INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Payment to stock exchange towards admission fees - Membership right -

Assessee-company was engaged in stock exchange operations. It made payment to a stock exchange towards admission fees and processing charges and claimed it as deduction. However, the payment towards admission fee was disallowed as capital expenditure by AO. Before CIT(A), the assessee contended that the expenditure incurred as admission fees was to be allowed as revenue expenditure. Alternatively, it was contended that if said expenditure was to be treated as capital expenditure, then depreciation on the same was to be granted. CIT(A) treated the said expenditure as capital expenditure; however, he allowed the alternative claim of the assessee and granted depreciation on it. Aggrieved, assessee filed an appeal before Tribunal. It was contended that the payment was made to carry on the trading activities, thus, the same was revenue in nature. Held: Rights conferred by stock exchange on its members are in the nature of rights in personam, which are capable of being transferred and transmitted, therefore, they constitute property and thereby a 'capital asset' within the meaning of section 2(14). Further, membership of a stock exchange not only has an element of permanency but also has the element of being a source of income and, therefore, it must be held to be in the nature of capital asset. Further, membership in stock exchange by the assessee creates intangible right in its favour, hence, depreciation is to be granted towards such admission fees. Therefore, CIT (A) rightly treated the admission fee towards membership of the stock exchange as capital asset and allowed alternative plea of the assessee that depreciation was to be granted on the same.

REFERRED : Alembic Chemical Work Co. Ltd. v. CIT (1989) 177 ITR 377 (SC) : 1989 TaxPub(DT) 1096 (SC), Abhipra Capital Ltd. v. Dy. CIT (Investigation) (2018) 402 ITR 1 (Del) : 2018 TaxPub(DT) 965 (Del-HC) and Techno Shares and Stock Ltd. (2010) 327 ITR 323 (SC) : 2010 TaxPub(DT) 2242 (SC).

FAVOUR : Against the assessee/Partly in favour of assessee.

A.Y. : 2013-14

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