TMI Blog2005 (6) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of capital loss." 2. During the assessment year, assessee had filed a return declaring a loss of Rs. 21,65,283. Assessee has sold certain assets on which capital gain arose, but assessee deducted a sum of Rs. 34,65,048 claimed to be capital loss on account of writing off of debit balances of ex-partners amounting to Rs. 34,65,148. The Assessing Officer was of the view that debit balances written off on account of ex-partners cannot be treated as capital loss within the meaning of section 45, because no transfer of assets was involved, because such partners had already retired on 31st March, 1991 and 31st March, 1993. He further observed that amount not collected from the debtors cannot be considered as capital loss under section 45 of the Income-tax Act since there is no capital asset transferred in this regard and also no consideration was received towards such transfer. 3. The learned CIT(A) deleted this addition by holding in view of the decision of the Hon'ble Allahabad High Court in case of Girdhari Lal Gian Chand v. CIT [1971] 79 ITR 561 where it was held that debts due from retiring partners when written off, then such loss cannot be treated as revenue loss, which me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be to deduct liabilities from the amount realized on sale of assets. According to him, in view of this situation, there was no need to ascertain whether there is any transfer on the retirement of partners in the firm in respect of amounts payable by the retiring partners, which in fact is only a loss suffered by the firm on account of the amount foregone by the firm and such loss was really loss. He also relied on CIT v. H.R. Aslot [1978] 115 ITR 255 (Bom.), N.A. Mody v. CIT [1986] 162 ITR 420 (Born.), CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.), Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 (SC) and CIT v. A.N. Naik Associates [2004] 265 ITR 346 (Born.). 6. We have considered the rival submissions carefully and have gone through the relevant material on record as well as decisions relied on by the parties. The undisputed facts remain that there were debit balances in the hands of erstwhile partners, who retired in the earlier years and the details of such partners are as under: Ex-partners name Amount (Rs.) Sri O.D. Ramaiah Pillai 6,36,220.34 31-3-1993 Sri R. Selvan 6,36,220.34 31-3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. In the case before us, during the relevant year, no transfer of asset took place because debit balances were simply belonging to the erstwhile partners who had retired in the earlier years were written off without consideration or transfer of any asset. These debit balances might have been on account of transfer, etc. of assets belonging to their share, but then such transfer ought to have taken place in the year 1991 and/or 1993, i.e., in the year of their retirement and it cannot be said that any assets got transferred in this year. In fact all the decisions relied on by the learned Authorised Representative are not of any help. E.g., in case of Girdhari Lal Gian Chand, the issue was whether debts due from retiring partners were in the nature of capital loss or not? It was held that they were in the capital nature. But the issue was not whether same were deductible against the capital gain and thus this decision is of no help to the assessee. Similarly, in the case of Tribuvandas G. Patel, it was held by the Hon'ble Bombay High Court that amounts paid to partners on dissolution of the firm were liable to capital gain tax in the hands of partner. This was so because in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. The assessee owned the shares during the assessment year though its value might have been reduced. Capital gain or a capital loss is a gain realized or a loss incurred and the loss or gain must be in the disposal of an asset in anyone of the modes above referred to. There was no disposal in this case. There was no relinquishment or parting with the right in the shares. As a shareholder when the company went into liquidation the assessee became entitled to receive any surplus that may remain after paying off the liabilities. He also has got certain other rights regarding the management of the company and also taking part in the liquidation proceedings. These rights still continue to vest in the assessee. Because the liquidator found that the assets would not be sufficient even to payoff the secured creditors the assessee does not cease to be a shareholder or a contributory nor any of his rights as a shareholder or contributory are affected, though the share value might have been reduced to nil." 12. Thus, it becomes clear that unless and until there is a transfer of an asset as envisaged under section 45 read with section 2(47), the amount of capital gain or capital los ..... X X X X Extracts X X X X X X X X Extracts X X X X
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