TMI Blog2012 (8) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned by this court with such internal possible dispute between the assessee and the said financial institution. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration as there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance - As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer - in favour of assessee. - TAX APPEAL NO. 260 OF 2010 - - - Dated:- 7-8-2012 - AKIL KURESHI AND HARSHA DEVANI, JJ. JUDGMENT Akil Kureshi, J. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ('Tribunal' for short) dated 15.9.99. While admitting the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustify the claim of long term capital loss on sale of such shares. 4. In response to such queries, the assessee contended before the Assessing Officer that law does not require that the transfer of share can happen only upon delivery of shares. The shares form a capital asset and for the purpose of computing the capital gain and loss, what is to be seen is the transfer as defined in section 2(47) of the Income Tax Act, 1961 ('the Act' for short) which includes extinction of any rights in the capital asset. The Assessing Officer, however, was not convinced by such explanation. He was of the opinion that transfer of shares would be complete only when the share certificates along with duly executed transfer forms are delivered. In the present case, this was not done. Share certificates were lying with IDBI who had lien over such shares. The shares therefore could not have been validly transferred. He was of the opinion that full transaction was intended for creating loss to the assessee so that its capital gains resulting from sale of shares of Rustom Spinners can be set off. 5. The assessee carried the matter in appeal. The Commissioner (Appeals), by his order dated 23.3.98, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the physical possession of the shares was with IDBI, it would not automatically follow that the person who is entitled to legal possession, that is, the assessee would be deprived of his right to deal with such goods until he secures the cooperation of the third party. The Tribunal was of the opinion that the assessee had the right to transfer the shares because legal title vested in the assessee. 8. Before us, learned counsel Shri M.R.Bhatt for the Revenue vehemently contended that this was a clear case of colourable device created for tax avoidance. He submitted that the assessee and the purchaser company were part of the same group. In fact, the assessee, the purchaser Company and Rustom Mills and Industries Ltd. whose shares were under consideration had directors from the same family. He submitted that the shares in question were subjected to severe restrictions. They were pledged with IDBI Bank. Original share certificates with transfer forms duly signed by the assessee were in possession of the Bank. The assessee had agreed not to transfer the forms and given undertaking to this effect to the Bank. Such shares, therefore, had no real market value. The very fact that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 with the purchaser company under which the shares of Rustom Mills and Industries Ltd. were transferred. He further pointed out that the assessee had also given irrevocable power of attorney to the purchaser company on 30th March 1993 to deal in such shares as the Company desired. He further pointed out that the entire sale consideration was also received by the assessee company. He, therefore, submitted that in view of such facts, the provisions of section 2(47) of the Act would apply and in relation to capital asset in question, transfer at least for the purpose of the Income Tax Act would be complete. 13. Counsel submitted that the ratio of the decision of the Apex court in the case of McDowell Co. Ltd. stands substantially diluted by virtue of subsequent decision in the case of Azadi Bachao Andolan ( supra ). 13.1 Counsel also relied on a decision in the case of Sunil Siddharthbhai v. C.I.T. , 156 ITR 509 wherein the Apex Court observed as under : "11. In its general sense, the expression "transfer of property" connotes the passing of rights in the, property from one person to another. In one case there may be a passing of the entire bundle of rights from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset; or ( ii ) the extinguishment of any rights therein; or ( iii ) the compulsory acquisition thereof under any law; or ( iv ) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or ( v ) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1982 (4 of 1882); or ( vi ) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation - for the purpose of sub-clauses (v) and (vi) "immovable property" shall have the same meaning as in clause (d) of section 269UA." It may be that by virtue of pledging of shares with IDBI, having handed over the original share certificates to such financial institution along with the duly signed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same previous year. 17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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