Facts
Upon the death of its member, Rajesh Shah on 07.02.1994, the appellant resolved to dispose of his membership rights in the stockexchange by inviting offers with a minimum floor price of Rs. Twenty Five Lakhs. A provisional attachment order, dated 15.02.1994, under Section 281B of the Income-tax Act, 1961 (IT Act, 1961) was issued by the ACIT in respect of Stock Exchange Card in the name of Rajesh Shah and margin money and security deposits kept by him with the Stock Exchange. The stand of Stock Exchange is that under its rules, bye-laws and regulations on the death or default of a member, member’s right of nomination ceases and it vests inthe Exchange and belongs absolutely to the exchange and the Governing Board is entitled to deal with or dispose of such right of membership as it may think fit. On 5.12.1994, the Governing Board of the Stock Exchange passed resolution disposing of membership right of deceased Rajesh Shah vested in the Stock Exchange in favour of UTI Security Ltd. for Rs. Twenty Seven Lakhs. A garnishee notice dated 14.06.1995, under Section 226(3) of the IT Act, 1961, in the sum of Rs. Twelve Lakhs Twenty Four Thousand Eight Hundred and Eighty Seven was also issued to the executive director, Stock Exchange, by the ACIT. In reply thereto, the Stock Exchange reiterated the stand that no amount was due from it to Rajesh Shah or his legal heirs and the Exchange does not hold any money for and on behalf of Rajesh Shah or his legal heirs. The plea of the Stock Exchange was not acceptable to the respondent. Thereafter, the appellant- Stock Exchange filed a writ petition in the High Court challenging the orders of provisional attachment and the garnishee notice. The writ petition has been dismissed by the High Court which judgment is under challenged in this appeal.
Issue
Whether the Stock Exchange Card in the name of Rajesh Shah was the property belonging to the assessee and after his demise devolved upon his legal representatives and heirs or it was a personal permission in favour of the deceased and right of nomination of the legal representative and heirs after his death has ceased and the said right has vested in the Exchange?
View
On examination of various rules of the Stock Exchange relating to membership and payment of outstanding dues of an ex-member,it is clear that right of membership is merely a personal privilege granted to a member, it is non- transferable and incapable ofalienation by the member or his legal representatives and heirs except to the limited extent as provided in the rules on fulfilment of conditions provided therein. The nomination wherever provided for is not automatic and hedged by rules. On its vesting the right of nomination belongs to the Stock Exchange absolutely. The consideration received by the Stock Exchange on exercise of the right of nomination vesting in it, is to be applied in the manner provided in Rule 16.
Held
Membership of the Stock Exchange is a personal permission from the Exchange to exercise the rights and privileges attached thereto. It is not a private asset. That was a case of a defaulter but in principle it would make no difference as under rules both in the case of the death or default of a member, his right of nomination ceases and vests in the Stock Exchange. The heirs and legal representatives had informed the Stock Exchange that they were unable to meet the liabilities of the deceased and did not pay or satisfy the dues and claims as required under Rule15 of. Under these circumstances the Governing Board exercised the right of nomination in respect of membership of Rajesh Shah which had vested in the Stock Exchange. In the present case Rule 16 was properly applied by the Stock Exchange. The membership right in question was not the property of the assessee and, therefore, it could not be attached under Section 281B of the IT Act. No amount on account of Rajesh Shah was due from or held by the Stock Exchange and, therefore, Section 226(3) of the IT Act could not be invoked. We are unable to sustain the judgment under appeal holding that in substance the right of membership or membership card was a right of property which could be attached under Section 281B of the IT Act. The order of provisional attachment dated 14/02/1994, and garnishee notice dated 14.06.1995, issued under Section 226(3) are quashed. (Vinay Bubna v. State Exchange, Mumbai & Ors. (1999) 155 CTR 519/97 Comp Cas 874/6 SCC 215 (SC) relied on) (CA Nos. 1727 (NT) of 1998 and 7571 of 1999 dt. 2-3-2001)
Editorial: Decision of the Gujarat High Court in Stock Exchange, Ahmedabad
- ACIT [1998] 231 ITR 906 (Guj) (HC) reversed. The Apex Court relied on this decision and the decision of Vinay Bubna(Supra) in the case of Techno Shares
& Stocks Ltd. v. CIT (2010) 327 ITR 323 (SC) to hold that the Membership Card ceases to be an asset only when the member commits a default in which event the card vests in the Exchange free from all encumbrances.
“Man falls from the pursuit of the ideal of plain living and high thinking the moment he wants to multiply his daily wants.”
– Mahatma Gandhi