ITAT applies Sec. 50 to determine cost of shares allotted in pursuance of demutualization of BSE

Cost of shares allotted pursuant to corporatization of BSE would be calculated as per Section 50 and not as per Section 55(2(ab) if depreciation was claimed on BSE membership. Further, indexation benefit on sale of such share would be available from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE.

Facts

a) Assessee, engaged in the business of share broking, earned long-term capital gain on sale of shares of BSE Limited.

b) The said shares were allotted to the assessee under the scheme of corporatization of Bombay Stock Exchange (BSE), in lieu of BSE membership card.

c) Assessee contended that the original cost of acquisition of BSE membership shall be taken as cost of acquisition of shares of BSE Ltd by virtue of Section 55(2)(ab) of the Income-tax Act (‘Act’). Further, the period of holding shall be reckoned from the date of acquisition of original membership of BSE by virtue of Explanation 1(ha) to Section 2(42A).

d) On the other hand, revenue contended that as the assessee was claiming depreciation on membership card of BSE, WDV of the membership card on the date of BSE shall be taken as the cost of acquisition of shares in view of the provisions of Section 50 of the Act. Further, period of holding for the indexation purposes shall also be reckoned from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE by the assessee.

e) The stand taken by AO was affirmed by CIT(A). Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of revenue as under-

1) Section 55(2)(ab) stipulates that cost of acquisition of shares allotted pursuant to scheme of corporatization of a recognized stock exchange shall be deemed to be the cost of acquisition of original membership of the exchange.

2) Explanation 1(ha) to Section 2(42A) provides that in determining the period of holding of shares allotted in pursuance of the corporatization of the recognized stock exchange, there shall be included the period for which the person was a member of the recognized stock exchange immediately prior to such corporatization.

3) Section 50 stipulates that notwithstanding anything contained in Section 2(42A) of the Act, while computing capital gain in case of depreciable asset, the cost of acquisition of asset shall be deemed to be written down value of the block of asset as at the beginning of the previous year and actual cost of any asset falling with the block of asset acquired during the previous year. Further, the capital gain shall be deemed to arise from the transfer of short-term capital assets.

4) Section 50 is a special provision for computation of capital gain in case of depreciable asset. It is well-settled proposition that special provisions shall prevail on the general provisions.

5) As in the instant case depreciation was claimed on original membership of stock exchange, cost of acquisition of membership shall be computed as per section 50 and not as per section 55(2(ab).

6) Therefore, cost of acquisition of shares shall be taken as WDV of the membership card on the date of corporatization of BSE and not the original cost of membership paid by the assessee.

7) Further, it was held by the ITAT that as Section 50 overrules Section 2(42A), the benefit of indexation shall be available from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE by the assessee. - [2016] 66 taxmann.com 258 (Mumbai - Trib.)

Holding period of booking rights of flats to be counted from date of agreement and not from date of allotment letter

The issue for consideration of the High Court was:

Whether booking rights of apartment accrued to the assessee on the date of application for allotment/confirmation of allotment (‘confirmation letter’) or on the date of execution of the agreement to sell, i.e., the buyer's agreement? 

The High Court held as under:

1)  Booking rights in apartment could be held as long-term capital asset only after the period of 36 months from the date of buyer's agreement with builders;

2)  The 36 months period under section 2(42A) was to be counted from date of buyer's agreement and not from the date of confirmation letter if it was mentioned in the letter that no right to provisional or final allotment would be accrued until buyer's agreement was signed and returned to the builder.

3)  Thus, the builders do not intend to convey any right of provisional/final allotment or any right to claim title under the confirmation letter.

4)  It would be impermissible to conclude that right to obtain booking rights emanated from confirmation letter. These rights might only be prescribed in the buyer's agreement, and, thus, the date of signing of said agreement was to be considered as the date of acquisition of the capital asset.- Gulshan Malik v. CIT [2014] 43 taxmann.com 200 (Delhi)