TMI Blog2005 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, and ought to have been given full effect thereto?" - it is not possible to find any infirmity in the order of the Tribunal, rejecting the claim of the assessee that the amount forgone by the assessee represented capital loss under section 45 - All the three questions are answered in the affirmative i.e., in favour of the Revenue and against the assessee - - - - - Dated:- 26-8-2005 - Judge(s) : D. A. MEHTA., MS. H. N. DEVANI. JUDGMENT The judgment of the court was delivered by D.A. Mehta J.-The Income-tax Appellate Tribunal, Ahmedabad Bench "B", has referred the following three questions of law under section 256(1) of the Income-tax Act, 1961 ("the Act"), at the instance of the assessee: "(1) Whether, on the facts and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its industrial undertakings to another wholly-owned subsidiary company, Sarabhai Chemicals (P) Ltd. (SCPL), was entitled to recover a sum of more than Rs. 3.95 crores from SCPL over a period of eight years from July 1, 1974 onwards, the last instalment being receivable on July 1, 1981. KPPL, therefore, after obtaining the consent of SCPL, proposed to the assessee-company to transfer and assign a sum of Rs. 99,89,820 from the aforesaid receivable amount from SCPL to the assessee-company. The board of directors of the assessee-company met on August 10, 1973, and passed a resolution accepting the said proposal. This resulted in a tripartite agreement between the assessee-company, KPPL and SCPL. According to the terms of the agreement, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture or business loss and the assessee was entitled to deduction under section 37 or under section 28 of the Act. Alternatively, it was claimed that the same was allowable as a deduction under section 57(iii) of the Act. A further alternative claim was that, if it was to be treated as a capital loss, it should be allowed to be carried forward and set off against capital gains which may arise in future, in accordance with law. The Assessing Officer rejected all the claims and the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), but failed. The Commissioner of Income-tax (Appeals) having confirmed the assessment order, the assessee carried the matter in second appeal before the Tribunal, but the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the Tribunal, the ground was not pressed, and hence, as a matter of fact, it has become final that the assessee-company was not carrying on any business of holding of investments. In these circumstances, issuance of share capital and receipt of call money against the same account have no relevance to holding of investments under the head "Income from other sources". Therefore, the Tribunal was justified in holding that the assessee was not entitled to any deduction under section 28 and/or under section 37 of the Act. The alternative claim for deduction under section 57(iii) of the Act has been rejected by the Tribunal, holding that the transaction was on capital account and, therefore, the loss cannot be regarded as having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court in the case of CIT v. Minor Bababhai alias Lavkumar Kantilal [1981] 128 ITR 1, it was submitted that the agreement by way of proposal and acceptance of proposal between the assessee-company and SCPL resulted in a novation entitling the assessee to a capital loss. That there was a transfer of the original debt due from KPPL and/or SCPL when the terms were modified whereunder the assessee-company agreed to give discount, or forgo a sum by way of commutation and instead receive a reduced amount which was payable on demand as against the outstanding five instalments. According to him, this amounted to extinguishment of the right to the extent of commutation. The amount forgone by the assessee-company was, thus, extinguishment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of payment, including the payer and the period, but the nature of payment remained the same, namely, call moneys payable towards shares issued by the assessee-company. Once this position is clear, it is apparent that the amount that the assessee-company was to receive is towards share capital and would be its liability. Under section 211 of the Companies Act, 1956, the form of balance-sheet (including the contents thereof) are laid down as per Part 1 of Schedule VI. Share capital appears as item No. 1 on the liabilities side. Therefore, at no point of time, was the assessee in possession of or entitled to any asset. In the absence of any asset, there can be no question of any extinguishment of rights. Therefore, the basic condition for in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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