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Transfer of exchange card exigible to capital gains tax

AIT News Network

CHENNAI. Special Bench of ITAT vide a ruling dated 14^th September 2006 AIT-2006-197-ITAT has ruled that the transfer of membership card by the assessee is a transfer of capital asset within the meaning of section 2(14) of the Income Tax Act and consequently the consideration of the said transfer is exigible to capital gains tax.

President, ITAT, constituted a Special bench in this case to consider the following issue:

“Whether membership card of madras Stock Exchange could be construed to be a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961; exconsequenti, consideration of the alleged transfer of membership card is exigible to capital gains tax.”

The assessee individual had sold the membership card of Madras Stock Exchange to M/s. ASERA Securities (P) Ltd. for a total consideration of Rs.1,00,00,000/- for which shares were allotted. The AO was of the view that the membership card of MSE constituted a capital asset and hence the gains arising on the transfer of such card constituted capital gains. However, the assessee was of the view that it was not an asset but merely a personal right, a personal permission, which was not capable of being transferred. The AO held it to be a capital asset and accordingly added the entire sale proceeds as capital gain to the total income of the assessee since the cost of acquisition was nil.

T H E R U L I N G: The 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 rules and regulations of Stock Exchange and settlement of debts and liabilities of members of the Stock Exchange. The argument of the learned counsel was that exercising the right of nomination is not equivalent to transferring an asset. This argument has been met with by the Ahmedabad Bench of the Tribunal in the case of V.G.Gajjar in para 18 of its order . We are in full agreement with the view expressed therein. In our considered opinion, the judgment of the Supreme Court in the case of stock exchange, Ahmedabad has ceased and has vested with the stock exchange authorities. The said judgment, in our humble opinion, cannot apply to the cases of continuing membership. Accordingly, in the present case, we hold that that the transfer of membership card by the assessee to ASERA Securities Pvt. Ltd. is a transfer of capital asset within the meaning of section 2(14) of the Act and consequently the consideration the said transfer is exigible to capital gains tax.

( Click here for full text of ruling AIT-2006-197-ITAT )