Madhusudan Lal Nanda. Prop., Noida vs Assessee

Appellant by : Shri M.L. Nanda, Assessee Respondent by : Shri P Dam Kanunjha, Sr. DR

Date of hearing : 18.03.2015 Date of pronouncement : 08.05.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal field by assessee against the order of Ld. CIT(A) dated 16.09.2011. The assessee has raised legal ground regarding non service of notice u/s 143(2) within the prescribed period and has also taken a ground of appeal regarding action of Ld. CIT(A) by which he had upheld the addition made by A.O. amounting to Rs.44 lacs. As per the records available, the amount was received from Delhi Stock Exchange on account of demutualization of stock exchange. The assessee represented himself for arguments in his case. Before Ld. CIT(A) also, the assessee appeared in person. The assessee has been arguing before Ld. CIT(A) and before us also that there was no service of notice u/s 143(2) and on merits, the assessee 2 ITA No.4799/Del/2011

argued that the amount was received on account of demutualization of Delhi Stock Exchange which was a charitable association and therefore, the receipt did not constitute long term capital gain. However, Ld. CIT(A) has rejected the ground regarding service of notice by holding as under:

"4.2. The assessee is in appeal against the issue of notice U/S 143(2) and it is submitted that the AO is not justified to make the assessment as the notice was issued beyond the period of 12 months.

4.3. The submission of the assessee was forwarded to the AO and a remand report dated 0110812011 has been forwarded by the Addl. CIT Range-30, New Delhi vide the letter dated 01/08/2011. It is submitted by the AO that the assessee had filed the return on 25/07/2008 and as such the AO was justified to issue the notice by the end of September 2009 as provided in the proviso u/s 143(2). It is submitted that as per the amended provisions of the proviso u/s 143(2) w.e.f. 01/04/2008. The AO is entitled to issue the notice within six months from the end of the FY in which the return is filed.

4.4. I have considered the order of the AO, remand report of the AO and the submissions of the assessee and I do not find any merit in the submission of the assessee. The provisions of section 143(2) has been amended w.e.f. 01/04/2008 and it has been provided that the notice could be issued within six months from the end of the FY in which the return is filed. In the present case, the assessee has filed the return on 25/07/2008 and as such the AO is entitled to issue the notice u/s 143(2) by 30/09/2009 and the AO has issued the notice within time on 24/09/2009.

4.5. The Hon'ble Delhi Tribunal also was dealing with the similar Issue of notice u/s 143(2) in the case of Amit Jain Vs ACIT Circle- 30(l) ITA No. 309/De1l2010 (A- Bench) for the A Y 2006-07 vide the order dated 30/0612011 and has given the similar contentions raised by the assessee. He has filed the return on 29th July 2007 declaring finding referring to the Board's Circular and has held in Para-2 of the order as under :-

3 ITA No.4799/Del/2011 "As far as the first fold of grievance is concerned, we do not find much force in the contention raised by the assessee. He has filed the return on 29th July 2007 declaring an income of Rs 2,62,78,928/-. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued on 16th September 2008, which was duly served upon the assessee on 20th September 208. The proviso appended the sub-section (2) of section 143 of the Act has been amended by the Finance Act, 2008. Prior to amendment in this proviso, no notice under section 143(2) could be served on the assessee after the expiry of 12 months from the end of the month in which the return was furnished. However, after the amendment which was given effect from 1.4.1988, no notice under sec. 143(2) can be served after the expiry of the six months from the end of the financial year in which the return is furnished. The Board has also explained that amended proviso of sub-section (2) of section upon the assessee. Thus, the time limit for issuance of a notice in the case of assessee is available up to 30th September 2008 i.e. 6 months from 31/03/2008. There is no illegality in the service of notice under section 143(2) upon the assessee. The learned counsel for the assessee also did not advance any elaborate arguments on this issue. Therefore, the first fold of grievance raised by the assessee in ground Nos. 1 and 1.1 has no merit, it is rejected."

4.6. After considering all the facts and circumstances of the case, I am of the view that there is no merit in the submission of the assessee and the AO has rightly issued the notice in time and accordingly, the appeal of the assessee on this ground is dismissed and the action of the AO is confirmed."

2. Ld. CIT(A) has decided the issue on merits by holding as under:

"5.2. The assessee was having the membership ticket of erstwhile the Delhi Stock Exchange Ltd (D E) which was later on dissolved and the assessee received the amount of Rs.44,00,000/- for the membership card of the DSE which was not declared by the assessee as income in the income tax return. During the course of assessment proceedings, the AO had found out that the assessee has included the amount of Rs.44.00,000/- in the capital account of the assessee and claimed the amount as exempt on the ground that the DSE was a charitable 4 ITA No.4799/Del/2011

organization and the amount was received as part of the demutualization. The AO was not satisfied with the explanation of the assessee and held that the amount of Rs 44,00,0001- was taxable as a long term capital on the ground of sale of allotted equity shares and trading rights.

5.3. The assessee is in appeal against the order of the AO and it is submitted that the AO is not justified to make the addition as the DSE was charitable organization and the income was exempt U/S 11 of the IT Act, 196 l . The assessee also filed large numbers of papers which are of 19 volumes 0n 19 different occasions and the same are basically the repetition of the one another. The submissions of the assessee are almost illegible as the same are typed in old type-writer machines and also hand written also along with various simultaneous over-writings. The assessee also relied on the case of Stock \ Exchange of Ahmedabad Vs ACIT, 248 ITR 209 (SC) [2001] in support of his claim.

5.4. I have considered the order of the AO, remand report of the AO and the submissions of the assessee and I do not find any merit in the submission of the assessee. The assessee has been representing his own case and also had been very arrogant in his behaviour while was dealing with the staff of this office and at the same time, losing his cool during the course of appellate -proceedings also. While the high age of the assessee is respected but with age comes maturity and wisdom but it was found during the course of appellate proceedings that the assessee has been rough in his behaviour and used to use rough language while attending this office and while interacting with the officers and the staff and sometime using filthy language also. However, the case of the assessee is adjudicated on merits.

5.5. So far as the issue of receipt of Rs 44,00,000/- is concerned, it is apparently a long term capital gain as the money is received for the membership ticket of the DSE. The same view has been held in the assessee own case by the Hon'ble Tribunal in the: Y 1997-98 vide ITA No. 4645/Del/2009 (Bench "E") (Madhusudan Lal Nanda Vs ITO Ward 30 I). New Delhi in which the issue has been dealt in Paras-II to

15. The Hon'ble Tribunal has also relied on the Special Bench 5 ITA No.4799/Del/2011

decision of Chennai In the case of R M Valliappan Vs ACIT. 287 ITR .203 r20061 (ITAT Chennai SB) Vide Para-13 of the order.

5.6. Further, the Hon'ble Special Bench decision of Chennai in the case of R M Valliappan Vs ACIT, 287 ITR 203 [2006] (IT AT Chennai SB) has distinguished the case of Stock Exchange Ahmedabad Vs ACTT. 2-1-8 ITR 209 (SC) [2001] and held in the head-note as under

"that the membership card is a valuable property which entitles the members to deal in transactions on the floor of the stock exchange and without which one cannot transact such business. This right can be disposed of by a member by nomination, though subject to the rules and regulations of the stock exchange and settlement of debts and liabilities of the members of the stock exchange. The judgment of the Supreme Court in Stock Exchange, Ahmedabad v, Asst. CIT [200 I] 248 ITR 209 applies only to cases where the membership has ceased and has vested with the stock exchange authorities. It cannot apply to cases of continuing membership. Accordingly, in the present case, the transfer of membership card by the assessee to A Ltd. was a transfer of a capital asset within the meaning of section 2(14) of the Act and consequently the consideration for the transfer is exigible to capital gains tax (Note) - The membership card of stock exchange was treated as a capital asset, so that any amount in realization on transfer of the membership card would be liable to capital gains tax as held by the Tribunal in R. M. Valliappan v. Asst. CIT [2006] 287 ITR (AT) 203 (Chennai) [SB] following a number of precedents on the subject both under income-tax law and in company cases. The assessee had relied upon the decision of the Supreme Court in Ahmedabad Stock Exchange v. Asst. CIT [2001] 248 [TR 2U9. This was distinguished on the ground that it was rendered in the context of section 281 B of the Income-tax Act providing for provisional attachment of all assets to protect revenue in the case of membership which had ceased. This decision cannot, therefore, apply 10 continuing membership. The definition or capital asset under section 2( 14) is wide. The fact that a member has got right of nomination cannot be overlooked. It is only where a member has defaulted in payments that such membership gets forfeited. Liability cannot, therefore, be avoided on the amount received by a member for surrender of his membership in favour of another."

6 ITA No.4799/Del/2011 5.7. After considering all the facts and circumstances of the case, 1 am of the view that there is no merit in the submission of the assessee and the AO has rightly taxed the amount of Rs 44,00,000/- as long term capital gain and accordingly, the addition made by the AO is confirmed."

3. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The case of the assessee was earlier heard on 20.06.2013, however, due to certain clarifications required by the Members, the case was released for rehearing and on 18.11.2014 the Bench had passed order in the order sheet by which it required certain information from A.O. in the form of a remand report. At the time of hearing before us, the assessee appeared in person and argued that the amount received by him was not taxable and also argued that notice was not served upon him within the prescribed period of time and, therefore, it was not liable to pay any tax.

4. Ld. D.R. on the other hand submitted that the amount was received from Delhi Stock Exchange against membership card and, therefore, was taxable in the hands of assessee. Regarding service of notice, Ld. D.R. invited our attention to the findings of Ld. CIT(A) and submitted that the notice was issued well within time period of six months from the end of financial year in which the return was filed. Regarding remand report, Ld. D.R. submitted that the remand report as sought by the Bench vide order dated 18.11.2014, is likely to be received today itself and he requested that he be allowed to file the same as and when it is received.

5. We have head rival parties and have gone through the material placed on record. Ld. D.R. field a copy of remand report dated 19.03.2015 on 23.03.2015. In the remand report, the A.O. has replied to the questions as 7 ITA No.4799/Del/2011

raised by the Bench vide order sheet dated 18.11.2014. The remand report as sent by A.O. is reproduced below:

"

Office of the Income Tax Officer, Ward 48 (5), Room No.217, Drum Shape Building, New Delhi.

Ph.No.011~3370124

IF. No.ITO/ Ward 48(5)/2014-15/ 39, Dated: 18/03/2015

To The Sr. Departmental Representative, E-Bench, ITAT, Lok Nayak Bhawan, Khan Market, New Delhi.

(Through Jt. CIT, Range-48, New Delhi.) Sir, Sub.: Remand Report in the case of Sh. Madhusudan Lal Nanda, Prop. M/s Wazir Chand Nanda & Co. in appeal No. 4799/0/2011 for A.Y. 2008-09 - reg.

Kindly refer to your letter F.No. Sr. D.R./E-8ench/ITAT/2014-15/89 dated 05/02/2015 on the above subject.

As desired by your goodself, remand report on the following points is as under:

i) How cash was given by DSE to assessee?

In this regard it is submitted that the above amount was received by the assessee by two cheques of RS.20 lac and 24 lac respectively.

ii) Whether cash was given to other members also on demutualization of DSE? On perusal of the records, no such information as to whether cash was given to other members also on demutualization of DSE is available.

iii) A.O. to examine the applicability of section 56(2)(vi)(g) after bringing relevant aspects on record?

In this regard it is stated that provisions of Section 56(2) (vi)(g) was not applicable in this case because as per provision of section 56(2)(vi)(g) where any sum of money the aggregate value of which exceed 50,0001- is received without consideration, by an individual or a HUF in any previous year from a person or persons on or after 1st day of April, 2006, (but before 8 ITA No.4799/Del/2011

the 1st day of October, 2009), the whole of the aggregate value of such sum from any trust or institution registered u/s 12AA.shall be exempt. In this case, the assessee has claimed DSE as a charitable organization and the income was treated as exempt u/s 11 of the I.T. Act, 1961. The submission of the assessee that DSE is a charitable Associates is incorrect because as per definition in clause 2 of DSE Association Ltd. Demutualization DSE Scheme 2005.

"The Delhi Stock Exchange Associates Ltd. means the company incorporated on June 25th 1947 as a corporate body with limited liability for the purpose of promoting, regulating or controlling the business of buying, selling or dealing in securities as a recognized stock exchange."

Hence the consideration received from the transfer of shares allotted to members is liable for capital gain tax. The contention of the assessee that DSE is a charitable organization u/s 11 (1A) of the I.T. Act, 1961 is not supported by any evidence, as per information available on records.

iv) What has happened in the case of other membership ticket holders/ In this regard it is submitted that no such information is available on record in respect of other membership ticket holders.

v) In case the provisions of section 56(2)(vi)(g) are not applicable, whether conditions of section 47(xiii a) have been fulfilled or not? Conditions of section 47(xiii)(xiiia) have been fulfilled. The sale of the allotted equity share and trading right/clearing right is taxable under the head capital gains.

vi) The A.O. to examine the applicability of section 55(2)(ab) read with section 2(42)(A)(h) and (ha). The provisions of section 5.5(2)(ab)read with section 2(42)(A)(h) and (ha) are applicable to the assessee's case.

Yours faithfully, Sd./-

(USHA RAWAT) Income Tax Officer Ward-48(5), New Delhi"

6. After going through the remand report reproduced above and grounds of appeal, and other relevant material from the record. While dictating the order, it was felt that a further remand report regarding further clarifications be sought from A.O., therefore, an order was passed vide order sheet entry 9 ITA No.4799/Del/2011

dated 01.04.2015 and a copy of which was handed over o Ld. D.R. with a direction that remand report be submitted by 20th April, 2015 but till the passing of this order, remand report has not been received. Therefore, this appeal has been disposed off on the basis of material available on record. We find that the issue before us is as to whether the notice u/s 143(2) was served upon the assessee within the prescribed period of time. Ld. CIT(A) has dismissed this ground of appeal holding that the notice was issued within the prescribed period of time. He has not mentioned about service of the said notice, therefore, we deem it appropriate to set aside this ground or appeal to the office of A.O. who on the basis of record will find out as to whether the service of notice u/s 143(2) was within the prescribed period of time and accordingly will decide this legal issue as per law. 6.1 As regards the issue of taxability of receipt of Rs.44 lacs from Delhi Stock Exchange, on account of demutualization DSE scheme 2005, we find that Ld. CIT(A) has dismissed this ground of appeal relying upon the earlier order of the tribunal in the case of assessee itself in I.T.A. No. 4645/Del/2009 for Assessment Year 1997-98 which was pronounced on 14.05.2010. However, while going through facts of that case in Assessment Year 1997-98 we find that during that year, the assessee had received an amount of Rs.25 lacs on account of sale of membership card and, therefore, the Tribunal had held that membership card to be capital asset and therefore had decided the issue holding that the assessee was liable to pay capital gain tax. However, in the present case, the assessee had not sold the membership card but had received the amount on account of demutualization of stock exchange and, therefore the facts of the present case are distinguishable from the facts of the case in I.T.A. No. 4645/Del/2009 for the Assessment Year 10 ITA No.4799/Del/2011

1997-98. Before Ld. CIT(A), the assessee had relied upon the case law of stock exchange of Ahmedabad Vs ACIT 248/2009 (S.C.) which the Ld. CIT(A) had rejected and has followed the tribunal order in Assessment Year 1997-98 in the case of assessee itself. Ld. CIT(A) has held that the judgement of Hon'ble Supreme Court in the case of Stock Exchange Ahmedabad Vs ACIT apply in the cases where the membership had seized and was surrendered with the stock exchange authorities. We have already held that facts of the present case are distinguishable from the facts of the case in 1997-98. Therefore in view of above, we deem it appropriate to set aside this issue also to the office of A.O. who on the basis of law contained in various provisions of the Act read along with related decision of Hon'ble Supreme Court as relied upon by assessee will arrive at the appropriate decision. The A.O. should also enquire from Delhi Stock Exchange or from other members of stock exchange who also must have received similar amounts regarding taxability of such amounts in their cases. The A.O. should also examine the claim of assessee that Delhi Stock Exchange was a charitable organization. Needless to say that assessee will be provided sufficient opportunity of being heard.

7. In view of above, appeal filed by assessee is allowed for statistical purposes.

8. Order pronounced in the open court on 08th May, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER Date: 08.05. 2015 Sp 11 ITA No.4799/Del/2011

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 24/3 2 Draft placed before author 25,26/3,07/5, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member Approved Draft comes to the Sr. 8/5 5 Sr. PS/PS PS/PS 6 Kept for pronouncement 8/5 Sr. PS/PS 7 File sent to Bench Clerk 8/5 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order