Membership in Stock Exchange is not a ‘Capital Asset’ for the purpose of Income Tax Act: Rajasthan HC [Read Order]


In the case, Shri Ashok Gupta v. CIT, the division bench of the Rajasthan High Court held that the membership in Stock Exchange cannot be treated as a capital asset within the meaning of section 2(14) of the Income Tax Act, 1961.

While allowing the appeal, the bench comprising of Justice K.S. Jhaveri and Justice Dinesh Mehta clarified that admission fees paid by the appellant cannot be considered as cost of acquisition within the meaning of section 55 of the Act for the purpose of computingthe capital gain under section 45 of the Income Tax Act.

In the instant case, the appellant-assessee- a member of Jaipur Stock Exchange, transferred his membership ticket to another person for a consideration of Rs. 9,51,000/-. The appellant claims that the same cannot be deemed as a capital asset since he does not paid anything for obtaining the membership.

The bench noticed that the Apex Court in Stock Exchange, Ahmedabad Vs. Assistant Commissioner of Income Tax held that the right of membership of the stock exchange was not a private asset. It was merely a personal privilege granted to a member.

The bench further noted the Apex Court decision in Techno Shares and Stocks Ltd. Vs. Commissioner of Income Tax, wherein the Court held that the right of membership was a “business or commercial right” and could be said to be owned by the assessee and used for business purposes in terms of section 32(1)(ii) of the Income Tax Act.

Allowing the appeal in the light of the above decisions, the bench held that the membership of Stock Exchange is a personal privilege or a license and not a Capital Asset within the meaning of sec.2(14) of the Income Tax Act and the admission fee paid by the assessee cannot be treated to be cost of acquisition.

Read the full text of the order below.