IMPORTANT POINT
The membership right in question was not the property of the assessee as it had vested in the Stock Exchange, Ahmedabad. Therefore, it could not be attached under Section 281-B of Income Tax, 1961. High Court was wrong in upholding the attachment.

Headnote:Income Tax Act, 1961-Section 281-B-Provisional attachment for the purpose of protecting the interests of the revenue-Rajesh Shah, a member of Stock Exchange, Ahmedabad-A defaulter-Order of provisional attachment and garnishee order issued regarding property of Rajesh-What is the nature of the rights of the deceased assessee Rajesh or his LR s in the Stock Exchange Card-High Court holding there was a property element in it and the same can be attached-Appeal to Supreme Court-Whether High Court was right? (No)-Appeal allowed.
       Held : The Stock Exchange Rules, Bye-laws and Regulations have been approved by the Government of India under the Securities Contracts (Regulations) Act, 1956. There is no challenge to these Rules. The question whether right of membership confers upon the member any right of property is, therefore, to be examined within the framework of the Rules, Bye-laws and Regulations of Exchange. On a plain and combined reading of the Rules, it is clear that right of membership is merely a personal privilege granted to a member, it is non-transferable and incapable of alienation 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 also not automatic. It is hedged by Rules. On right of nomination vesting in the Stock Exchange under the Rules, that right 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. (Para 9)
       The heirs and legal representatives of Rajesh Shah, as already noticed, had informed the Stock Exchange that they were unable to meet the liabilities of the deceased and the appropriate decision in that behalf may be taken by the Stock Exchange. It is evident that they did not exercise the right of nomination under Rule 11 read with Appendix C. They did not pay or satisfy the dues and claims as required under Rule 15. 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. (Para 12)
       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 Income Tax Act. No amount on account of Rajesh Shah was due from or held by the Stock Exchange and, therefore, Section 226(3) 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 Income Tax Act. For the aforesaid reasons, we allow the appeal, set aside the impugned judgment and quash the order of provisional attachment dated 14th February, 1994 and garnishee notice dated 14th June, 1995 issued under Section 226(3) of the Income Tax Act, 1961. In view of the above, Civil Appeal No. 7571 of 1999 is dismissed. In the facts and circumstances of the case, the parties are left to bear their own costs. (Paras 13, 14, and 15)

JUDGMENT

Y.K. Sabharwal, J.-The Stock Exchange, Ahmedabad, the appellant, admitted Rajesh Shah as its member on 19th February, 1988. He died on 7th February, 1994. On 12th February, 1994, heirs and legal representatives of Rajesh Shah wrote to the Stock Exchange that they were unable to meet the liabilities of the deceased. The Governing Board of the Stock Exchange is said to have passed a resolution dated 12th February, 1994 declaring Rajesh Shah, the deceased member, as a deemed defaulter and further resolving that his membership rights vested in Stock Exchange be disposed of by inviting offers within a minimum floor price of Rs.25 lakhs.

2. A provisional attachment order dated 15th February, 1994 under Section 281B of the Income Tax Act, 1961 was issued by the Assistant Commissioner of Income Tax (Respondent) 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 Stock Exchange on 16th February, 1994 issued advertisement inviting claims from the member creditors and constituents of Rajesh Shah to lodge their claims with it within 30 days of the advertisement and also invited offers for purchase of membership with a minimum floor price of Rs.25 lakhs. In respect of the order of provisional attachment, 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 in the exchange and belongs absolutely to the exchange free of all rights, claims or interests of such member or any person claiming through such member and the Governing Board is entitled to deal with or dispose of such right of membership as it may think fit. On 5th December, 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. 27 lakhs. A garnishee notice dated 14th June, 1995 under Section 226(3) of the Income Tax Act, 1961 in the sum of Rs.12,24,887 was also issued to the Executive Director, Stock Exchange by the respondent. 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.

3. Under the aforesaid circumstances, 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 challenge in this appeal.

4. Under Section 281B, provisional attachment for the purpose of protecting the interests of the revenue can be ordered in respect of any property belonging to the assessee. The legal representatives of the deceased shall, for the purposes of the Income Tax Act, be deemed to be an assessee [Section 159(3)]. The question for determination is as to the nature of the rights of the deceased or his legal representatives in the Stock Exchange Card. On the facts of the case, whether the said card 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, is the point in issue. The High Court has held that there was a property element in the right of membership of Stock Exchange and, therefore, the same could be attached and, thus, the writ petition was dismissed.

5. In order to decide the point, it is necessary to examine the Rules relating to the membership of the Stock Exchange. The appellant-Stock Exchange is a recognised Stock Exchange under Securities Contracts (Regulations) Act, 19

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2001 Supreme(SC) 421

IMPORTANT POINTThe membership right in question was not the property of the assessee as it had vested in the Stock Exchange, Ahmedabad. Therefore, it could not be attached under Section 281-B of Income Tax, 1961. High Court was wrong in upholding the attachment.

Cases Referred (2)

IMPORTANT POINT
The membership right in question was not the property of the assessee as it had vested in the Stock Exchange, Ahmedabad. Therefore, it could not be attached under Section 281-B of Income Tax, 1961. High Court was wrong in upholding the attachment.