Parag Parikh Financial Advisory Vs. 130/132 Sbs Marg, Mumbai - Court Judgment

SooperKanoon Citationsooperkanoon.com/1150061
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided OnJan-29-2014
Case NumberITA No.3118/M of 2012
JudgeTHE HONOURABLE MR. P.M. JAGTAP, ACCOUNTANT MEMBER & THE HONOURABLE MR. SANJAY GARG, JUDICIAL MEMBER
AppellantParag Parikh Financial Advisory
Respondent130/132 Sbs Marg, Mumbai
Excerpt:
sanjay garg, judicial member: 1. the present appeal has been filed by the assessee against the order of the cit(a) dated 24.01.12 relevant to assessment year 2008-09. the assessee has taken as many as eight grounds of appeal. however, at the outset the ld. representative of the assessee has stated at bar that he does not press grounds no.1, 2, 4 and 5. hence, for the sake of brevity, we do not deem it necessary to reproduce the grounds which have not been pressed. there remains the following grounds of appeal are for adjudication by us. "3. the cit(a) erred in disallowing transaction charges u/s 40(a)(ia) of rs.8,37,889/-." 2. ita no.3118/m/2012 m/s. parag parikh financial advisory services ltd. "6. the cit(a) has gone beyond his powers to enhance the income under various heads, in particular ltcg by rs.1,20,91,700/-." 7. the cit(a) erred in calculating ltcg and made addition of rs.1,20,91,700/-. 8. the cit(a) erred in ignoring the provisions of section 47 (xiiia). as per the said section any exchange of a capital asset being membership right held of a recognised stock exchange for acquisition of shares of stock exchange will not attract section 45 as it does not amounts to transfer. hence, the original asset being bse card and as there was not transfer taken place as per section 47 (xiiia), the indexation benefit must be given from acquisition of bse card and enhancement towards ltcg is bad in law." 2. our findings in respect of the matter are as under: ground no.3: the assessee vide this ground, as reproduced above, has agitated the disallowance of transaction charges under section 40(a)(ia) amounting to rs.8,37,889/-. the ld. cit(a) during the appeal before him disallowed the said transaction charges following the judgment of the hon'ble high court in the case of "cit vs. kotak securities ltd." 203 taxmann 86. the ld. a.r. while relying upon an authority of hyderabad bench of the tribunal in the case of "teja constructions vs. acit" (2010) 36 dtr 220 has stressed that the 'section 40' of the income tax act which deals with the 'amounts not deductable' while computing income under the head 'profits and gains of business or profession' is applicable only to the amounts allowable under section 30 to 38. however, to the expenditure which is allowable under section 28, and not under section 37, section 40 does not apply. by referring to the above sections, the ld. a.r. has contended that the expenditure for which there is a direct evidence of being incurred by the assessee while earning income under the head 'profits and gains of business or profession', the same 3 ita no.3118/m/2012 m/s. parag parikh financial advisory services ltd. will be allowable under section 28 and cannot be disallowed under section 40(a)(ia) of the i.t. act. he has contended that the transaction charges as such fall within the definition of expenditure allowable under section 28 of the act. 3. with due respect to the observations made by the co-ordinate bench of the tribunal in the case of 'teja constructions' (supra), in our humble view, the section 28 of the act deals with the income chargeable to tax under the head 'profits and gains of business or profession'. it does not deal with the expenditure allowable as deduction for computation of income under the head 'profits and gains of business or profession'. section 30 to section 36 and section 38 deal with certain specific type of expenditure which is allowable as deduction while computing the income from business or profession whereas section 37 is a general section which provides that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head 'profits and gains of business or profession'. hence, section 28 deals with the income which may be subject to tax under the head 'profits and gains of business or profession' whereas section 30 to 38 deal with the allowable/deductible expenditure while computing income from 'profits and gains of business or profession'. there is no clause or provision under section 28 of the act for allowing deduction of any type of expenditure. any expenditure which is not allowable under section 30 to 38 read with or subject to other relevant provisions of the act, in our humble view, cannot be allowed as a deduction under section 28 as the said section 28 does not deal with allowability or disallowability of any expenditure. 4. now coming to the point of disallowance of transaction charges, it may be observed that the revenue was in appeal before the hon'ble bombay high court against the order of the itat in the case of 'kotak securities ltd.' 4 ita no.3118/m/2012 m/s. parag parikh financial advisory services ltd. (supra). before the hon'ble bombay high court, the revenue did not press the issue relating to deletions made on account of vsat charges and lease line charges in view of the law laid down by the hon'ble apex court in the case of "techno shares and stocks ltd. v. cit" 327 itr 323 / 193 taxman 248 and t.r.f. ltd. v. cit 323 itr 397 / 190 taxman 39. however, the hon'ble high court held that the transaction charges paid by the assessee to stock exchange constitute fees for technical services u/s. 194j of the act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of stock exchange. so, in view of the law laid down by the hon'ble high court in the case of kotak securities ltd. (supra), we do not find any infirmity in the order of the cit(a) disallowing expenditure relating to transaction charges. this ground of the appeal of the assessee is accordingly dismissed. ground nos.6, 7 and 8: 5. the above grounds of appeal are interconnected and are relating to calculation of indexation benefit to be given while arriving out of cost of acquisition of the shares. 6. the assessee had purchased 'bse card' for rs.1,18,69,023/- during f.y. 1994-95. as per the scheme for corporatization approved by the securities exchange board of india, the said 'bse card' got converted into 'shares of bse'. these shares were sold during f.y. 2007-08 for rs.4,74,39,600/-. during assessment, the a.o. had calculated capital gains giving indexation benefit from f.y. 1994-95. however, while calculating indexed cost of acquisition, the cit(a) calculated indexation from the date of acquisition of 'shares in bse' instead of from the date of acquisition of original asset of 'bse card'. 7. the ld. cit(a) while making additions in this respect observed that though as per the provisions of section 55(2)(ab), the cost of acquisition of bse shares will be the cost of acquisition of original 'bse card'. however, while interpreting clause (iii) of explanation to section 48 of the act, he observed that the indexation benefit was to be given to the assessee from the date of acquiring the asset and the asset in the case in hand was bse equity shares which were converted from the 'bse card' in the f.y. 2005-06 only. he thus held that the indexation was to be given to the assessee from the f.y. 2005-06 and not from the date of acquisition of original 'bse card'. 8. we have heard the ld. representatives of both the parties and also have gone through the records. section 2(42a)(ha) is relevant for deciding the point in issue which for the sake of convenience is reproduced as under: "2. definitions in this act, unless the context otherwise requires,- (42a) 9 ["short-term capital asset" means a capital asset held by an assessee for not more than 10[thirty-six] months immediately preceding the date of its transfer10a :][provided that in the case of a share held in a company 12[or any other security listed in a recognised stock exchange in india or a unit of the unit trust of india established under the unit trust of india act, 1963 (52 of 1963) or a unit of a mutual fund specified under clause (23d) of section 10] 13[or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.] [explanation 1].--(i) in determining the period for which any capital asset is held by the assessee--(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;]" 9. the long term capital asset has been defined under section 2(29a) of the act as a capital asset which is not a short term capital asset. so in determining the period for which any capital asset is held by the assessee the provisions of 6 ita no.3118/m/2012 m/s. parag parikh financial advisory services ltd. section 42a will be applicable and after determining the period of holding of an asset as per the explanation 1 to section 42a, if the asset is found to be held by an assessee for not more than 36 months immediately preceding the date of its transfer, the same will fall in the definition of short term capital asset and if the period is more than 36 months then the asset will fall in the definition of long term capital asset. as per the express provisions of clause (ha) as reproduced above, for determining the holding period of capital asset being equity shares allotted in pursuance to demutualisation or corporatisation of a recognised stock exchange in hand, the period for which the assessee was a member of the recognised stock exchange prior to such demutualisation or corporatisation shall also be included. hence, the holding period of the asset is to be calculated from the acquisition of date of 'bse card' and not from the date of conversion of 'bse card' into equity shares. as per the section 55(2)(ab) of the act, the cost of acquisition in relation to equity shares allotted to a shareholder under a scheme of demutualisation or corporatisation shall be the cost of acquisition of his original membership of the exchange. for the sake of convenience section 55 (2) (ab) is reproduced as under: "55.(2). [for the purposes of sections 48 and 49, "cost of acquisition"96,-- [(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in india under a scheme for [demutualisation or] corporatisation approved by the securities and exchange board of india established under section 3 of the securities and exchange board of india act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange:]" 10. so from the above stated express provisions, it is clear that the cost of acquisition of 'bse card' shall be the cost of acquisition of bse shares and the shares are deemed to be acquired on the date of acquisition of 'bse card' and not from the date of their conversion. hence, the date of holding/acquisition of an asset being equity shares allotted pursuant to demutualisation or corporatisation of a recognised stock exchange will be the date of acquisition 7 ita no.3118/m/2012 m/s. parag parikh financial advisory services ltd. of original 'bse card'. accordingly, this issue is decided in favour of the assessee and the enhancement of income made by the cit(a) on this account is hereby ordered to be deleted. 11. in the result, the appeal of the assessee is partly allowed.
Judgment:

Sanjay Garg, Judicial Member:

1. The present appeal has been filed by the assessee against the order of the CIT(A) dated 24.01.12 relevant to assessment year 2008-09. The assessee has taken as many as eight grounds of appeal. However, at the outset the ld. representative of the assessee has stated at bar that he does not press grounds No.1, 2, 4 and 5. Hence, for the sake of brevity, we do not deem it necessary to reproduce the grounds which have not been pressed. There remains the following grounds of appeal are for adjudication by us.

"3. The CIT(A) erred in disallowing transaction charges u/s 40(a)(ia) of Rs.8,37,889/-."

2. ITA No.3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd.

"6. The CIT(A) has gone beyond his powers to enhance the income under various heads, in particular LTCG by Rs.1,20,91,700/-."

7. The CIT(A) erred in calculating LTCG and made addition of Rs.1,20,91,700/-.

8. The CIT(A) erred in ignoring the provisions of Section 47 (xiiia). As per the said section any exchange of a capital asset being membership right held of a recognised stock exchange for acquisition of shares of stock exchange will not attract Section 45 as it does not amounts to transfer. Hence, the original asset being BSE card and as there was not transfer taken place as per Section 47 (xiiia), the indexation benefit must be given from acquisition of BSE card and enhancement towards LTCG is bad in law."

2. Our findings in respect of the matter are as under: Ground No.3: The assessee vide this ground, as reproduced above, has agitated the disallowance of transaction charges under section 40(a)(ia) amounting to Rs.8,37,889/-. The ld. CIT(A) during the appeal before him disallowed the said transaction charges following the judgment of the Hon'ble High Court in the case of "CIT vs. Kotak Securities Ltd." 203 Taxmann 86. The ld. A.R. while relying upon an authority of Hyderabad bench of the Tribunal in the case of "Teja Constructions vs. ACIT" (2010) 36 DTR 220 has stressed that the 'section 40' of the Income Tax Act which deals with the 'amounts not deductable' while computing income under the head 'profits and gains of business or profession' is applicable only to the amounts allowable under section 30 to 38. However, to the expenditure which is allowable under section 28, and not under section 37, section 40 does not apply. By referring to the above sections, the ld. A.R. has contended that the expenditure for which there is a direct evidence of being incurred by the assessee while earning income under the head 'profits and gains of business or profession', the same 3 ITA No.3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. will be allowable under section 28 and cannot be disallowed under section 40(a)(ia) of the I.T. Act. He has contended that the transaction charges as such fall within the definition of expenditure allowable under section 28 of the Act.

3. With due respect to the observations made by the co-ordinate bench of the Tribunal in the case of 'Teja Constructions' (supra), in our humble view, the section 28 of the Act deals with the income chargeable to tax under the head 'profits and gains of business or profession'. It does not deal with the expenditure allowable as deduction for computation of income under the head 'profits and gains of business or profession'. Section 30 to section 36 and section 38 deal with certain specific type of expenditure which is allowable as deduction while computing the income from business or profession whereas section 37 is a general section which provides that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head 'profits and gains of business or profession'. Hence, section 28 deals with the income which may be subject to tax under the head 'profits and gains of business or profession' whereas section 30 to 38 deal with the allowable/deductible expenditure while computing income from 'profits and gains of business or profession'. There is no clause or provision under section 28 of the Act for allowing deduction of any type of expenditure. Any expenditure which is not allowable under section 30 to 38 read with or subject to other relevant provisions of the act, in our humble view, cannot be allowed as a deduction under section 28 as the said section 28 does not deal with allowability or disallowability of any expenditure.

4. Now coming to the point of disallowance of transaction charges, it may be observed that the Revenue was in appeal before the Hon'ble Bombay High Court against the order of the ITAT in the case of 'Kotak Securities Ltd.' 4 ITA No.3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. (supra). Before the Hon'ble Bombay High Court, the Revenue did not press the issue relating to deletions made on account of VSAT charges and lease line charges in view of the law laid down by the Hon'ble Apex Court in the case of "Techno Shares and Stocks Ltd. v. CIT" 327 ITR 323 / 193 Taxman 248 and T.R.F. Ltd. v. CIT 323 ITR 397 / 190 Taxman 39. However, the Hon'ble High Court held that the transaction charges paid by the assessee to stock exchange constitute fees for technical services u/s. 194J of the Act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to the account of stock exchange. So, in view of the law laid down by the Hon'ble High Court in the case of Kotak Securities Ltd. (supra), we do not find any infirmity in the order of the CIT(A) disallowing expenditure relating to transaction charges. This ground of the appeal of the assessee is accordingly dismissed. Ground Nos.6, 7 and 8:

5. The above grounds of appeal are interconnected and are relating to calculation of indexation benefit to be given while arriving out of cost of acquisition of the shares.

6. The assessee had purchased 'BSE card' for Rs.1,18,69,023/- during F.Y. 1994-95. As per the scheme for corporatization approved by the Securities Exchange Board of India, the said 'BSE card' got converted into 'Shares of BSE'. These shares were sold during F.Y. 2007-08 for Rs.4,74,39,600/-. During assessment, the A.O. had calculated capital gains giving indexation benefit from F.Y. 1994-95. However, while calculating indexed cost of acquisition, the CIT(A) calculated indexation from the date of acquisition of 'shares in BSE' instead of from the date of acquisition of original asset of 'BSE card'.

7. The ld. CIT(A) while making additions in this respect observed that though as per the provisions of section 55(2)(ab), the cost of acquisition of BSE shares will be the cost of acquisition of original 'BSE card'. However, while interpreting clause (iii) of explanation to section 48 of the Act, he observed that the indexation benefit was to be given to the assessee from the date of acquiring the asset and the asset in the case in hand was BSE equity shares which were converted from the 'BSE card' in the F.Y. 2005-06 only. He thus held that the indexation was to be given to the assessee from the F.Y. 2005-06 and not from the date of acquisition of original 'BSE card'.

8. We have heard the ld. representatives of both the parties and also have gone through the records. Section 2(42A)(ha) is relevant for deciding the point in issue which for the sake of convenience is reproduced as under:

"2. Definitions In this Act, unless the context otherwise requires,- (42A) 9 ["short-term capital asset" means a capital asset held by an assessee for not more than 10[thirty-six] months immediately preceding the date of its transfer10a :][Provided that in the case of a share held in a company 12[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10] 13[or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.]

[Explanation 1].--(i) In determining the period for which any capital asset is held by the assessee--(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;]"

9. The long term capital asset has been defined under section 2(29A) of the Act as a capital asset which is not a short term capital asset. So in determining the period for which any capital asset is held by the assessee the provisions of 6 ITA No.3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. section 42A will be applicable and after determining the period of holding of an asset as per the explanation 1 to section 42A, if the asset is found to be held by an assessee for not more than 36 months immediately preceding the date of its transfer, the same will fall in the definition of short term capital asset and if the period is more than 36 months then the asset will fall in the definition of long term capital asset. As per the express provisions of clause (ha) as reproduced above, for determining the holding period of capital asset being equity shares allotted in pursuance to demutualisation or corporatisation of a recognised stock exchange in hand, the period for which the assessee was a member of the recognised stock exchange prior to such demutualisation or corporatisation shall also be included. Hence, the holding period of the asset is to be calculated from the acquisition of date of 'BSE card' and not from the date of conversion of 'BSE card' into equity shares. As per the section 55(2)(ab) of the Act, the cost of acquisition in relation to equity shares allotted to a shareholder under a scheme of demutualisation or corporatisation shall be the cost of acquisition of his original membership of the exchange. For the sake of convenience section 55 (2) (ab) is reproduced as under:

"55.(2). [For the purposes of sections 48 and 49, "cost of acquisition"96,-- [(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for [demutualisation or] corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange:]"

10. So from the above stated express provisions, it is clear that the cost of acquisition of 'BSE card' shall be the cost of acquisition of BSE shares and the shares are deemed to be acquired on the date of acquisition of 'BSE card' and not from the date of their conversion. Hence, the date of holding/acquisition of an asset being equity shares allotted pursuant to demutualisation or corporatisation of a recognised stock exchange will be the date of acquisition 7 ITA No.3118/M/2012 M/s. Parag Parikh Financial Advisory Services Ltd. of original 'BSE card'. Accordingly, this issue is decided in favour of the assessee and the enhancement of income made by the CIT(A) on this account is hereby ordered to be deleted.

11. In the result, the appeal of the assessee is partly allowed.