TMI Blog2006 (1) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was in possession of a right which could be termed to be a capital asset within the meaning of section 2(14), cannot be accepted and the Tribunal was justified in holding that the assessee was not in possession of any capital asset. - Tribunal was right in law in holding that the assessee was not entitled to deduction of Rs. 80,000 as short-term capital loss - - - - - Dated:- 16-1-2006 - 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 "A", has referred the following two questions under section 256(1) of the Income-tax Act, 1961 ("the Act") at the instance of the assessee: "(1) Whether, on the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,16,000. It appears that the assessee and the suppliers entered into correspondence on this aspect and ultimately, the suppliers decided to return Rs. 36,000 after deducting Rs. 80,000 as cancellation charges. It is this amount of Rs. 80,000, which is the bone of the contention between the parties. The assessee claimed the said amount as a business loss, and in the alternative, as a short-term capital loss. The Assessing Officer negatived the claim of the assessee on both the counts. The assessee did not succeed in appeal either before the Commissioner (Appeals) or the Tribunal. Mrs. Swati Soparkar, the learned advocate appearing on behalf of the applicant-assessee submitted that question No. 1 is not pressed, on instructions, in the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisages a conjoint reading of the provisions of sections 45, 2(47) and 2(14) of the Act. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall be deemed to be the income of the previous year in which the transfer took place. Therefore, for the charge of capital gains tax or capital loss, the essential requirements are that there should be a transfer of a capital asset effected in the previous year. This would require ascertainment of the meaning of the terms "transfer" and "capital asset". "Transfer" has been defined, in relation to a capital asset, to include various contingencies stipulated by the sub-clauses of section 2(47) of the Act. Sub-clause (ii) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts obligation as emanating from the contract, namely, making payment of the balance amount towards machinery to be purchased, and then call upon the supplier to fulfil its part of the contract, namely, supply the machinery. Upon the supplier refusing to perform its part of the contract, the only right that could come into existence would be a right to sue for specific performance, and in the alternative, claim damages. However, in the present case, it was the assessee who was not willing to perform its part of the contract. Therefore, to claim that the assessee was in possession of a right which could be termed to be a capital asset within the meaning of section 2(14) of the Act, cannot be accepted and the Tribunal was justified in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange of letters was not a capital asset in the hands of the assessee, and there was no transfer whatsoever within the meaning of section 2(14) of the Act, it cannot be said to be incorrect. Even, if the unilateral act of cancellation of contract would amount to extinguishment, it would be extinguishment only of the right to seek performance of the contract after showing the willingness to perform its part of the contract. Therefore, in the absence of any infirmity in the impugned order of the Tribunal, question No. 2 is answered in the affirmative. The Tribunal was right in law in holding that the assessee was not entitled to deduction of Rs. 80,000 as short-term capital loss. The question is accordingly answered in favour of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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