LexTHESTOCKEXCHANGE,AHMEDABAD versus ASSTT. COMMISSIONER OF INCOME TAX, AHMEDABAD
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THESTOCKEXCHANGE,AHMEDABAD A -1r v. ASSTT. COMMISSIONER OF INCOME TAX, AHMEDABAD MARCH2, 2001 [S.P. BHARUCHA, N. SANTOSH HEGDE AND Y.K. SABHARWAL, JJ.] B Stock Exchange Rules, 1957 (Ahmedabad)-Rules 5, 6, 7, 9, 11, 15, 16, 50, 51, 53, 54, Appendix C: Stock Exchange-Membership-Nature of-Held, right of membership is c merely a personal privilege granted to a member-Membership non-transfer- able and incapable of alienation by the member or his legal representatives and heirs except to the limited extent as provided in rules on fulfilment of conditions provided therein-Death or default of a member-Consequence of-Held, the member's right of nomination ceases and it vests in the Exchange absolutely free of all rights, claims or interests of such member or any person claiming D through such member. Death of a member-Provisional attachment order by Income Tax De- partment in respect of Stock Exchange Card in the name of deceased and margin money and security deposits kept by him with the Stock Exchange-A E garnishee notice for an amount due also issued to the Stock Exchange- Legality of-Heirs and legal representatives of the deceased member having already informed the Stock Exchange that they were unable to meet his liabili- ties-Membership right having vested in Stock Exchange, it was disposed of in exercise of the right of nomination-Held, the membership right in question was not the property of the assessee and therefore could not be attached- F Fu11her, no garnishee notice could be issued as no amount on account of the deceased was due from or held by the Stock Exchange-Income Tax Act, 1961-Sections 281B, 226(3)-Securities Contracts (Regulation) Act, 1956. Deceased was a member of a Stock Exchange. Ou his death, his heirs G and legal representatives informed the Stock Exchange that they were unable to meet the liabilities of the deceased. Pursuant thereto, the Gov- erning Board of the Stock Exchange passed a resolution declaring the -~ deceased as a deemed defaulter. It was further resolved that his member· ship rights vested in Stock Exchange he disposed of by inviting offers. The same were disposed of in due course. H 255 A B c D 256 SUPREME COURT REPORTS [2001] 2 S.C.R. In the meanwhile, Assistant Commissioner of Income Tax issued a provisional attachment order under Section 281B of the Income Tax Act, 1961 in respect of Stock Exchange Card in the name of the deceased and margin money and security deposit• kept by him with the Stock Exchange. Later on, a garnishee notice under Section 226(3) of the Income Tax Act, 1961 was also issued to the Stock Exchange. The aforesaid orders of provisional attachment and the garnishee notice were challenged unsuccessfully by the Stock Exchange in a writ petition before High Court. Hence the present appeal. Allowing the appeal, the Court HELD : 1.1. The membership right in question was not the property of the assessee and, therefore, it could not he attached under Section 281B of the Income Tax Act. No amount on account of the deceased was due from or held by the Stock Exchange and, therefore, Section 226(3) could notbeinvoked.[262-C-D] 1.2. On a plain and combined reading of the Stock Exchange (Regu- lation) 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 E the limited extent as provided in the rules on fulfilment of the conditions provided therein. The nomination wherever provided for is also not auto- matic. It is hedged by Rules. On right of nomination vesting in the Stock Exchange under the Rules, that right belongs to the Stock Exchange abso- lutely. [261-B-D] F Official Assignee of Bombay v. K.R. P. Shroff& Ors., AIR (1932) PC G H 186 and Vinay Bubna v. Stock Exchange, Mumbai & Ors., [1999] 6 SCC 215, referred to. 1.3, Rule 9 of the Securities Contracts" (Regulations) Act, 1956 stipu- lates that both in case of death or default of a member, his right of nomination shall cease and vest in ~he Exchange. The heirs and legal representatives of the deceased member had informed the Stock Exchange that they were unable to meet the liabilities of the deceased and the appro- priate decision in that behalf may be taken by the Stock Exchange. Under these circumstances the Governing Board exercised the right of nomina- tion in respect of membership of t
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