1983 (7) TMI 15 - HC - Income Tax

Summary

Issues involved:
The issues involved in the judgment are:
1. Validity of transfer of shares pertaining to 'sick mills' to a finance company and entitlement to loss on such transfer.
2. Sustainability in law of the transfer of shares as movable property without entry in the company's share registers.

Issue 1: Validity of transfer of shares:
The assessee sold shares of a sick mill to a finance company at a nominal rate, which was considered as a capital loss. The Income Tax Officer (ITO) deemed the sale as a sham transaction due to the low value of the shares and lack of entry in the share certificate register. Consequently, the ITO rejected the claim for adjustment of capital loss against capital gains. On appeal, the Appellate Authority Commissioner (AAC) agreed with the ITO that without entries in the share registers, the sales cannot be considered complete. However, the Tribunal, relying on a Supreme Court decision, held that ownership of shares had transferred to the finance company, even without registration in the company's books, allowing the assessee to claim the capital loss.

Issue 2: Sustainability of transfer without entry in share registers:
The Revenue contended that a transfer of shares is incomplete until registered in the company's share registers, citing legal precedents. The Revenue argued that the transferee only has an equitable right until registration, and cannot become the legal owner without entry in the register. However, the Tribunal's decision was supported by a Supreme Court ruling which emphasized that if all formalities between the transferor and transferee are completed, the transfer is considered valid even without registration in the company's books. In the present case, the transfer forms were signed and handed over to the transferee, who sought registration, but the company's registers were not immediately available. The court upheld the Tribunal's decision based on the Supreme Court precedent, dismissing the Revenue's petition.

The judgment clarifies that a transfer of shares can be valid even without immediate registration in the company's books, as long as all formalities between the transferor and transferee are completed. The decision emphasizes the importance of ownership transfer based on legal principles rather than mere entry in the share registers.