable by him to Vinay Bubna. The amount was not paid. Vinay Bubna therefore filed an arbitration petition before the Bombay High Court. A claim was also made for appointing a court receiver. The court did not grant Vinay Bubna any relief in respect of the membership card of Yogesh Mehta. An appeal was filed for appointment of a court receiver in respect of the membership card. This appeal was disposed of after recording a statement from the stock exchange that it will not apply any amount received by it as consideration on nomination of the membership of Yogesh Mehta to any person falling in the same category till the arbitration award was received. In the meantime, the stock exchange had declared Yogesh Mehta to be a defaulter and he therefore ceased to be a member of the BSE. Vinay Bubna took efforts to get rules 16 and 43 of the BSE amended. They failed. Therefore, a writ was filed before the Bombay High Court with a prayer that these rules should be declared ultra vires the Constitution of India. A prayer was also made for amending the said rules. The main ground of Vinay Bubna is challenging the vires of these rules was that the membership of the stock exchange was an asset of the share broker, viz., Yogesh Mehta and on the sale of the membership rights, whatever proceeds were received they should be first applied towards the dues to the creditors of the share broker of which Bubna was one and that the proceeds should not be distributed in the manner indicated by rules 16 and 43. This writ petition was also dismissed by the Bombay High Court, inter alia, holding that the rules were fair, just and reasonable.
Thereafter, Vinay Bubna filed an appeal to the Supreme Court and contended that the membership of the BSE was the property of Yogesh Mehta, share broker, and on the sale of the same, the distribution of the sale proceeds in the manner indicated by Rule 16 was unfair, unjust and arbitrary and was violative of articles 14, 19(1) and 300A of the Constitution. This contention was resisted on behalf of the stock exchange which was the respondent in the appeal. The stand of the stock exchange was that the order of priority of payments contained in rale 16 of the BSE rules was just and fair and not arbitrary.
The Supreme Court noticed the relevant rales of the Bombay Stock Exchange and held that a bare perusal of the rules clearly showed that the membership of the stock exchange constituted a personal permission from the exchange to exercise the rights and privileges attached hereto subject to the rules, bye-laws and regulations of the exchange, in paragraph 8 of the judgment. It has been observed as under (page 879 of 97 Comp Cas) : "The membership card of a sharebroker is not his personal property, which on default being committed by him and his ceasing to be a member, can be sold and the proceeds distributed amongst his creditors. Rules 53 and 54 leave no manner of doubt that the member's right of membership vests in the exchange after he is declared defaulter." After noticing the above judgment in the case of Vinay Bubna [1999] 97 Comp Cas 874, the Supreme Court in Stock Exchange, Ahmedabad v. Asst.
C1T [2001] 248 ITR 209, 215 observed as follows :In Vinay Bubna v. Stock Exchange [1999] 97 Comp Cas 874 (SC), on consideration of similar rules in respect of the Bombay Stock Exchange this court held that the membership of the stock exchange is a personal permission from the exchange to exercise the rights and privileges attached thereto. It is not a private asset. That was a case of a defaulter but in principle it would make no difference as under the rules both in the case of the death or default of a member, his right of nomination ceases and vests in the stock exchange." In both Vinay Bubna's case [1999] 97 Comp Cas 874 (SC) and Stock Exchange's case [2001] 248 ITR 209 (SC), the Supreme Court relied on the opinion of the Privy Council in Official Assignee of Bombay v. K.R. P. Shroff, AIR 1932 PC 186; [1933] 3 Comp Cas 12. In this case, considering the rules of the Bombay Stock Exchange as they existed at that time it was held that a member who has lost his membership for being a defaulter loses all interest both in the property of the association and in his card. No interest is reserved in the defaulter's card except to the members of the association who have suffered by his lapse or to the association itself.
It was the contention of Mr. Dave for the Department that the ratio of the aforesaid decisions is confined to cases of deceased or defaulting members of the BSE and that it is not applicable to cases of a non-defaulting, continuing member- We are not able to accept the contention. No doubt in both the above cases there was either a default by or death of the member but that makes. In our opinion, no difference to the ratio laid down the true ratio of these judgments. In our humble opinion, is that the membership of the BSE is not property. In Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248 ITR 209, 212, the Supreme Court has posed the issue before them. Their Lordships have stated that the issue is whether the membership card is property belonging to the assessee and devolved on his heirs on his death "or personal permission in favour of the deceased" and whether the right of nomination had vested in his heirs or in the stock exchange. The ultimate decision was that the membership card was a personal privilege and not a private asset. Since, it was not property belonging to the assessee (the legal representatives of Rajesh Shah as per Section 159 of the Income-tax Act) the same could not be attached under Section 281B of the said Act.
If the ratio of the decision is, as contended by Mr. Dave before us, that the membership card is property belonging to Rajesh Shah as per the rules of the BSE then the ultimate decision cannot be reconciled with the ratio, for, in that case, it would have been held that the card could be attached as property belonging to the legal representatives of Rajesh Shah under Section 281B of the Income-tax Act.
It is also to be remembered that the Supreme Court was reversing the Gujarat High Court judgment in Stock Exchange, Ahmedabad v. Asst, CIT [1998] 231 ITR 906 where it had been held that the right of nomination which a member had during his continuance had economic value and any right having value would amount to "property". Not only this, it is also to be noticed that the Supreme Court in terms held, on a perusal of the rules of the ASE, which are similar to those of BSE that (page 214 of 248 ITR): "On a plain and combined reading of the rules, it is clear that the right of membership is merely a personal privilege granted to a member, it is non-transferable and incapable of alienation by the member or his legal representatives and heirs except to the limited extent as provided in the rules on fulfilment of conditions provided therein. The nomination wherever provided for is also not automatic.
It is hedged by rules. On the right of nomination vesting in the stock exchange under the rules, that right belongs to the stock exchange absolutely." It is again to be remembered that the Supreme Court in Vinay Bubna's case [1999] 97 Comp Cas 874 was affirming the judgment of the Bombay High Court in Writ Petition No. 1177 of 1997 (dated December 23,1997) (copy filed) wherein it was held at para. 15 as follows : "According to us, the petitioner's challenge to the impugned rules 16 and 43 is based on a very wrong presumption that the membership card of a share broker is his personal property. We say so because Rule 5 itself provides that the membership is only a personal permission given by the exchange to the share broker to exercise the rights and privileges attached thereto, subject to the rules, bye-laws and regulations of the exchange. It is, therefore, clear that it is only a permission given to the share broker to transact through the exchange. It is not a personal property at all... After going through all the aforesaid rules and particularly Rule 54 ...
It is crystal clear that the membership card of a share broker is not at all a personal property of the share broker. It is only a personal privilege conferred by the stock exchange on the share broker." In Sejal Rikeeh Dalai v. Stock Exchange, Bombay [1990] 69 Comp Cas 709 ; AIR 1991 Bom 30, Sejal Dalai was the daughter-in-law of Pradip, who was a member of the exchange and who died in an air-crash. The heirs of Pradip nominated Sejal as the member in the place of the late Pradip.
Due to certain connections between Pradip and another firm which was indulging in speculative transactions, the nomination was rejected by the stock exchange. Sejal filed a writ petition before the Bombay High Court and contended that the action of the stock exchange violated her right under article 31(1) of the Constitution and that she has been deprived of "property" without the authority of law. With regard to this contention, the High Court, after noticing the aims and objects for which the stock exchange was formed, held as under (page 715 of 69 Comp Cas and page 33 of AIR 1991 Bom): "In order to decide whether there is any property in the membership of the stock exchange, it is necessary to refer to the rules relating to the 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 by 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 seven years standing who desires to resign. He may in turn nominate a member as set out in Rule 11. In the case of a deceased member, under Rule 9, on his death, his right of nomination ceases and vests in the exchange. There is, therefore, no property in membership." If as held in all the above judgments the right of membership is merely a personal privilege granted to a member by the stock exchange, it cannot amount to "property" within the meaning of Section 2(e) of the Wealth-tax Act. It would be anomalous to hold, in the face of the two judgments of the Supreme Court (supra), to the contrary.
(C) Applicability of the judgments to cases under the Wealth-tax Act: One of the principal contentions of Mr. Dave, the learned Commissioner of Income-tax (DR), is that all the above cases have been decided under the Constitution of India (different text) and in a different context (civil litigation) and are therefore not applicable to the interpretation of Section 2(e) of the Wealth-tax Act. Here again we are not able to agree. The concept of the word "property" is the same whether it is for the purpose of the Constitution of India or for the purpose of the Wealth-tax Act. There is no special definition of the word for purposes of the Wealth-tax Act which may justify the contention. It is to be borne in mind that though Vinay Bubna's case [1999] 97 Comp Cas 874 decided by the Supreme Court arose under the Constitution of India, the same court had no hesitation in applying the ratio or principal laid down therein to a case arising under Section 281B of the Income-tax Act where the words "property belonging to the assessee" were used. As already noticed earlier, the words used in this section and Section 2(e) of the Wealth-tax Act are substantially the same. The concept is the same. In all the four judgments (two of the Supreme Court and two of the Bombay High Court) the ultimate decision is based on the fundamental question as to whether the stock exchange membership constitutes "property" or a mere personal privilege. Rule 5 of the BSE rules is the basis of the judgments. The right to nominate, on which heavy reliance was placed by Mr. Dave in the course of his arguments, is one attribute of the personal privilege, amongst others.
The Gujarat High Court in Stock Exchange, Ahmedabad v. Asst, CIT [1998] 231 ITR 906 did hold that the right of nomination available to the member has "economic value" and hence to be considered as "property" but the judgment was reversed by the Supreme Court on the ground that the membership of the stock exchange is a mere personal privilege and that the right of nomination is not automatic but is hedged in by several conditions. Whichever manner we read the judgments of the Supreme Court and the Bombay High Court, we cannot get away from the "groundnorm" or the basic reason or the fundamental premise on which those judgments were rendered, viz., that the membership of a stock exchange is not property but is a mere personal privilege or permission. Even under Section 2(e) of the Wealth-tax Act, the enquiry has to be whether the stock exchange membership is "property". The relevant rules of the concerned stock exchange have to be examined in order to ascertain the nature of the rights of the member. It is only after examining the rules of the BSE and the ASE, which are similar, that the Supreme Court and the Bombay High Court have come to the conclusion that the membership is not property but a mere personal privilege or permission. The context in which such an enquiry was made--(or the purposes of enforcing certain fundamental rights under the Constitution of India--may have been different, but nevertheless the ultimate decision in all the judgments is based on the rules of the ASE/BSE and that is what is important and should not be lost sight of amidst the enthusiasm to evolve original ideas. A binding judgment on the point, in our humble view, cannot be circumvented on the mere ground that the context is different if the issue decided is the same.
The text also may have been different--Constitution of India and not the Wealth-tax Act--but the concept propounded and explained is that of stock exchange membership card, its nature, the characteristics, etc., in the light of the rules of the stock exchange. A lower court or Tribunal cannot attempt to reach a conclusion diametrically opposed to that of a superior court after conducting the very same enquiry into the rules of the very same stock exchange (BSE) merely on the ground, that the higher or superior court had conducted the enquiry in the context of the Constitution of India and not under the Wealth-tax Act.
Judicial adventurism or originality has its limits and cannot be taken to such absurd lengths where each and every judgment of a higher judicial forum is sought to be circumvented on some slender or tenuous ground. Every discovery of argumentative novelty cannot compel reconsideration of a binding precedent. This would lend to judicial chaos and indiscipline.
In our view therefore there is no merit in the contention that the judgments of the Supreme Court were rendered either under the Constitution of India or in the context of civil litigation and are therefore not applicable to the interpretation of Section 2(e) of the Wealth-tax Act.
Mr. Sanjeev Shah, learned counsel appearing for the assessee, before us in W. T. A. No. 667/M/98, filed a copy of the judgment of the Bombay High Court in Stock Exchange v. Custodian, dated June 9, 2001. Herein the High Court was sitting as special court for trial of offences relating to transactions in securities. A decree had been passed by the custodian for recovery of a large sum from one Shrenik Jhaveri who was a member of the BSE. Since the amount was not paid, an execution application was filed by the custodian before the special court. An order of attachment had been passed against the membership card. The BSE moved an application, before the special court for lifting of the attachment. The special court (Justice S. H. Kapadia) held, following the judgment of the Supreme Court in Stock Exchange v, Asst, CJT [2001] 248 ITR 209 as follows : "I have gone through the Rules of the Bombay Stock Exchange. On reading the rules of the Bombay Stock Exchange, I am of the view that the judgment of the Supreme Court in the above case squarely applies to the facts of the present case. To the same effect is the judgment of the Supreme Court in the case of Vinay Bubna v. Mumbai Stock Exchange [1999] 97 Comp Cas 874 decided by the apex court vide Civil Appeal No. 4120 of 1999, decided on July 28, 1999.
In view of the aforestated two judgments of the Supreme Court and in view of the Bye-laws, Rules and Regulations of the Bombay Stock Exchange, it is clear that membership is a personal privilege and it is not attachable as a property." This judgment of the special court puts the matter beyond doubt, because as pointed out by Mr. Hiro Rai, learned counsel for one of the assessees, this is a case of a non-defaulting, continuing member of the BSE. In whose case the ratio laid down by the Supreme Court in the two judgments cited supra (cases of defaulting or deceased members) has been applied. This should take care of Mr. Dave's contention that the Supreme Court was not concerned with the case of a non-defaulting, continuing member and therefore those decisions should not be followed in the cases before us.
Mr. Dave strenuously contended before us that the observations made by the Supreme Court in the two judgments cited supra suggesting that stock exchange membership card is not property and is only a personal privilege or permission are "obiter dicta" fend do not constitute the ratio of the decisions. Several authorities were cited by him in this behalf. On behalf of the assessees, Mr. Shivram and Mr. Hiro Rai also drew our attention to several authorities to contend that even the obiter of the Supreme Court are binding on us. In fact Mr. Shivram would say that the Tribunal has no choice but to follow the law laid down by the Supreme Court in view of article 141 of the Constitution.
On a perusal of the authorities cited by Mr. Dave, we find that they deal with the manner in which a judgment of a court should be understood. It has been held that it is necessary to have in view the context in which the observations were made and that it is not proper to pick out a single or few sentences from the judgment divorced from the context, and apply them to an entirely different context. There can be no dispute with this proposition. But in none of the authorities has it been held that the "obiter dicta" of the Supreme Court of India is not binding on the Income-tax Appellate Tribunal which is placed on a much lower rung in the hierarchy of courts or Tribunals in India. The question whether obiter dicta of the Supreme Court are binding on the High Courts may be one for consideration and there may even be divergent views. But so far as the Income-tax Appellate Tribunal is concerned, we have grave doubts whether it is at all open to it (the Tribunal) to consider certain observations of the highest court of the country as "obiter dicta" and proceed to disregard the same. In fact, our humble view is that it cannot do so. At any rate, in our humble opinion, none of the observations made by the Supreme Court in the two judgments cited supra can be considered to be obiter ; they are all germane to the issue whether the stock exchange membership card can be considered to be a "property".
(F) Order of the Special Benc,h of the Tribunal in Jagan Nath Sayal v.Asst. CGT [2000] 72 ITD 1 (Delhi) [SB] : The question in this case was whether the membership of the Delhi Stock Exchange can be considered to be property within the meaning of Section 2(e) of the Wealth-tax Act. It was answered in the affirmative. Mr. Dave strongly relied on this order. This decision was rendered under the rules made by the Delhi Stock Exchange. It was pointed out on behalf of the assessees by Mr. Patil that the DSE is a public limited company incorporated in the name of "the Delhi Stock Exchange Association Ltd." with its own memorandum and articles of association, that the contents of the memorandum and articles of association were completely different from the rules framed by the BSE and the ASE and that therefore the decision rendered by the Special Bench cannot be applied to cases arising under the rules of the BSE. Copies of the memorandum and articles of association of the DSE were filed to drive home the point. It was also pointed out that there were no rules similar to rules 5 to 11 or Rule 16 of the BSE. On a perusal of the memorandum and articles of association of the DSE, we find the contention of Mr. Patil to be correct. The membership of the DSE is open to individuals who are members of the company. It would thus appear that one has to be a shareholder of the DSE Ltd. In order to become a member eligible to do business. There is no Rule similar to Rule 5 of the BSE which in terms declares that the membership of the BSE is a personal privilege. Thus, the order of the Special Bench cannot be considered applicable to membership of all stock exchanges. It can be applied only where the rules of the particular stock exchange are similar to those of the DSE Ltd. Certainly, the rules being different, it cannot be applied to the membership of the BSE.Further, as pointed out by Mr. Patil, learned counsel who led the arguments, the Special Bench would appear to have relied heavily on the judgment of the Gujarat High Court in Stock Exchange, Ahmedabad v.Asst. CIT [1998] 231 ITR 906 and the test of "economic value" for the stock exchange card. Since this judgment has now been reversed by the Supreme Court on appeal (Stock Exchange, Ahmedabad v. Asst. CIT [2001] 248 ITR 209), the order of the Special Bench will have to be read and understood in the light of the Supreme Court judgment.
Our view is that the order of the Special Bench would apply wherever the rules of the concerned stock exchange are similar to those of the Delhi Stock Exchange Association Ltd. This clause was inserted by the Finance Act, 1997, with effect from April 1, 1998. It says that capital gains shall not be chargeable, under Section 45 in respect of any transfer made on or before the December 31, 1998, by a person, "of a capital asset being membership of a recognised stock exchange to a company in exchange of shares allotted by that company to the transferor". The Explanation to the clause says that membership of a stock exchange means the membership of a stock exchange recognised under the Securities Contracts (Regulation) Act, 1956.
There was considerable debate as to the import of this clause. Mr. Dave contended for the Department that the clause clearly implies that the stock exchange membership card is a capital asset which in turn means that it is "property" since capital asset is defined in Section 2(14) of the Income-tax Act to mean "property of any kind held by an assessee". In other words, the contention is that it has become necessary for the Legislature to provide for exemption in respect of capital gains arising on transfer of stock exchange card only because the capital gains were considered taxable on the footing that the card constitutes "property" and hence a capital asset.
The clause provides for exemption of capital gains arising on transfer of a stock exchange card before a particular date. From a clause providing exemption, it is not permissible to infer that the card was property and hence a capital asset. All stock exchange cards may not have the same characteristics and features. They may differ depending on the relevant rules, bye-laws, etc., of the concerned stock exchange.
It is therefore quite possible that the membership card of a particular stock exchange could be considered to be property, as in the case of the card of the DSE, on the basis of the rules of the concerned stock exchange. Being aware of this position, the Legislature would appear to have provided for exemption from capital gains on the transfer of such cards. Another possible view is that the stock exchange card was never to be considered as property and consequently as a capital asset and therefore it was provided by way of abundant caution (ex abundanti cautela) that there should be no tax on capital gains arising out of the transfer of such cards before December 31, 1998. A third view is based upon the principle that the beliefs and assumptions of those making the law cannot be considered to be the law (adverted to by the Supreme Court in ITO v. Mani Ram [1969] 72 ITR 203, 211). The question whether stock exchange card could be considered to be property and consequently a capital asset is a highly arguable one (as the debate before us has shown) and such a contentious issue cannot be decided on the basis of the assumption of the Legislature. An appropriate example would be the provisions of Section 10 which exempts various categories of income. From the fact that exemption is provided it is impermissible to infer that a particular receipt is taxable as income in the first place because the particular receipt may defy legal or common or practical notions of income and may not be taxable at all. The question of exemption comes in only when a receipt is first proved to be taxable as income on general principles relating to the concept of "income" and the taxability cannot be left to assumptions and beliefs. The charge to tax must be clear, unambiguous and permitted by the relevant provisions of the Act. A converse instance which immediately comes to our mind would be the case of an inheritance under a will. There is no provision exempting an inheritance in Section 10 of the Income-tax Act. But, with respect to all concerned, it would be absurd to hold that the inheritance is taxable as income because it is not income in the first place. Therefore the fact that something was exempt or not exempt from tax affords no clinching evidence of its taxability.
Mr. Dave, however, says that from April 1, 1998, the capital gains arising on transfer of a stock exchange card would be taxable reflecting the intention of the Legislature that it was always understood as property and a capital asset. If what has been stated in the preceding paragraph is logically extended, it would perhaps be open to the transferor of the card, even after April 1, 1998, to contend that it is not property at all and hence cannot be considered as a capital asset. This however is a moot question and we should not be understood as expressing an opinion on the matter. All that we wish to say is that there can be no assumption on the basis of Section 47(xi) that stock exchange card is property.
(H) Judgment of the Supreme Court in CWT v. Prince Muffakham Jah Bahadur Chamlijan [2001] 247 ITR 351 : In this judgment relied on by Mr. Dave, the learned Commissioner of Income-tax (DR), the right to reside in a property was held to be an "asset" for purposes of the Wealth-tax Act though it is personal and inalienable. A right of residence with respect to an immovable property is an interest or right in property and hence is itself "property", as submitted by Mr. Patil. But the nature of the right is different from the stock exchange membership. Under the rules, no member of the Bombay Stock Exchange has been given any rights over the assets of the stock exchange. In Official Assignee v. K. R. P. Shroff [1933] 3 Comp Cas 12 (PC) it has also been held that by acquiring membership of a stock exchange (it was the BSE in.that case) one does not acquire any interest in the property of the exchange. Further, so long as the view propounded by the Supreme Court is that the stock exchange membership (of the BSE or the ASE) is a mere personal privilege or permission the argument based on CWT v. Prince Muffakham Jah Bahadur Chamlijan [2001] 247 ITR 351 (SC) cannot be given effect to. The contrast is between what is "property" which also includes interest in property and what is "personal privilege or permission", A personal privilege or permission by its very nature does not amount to "property" or interest in property.
In their booklet titled "Intangibles--A compendium" published by the Bombay Chartered Accountants Society, it has been opined that the membership card of the BSE is a commercial right and is therefore an intangible asset eligible for depreciation. It has been noticed that the card holder is entitled to transfer his card to any person subject to guidelines or rules framed by the exchange and that the card of a defaulting member can be auctioned for a substantial consideration. It has also been stated that the concept of corpo-ratisation of the card also indicates that it is an asset.
This compendium was relied upon by Mr. Dave.
The compendium reflects the view of a Section of the accountancy profession. They are entitled to their view, but it is significant to note that there is no reference to the judgment of the Supreme Court in the case of Stock Exchange, Ahmedabad v. ACIT [2001] 248 ITR 209.
Strangely, the compendium says that in Vinay Bubna's case [1999] 97 Comp Cas 874, the Supreme Court has held that the stock exchange card is an asset. This appears to be erroneous since the decision says that the stock exchange card is a personal privilege or permission and not a private asset. The judgment of the Bombay High Court in the case of Sejal Rikech Dalai [1990] 69 Comp Cas 709 has also been noticed. The opinion expressed in the compendium appears to us to be contrary to the aforesaid judicial pronouncements. The same therefore cannot be given effect to.
Various other subsidiary and incidental contentions were raised by both the sides, but we do not consider it necessary to deal with them because the main thrust of Mr. Dave, the learned Commissioner of Income-tax (DR) was that the judgments of the Supreme Court in Vinay Bubna's case [1999] 97 Comp Cas 874 and Stock Exchange, Ahmedabad v.Asst. CIT [2001] 248 ITR 209 were rendered in a different context and cannot therefore be applied to the interpretation of Section 2(e) of the Wealth-tax Act, which contention has not been accepted by us for the reasons given earlier.
We accordingly hold, consistent with the earlier orders of the Tribunal, that the stock exchange card of the BSE is not an asset under Section 2(e) of the Wealth-tax Act.
We wish to place on record the very able assistance rendered by Mr.
Dave, the learned Commissioner of Income-tax (DR) on behalf of the Department and learned counsel who appeared for the assessees before us, led by Mr. V. H. Patil.
6. The appeals filed by the Department on this issue are dismissed and those filed by the assessees are allowed.