Membership fee paid to stock exchange for acquiring right in membership is capital expenditure: ITAT

Case details: Unifi Capital (P.) Ltd. v. ITO - [2021] 129 taxmann.com 115 (Chennai - Trib.)

Judiciary and Counsel Details

• • V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member.  
  • Smt. Nithya Sankaran, CA for the Appellant. 
  • Suresh Periasamy, JCIT for the Respondent.

Facts of the Case

Assessee-company was engaged in the business of stock broking, portfolio management, corporate advisory services, custodial services, and dealing in shares, securities, derivatives, etc. During assessment proceedings, Assessing Officer (AO) made an addition towards disallowance of membership fee paid to MCX Exchange Limited.

AO disallowed membership fee on the ground that it was in the nature of capital expenditure and it gives enduring benefit to the assessee. However, he allowed depreciation in terms of section 32(1)(ii) being a business right, falls within the meaning of intangible asset by virtue of Explanation 3 to section 32(1)(ii). The CIT(A) confirmed the action of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

High Court Held

The Chennai Tribunal held that the membership fee paid to any stock exchange including MCX Exchange Ltd. is for acquiring a right in membership of exchanges for trading in shares and securities. Further such membership rights in any stock exchange including MCX Exchange Ltd., is a transferable right. Therefore, right is a right in the nature of any commercial right of similar nature which falls under section 32(1)(ii). Once the amount paid was in the nature of an intangible asset, then the same cannot be treated as revenue expenditure.

Therefore, there was no error in the findings recorded by AO and confirmed by the CIT(A) in disallowance of deduction claimed towards membership fee paid to MCX Exchange Ltd., as revenue expenditure.

Case Review

• • Asstt. CIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415/165 ITD 27 (Delhi – Trib.) (SB) (para 4.5) followed.
  • Techno Shares and Stocks v. CIT [2010] 193 Taxman 248/327 ITR 323 (SC) (para 5.4) followed.
  • S. Venkatasubramaniam v. CIT [2007] 165 Taxman 163/291 ITR 193 (Mad.) (para 5.4) distinguished.

List of Cases Referred to

• • Asstt. CIT v. Vireet Investment (P.) Ltd.  [2017] 82 taxmann.com 415/165 ITD 27 (Delhi – Trib.) (SB) (para 4.5)
  • S. Venkatasubramaniam v. CIT [2007] 165 Taxman 163/291 ITR 193 (Mad.) (para 5.2)
  • Abhipra Capital Ltd. v. Dy. CIT [2018] 91 taxmann.com 101/254 Taxman 19/402 ITR 1 (Delhi) (para 5.3)
  • Techno Shares and Stocks v. CIT [2010] 193 Taxman 248/327 ITR 323 (SC) (para 5.4).