TMI Blog2020 (2) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... e persons in whose names those shares were standing, etc. Tribunal has also found as a matter of fact that there is no material on record to prove that the shares were actually delivered by the assessee to the GAFL even subsequently as there is total absence of any document to remotely indicate such fact. Tribunal has also found that there is no matching of the shares which were sold and purchased subsequently through some share brokers. It was also found that, even in the broker s voucher, distinctive numbers of those shares were not given and the broker had also not stated that from whom he has purchased these shares for assessee and in whose names such shares were standing. The Tribunal therefore found that there is absence of proof on record to hold that the shares were actually delivered by the assessee to GAFL. Considering the provision of Sections 2(14) r/w. 2 (47) of the Act, 1961, if the estate or interest which it purported to assign had at the date of the deed did not exist, it is well settled that neither at law nor in equity can the assignment of such an interest operate according to its tenor. Similarly, in the facts of the case, when the shares were not in exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /1997 filed by late Shri Vijaykumar Gupta. 6.Tax Appeal No. 211 of 2008 is filed against the order passed in ITA No.672/AHD/1997 filed by Smt. Sulochana V. Gupta. 7.For the sake of convenience, Tax Appeal No. 194 of 2008 is treated as a lead matter. 8.1. The assessee filed return of income for A.Y. 1992-93 on 30.07.1993 declaring total income of ₹ 3,02,099/. During the course of assessment proceedings, the Assessing Officer found that assessee had claimed short term loss of ₹ 16,88,750/on the following transactions: 8. The assessee i.e. Smt. Sulochana V. Gupta had shown loss of ₹ 16,88,750/on the following transactions: Name of shares No. of shares Purchase Price Date Rate Sale Price Date Rate Short term capital loss Mysore Cement 10,000 12,62,500/- 7.1.92 126.25 11,05,000 8/1/92 110.50 ₹ 1,57,000/- UTI Master a) 50,000 17,37,500 12.2.92 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be given set off against regular income of the assessee except to be adjusted with speculation profit, if any, arising to the assessee in business. 8.4. The Assessing Officer therefore refused to give set off of the loss of ₹ 16,88,750/paid by the assessee against the regular business for capital gain. 8.5. The assessee, being aggrieved and dissatisfied with the assessment order, filed an appeal before the CIT (A) contending that the entire loss has wrongly been denied to be set off against the other incomes of the assessee. The assessee made several submissions before the CIT (A). The CIT (A) thereafter allowed the loss claimed by the assessee except to the tune of ₹ 75,000/in respect of the shares of Mysore Cement by holding as under: 11. After going through rival contentions and after personally hearing Shri P.S. Vasava, I am of the opinion that the claim of the assessee with respect to short term capital loss cannot be rejected, this find is supported by following accepted / acceptable facts: (i) The purchases have been made through a share broker, which establishes the purchase along with its purchase value. The Assessing Officer has accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares involved are available which goes on to prove that the transactions were of specific shares. Once actual delivery is proved, followed by full payments, transactions are just not speculative by any stretch of imagination. I therefore, hold that the short term capital loss is not speculative, either as claimed by the assessing officer. Before the question of sale of shares, whether on market rate or otherwise is decided, it is desirable to reproduce the chart indicating rates pertaining to sale of shares, which is as under: A. Rates at which shares have been sold: Name of Script No. of shares Date of sale Rate of sale Mysore Cement 10000 8.1.92 110.50 UTI Master 85000 16.1.92 28.00 L T 15000 21.1.92 142.00 B. Actual Prevailing Rates as per B.S.E.: Name of Script Date Opening R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince while making purchases, element brokerage and DD. Charges is also there, similar adjustment be made, in all fairness this adjustment is called for. If concession for brokerage and DD. Charges is given, net realizable rate comes to ₹ 118/only. On this rate, adjusted sale price will come to ₹ 11,80,000/( i.e.. 10000 x 118 = 11,80,000/) against ₹ 11l,05,000/as shown by the assessee. The loss will therefore get reduced by ₹ 75,000/consequently. The loss of ₹ 1,57,000/only will get reduced to ₹ 82,000/i. e. ₹ 1,57,000 ₹ 75,000/. Same loss of ₹ 82,000/is therefore directed to be allowed in the sale of shares of Mysore Cement. As regards UTI master and L T shares, no rate adjustment is called for and loss as claimed of ₹ 15,31,250/is to be allowed in full. Thus, total short term capital loss of ₹ 15,31,250/+ 82,000 ( ₹ 16,13,250/) is directed to be allowed against the claim of ₹ 16,88,250/only. 8.6. Being aggrieved and dissatisfied by the order of the CIT (A), revenue as well as assessee filed appeals before the Tribunal. The Tribunal after considering the submissions and material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were not given. The broker has also not stated that from whom he has purchased these shares for assessee and in whose names these shares were standing. Thus there is absence of proof on record to hold that shares were actually delivered by the assessee to GAFL. Merely on the basis of presumption it cannot be held that as the shares have been purchased subsequently they must have been delivered by the assessee to GAFL. It has not been controverted that GAFL is an associate concern of the assessee. Entering into transaction with the associate concern without intervention of a broker (more particularly when all other transactions are done through broker only) creates suspicion and to remove this suspicion, the assessee was under an obligation to bring on record the evidence to prove conclusively that shares in particular were actually delivered to GAFL. Not only such evidence of delivery is absent but there is no evidence on record to prove the sale of those shares on alleged dates by the assessee to GAFL. The shares are identifiable items and if they change hands i.e. if their ownership is transferred to somebody else, it is necessary that evidence should be there to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent purchases of shares sold in advance and absence of those shares in the balance sheet of the assessee is indicative of the fact that actually these shares were delivered by the assessee to associate concern. Unless it is conclusively shown that subsequently purchased shares were actually delivered by the assessee to his/her associate concern, presumption in this regard cannot take colour of conclusive proof. It has already been pointed out that it was not physically impossible for the assessee to bring relevant material on record to prove the factum of subsequent delivery as the transaction is between the assessee and his / her associate concern. Therefore, only on the basis of presumption it cannot be conclusively established that as assessee had subsequently purchased shares to satisfy the transaction of sale to his/ her sister concern and absence of that quantity of shares in balance sheet or closing stock is indicative of certainty of assessee having delivered the similar quantity of shares to sister concern. Therefore, this contention of assessee is also liable to be rejected. 25. The contention of assessee that GAFL had earned profit on the shares purchased by it fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a subsequently higher rate and in the same lot and delivery of the goods was given by the assessee directly to the third parties without sending the goods to the sister concerns. The said facts, which have been ascertained by the Assessing Officer and confirmed by the Tribunal, have become final. Looking to the said facts, the tribunal has come to a conclusion that the payment of tax had been avoided by the assessee. Once it has been established that the payment of tax has been avoided, in our opinion, it was not necessary for the Revenue to ascertain whether any loss had been caused to it. In our opinion, it was also not necessary for the revenue to see whether the sister concerns had paid tax and if so, how much tax was paid by the sister concerns. We are also of the view that it was not necessary for the revenue to look at the overall effect with regard to receipt of tax by the Revenue before coming to the conclusion whether payment of tax was avoided by the assessee. Thus, in our opinion, the tribunal was right when it came to the conclusion that tax was avoided and for coming to the said conclusion it was not necessary for the tribunal to ascertain whether any loss wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards page 4 of the paper book, wherein assessee has annexed statement showing details of profits and loss from shares for the year under consideration. As per said chart consolidated sum of profits and loss shown by assessee in respect of sale and purchase of shares can be summarized as under: 1 Long term profits 17,27,200/- 2 Short term profits 11,03,600/- 3 Short term loss 16,88,750/- The consolidated figures of sale and purchase of shares are as under:- Purchase Price ₹ 85,84,750/- Sale Price ₹ 97,26,800/- In all total 19 transactions have been done by assessee. Referring to transaction No.10 which is in respect of shares of Ambuja Port Ltd, he pointed out that assessee had sold 25,000 shares on 29.11.91@ ₹ 45/per share against which purchase were made on 27.12.91 of 23,900 shares @ ₹ 10/and 1100 shares on 1.3.90 @ ₹ 10/. Thus he pleaded that assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchases and its price to be genuine. (ii) Once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock. Since these are not part of the closing stock, the inference is that corresponding sales are there. (iii)The sales are confirmed by seller and purchases are confirmed by purchaser who are two separate taxable entities, assessed to tax. (iv) The purchases in the hands of the purchaser and its subsequent sale to a third party, earning profit in the same, earned only after purchases from the appellant are genuinely accepted. (v) Against the sale/purchase of shares, payments have been received, though after a time gap which is not an illegality under any existing provisions of law. (vi) The sales without a share broker are not illegal ones and are permissible. 9.5. Referring to the aforesaid findings, it was pointed out that, in view of such finding of facts arrived at by the CIT (A), the Tribunal could not have given different finding of facts contrary to record, which is based on the findings arrived at by the Assessing Officer. 9.6. Learned advocate fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transferred in its name is concerned. 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. 18. In the case of Commissioner of Income Tax v. Sakarlal Balabhai, 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 18. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut from the transaction to be set off against the other income of the assessee. 11. Having heard the learned advocates of the respective parties and having gone through the material on record, in order to answer the questions framed, it would be germane to refer to relevant provisions of the Income Tax Act, 1961 as under: Section 2 (14) capital asset means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), but does not include- (i) any stock-in-trade [other than the securities referred to in subclause (b)], consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit Bonds issued under the Gold Deposit Scheme, 1999 1 [or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government. Explanation.-For the removal of doubts, it is hereby clarified that property includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever; Section 2 (47) transfer , in relation to a capital asset, includes, ( i) the sale, exchange or relinquishment of the 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 (iva) the maturity or redemption of a zero coupon bond; 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, 1882 (4 of 1882); or (vi) any t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Explanation.-For the purposes of this subsection, the expression insurer shall have the meaning assigned to it in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938). 12. It is not in dispute that the Tribunal has arrived at finding of fact and the findings arrived at by the CIT (A) in its order allowed the claim of the capital loss made by the assessee. The CIT (A) has gone on a tangent in arriving at a finding on presumption that once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock and because the shares are not part of the closing stock, the inference was drawn that corresponding sale is also genuine. As against that, the Tribunal has relied upon only the evidence which is debit note prepared by the assessee which was produced on record. On perusal of such debit note, it was found by the Tribunal that the same were self-prepared giving only the particulars of the credit amount, number of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. And there are other objections to its efficacy. If it may be assumed, as it seems to have been, that the shareholders ' already referred to and the debtors were the same persons, then it was the title of these shareholders as contributors of the company, and that title only, which the company in 1980 had by its liquidator any right to confirm. No assignment of this interest of theirs now for the first time emanating from the company was, as has been seen, made by the trust deed of 14th January 1931, and accordingly they, as contributors, were alone entitled to have their title perfected. Putting it in another way, without their concurrence in the deed poll as assignors, that deed, even if otherwise unobjectionable, was inoperative to assign any interest to the respondent and his two coassignee's. 13. Therefore, in view of the aforesaid dictum of law and considering the provision of Sections 2(14) r/w. 2 (47) of the Act, 1961, if the estate or interest which it purported to assign had at the date of the deed did not exist, it is well settled that neither at law nor in equity can the assignment of such an interest operate according to its tenor. Similarly, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of the bill of sale must be treated as a constructive transfer of possession. But how can there be any such transfer, actual or constructive, upon a contract under which the vendor sells that of which he has no possession and to which he may never establish a title. The bill of sale in such a case can only be evidence of a contract to be performed in future and upon the happening of a contingency of which the purchaser may claim a specific performance, if he comes into Court showing that he has himself done all that he was bound to do. In Jugalkishore Saraf v. Raw Cotton Co., Ltd., AIR 1955 SC 376, the Supreme Court points out that under the Transfer of Property Act, there can be no transfer of property which is not in existence at the date of the transfer. If there can be no transfer in praesenti of property not in existence, it stands to reason and follows that there can be no creation of a right over, or in respect of such property. In our view, the principles that govern the construction of the word 'transfer' in relation to property under the Transfer of Property Act, would equally apply to the transfer or creation of right provided under the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e specified and that the instrument was a mortgage deed. But as to net profits, which had also to be applied in payment of the sums advanced by the bank, it was observed, at p. 649: It may be that the net profits here are not 'specified property' within the meaning of the definition . Crompton Engineering Co., Madras, Ltd. v. Chief Controlling Revenue Authority, Madras (FB) again as only an authority for the position that stock-in-trade is 'specified property' within the meaning of Section 2(17). In that case it was held that the document was not a mortgage deed, as there was no transfer of rights in accordance with the requirements of Sec. 59 of the Transfer of Property Act. Apart from the stock-in-trade, there were other items of properties and immoveable property comprised in the transaction, all one and indivisible, and the instrument was unattested. While holding, in the circumstances, that there was no mortgage, their Lordships pointed out that to make a document liable to stamp duty as a mortgage deed it was not enough if the document purported to effect a transfer, but that it must transfer. Authority for the view that stock-in-trade is 'specified prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples enunciated by Lord Westbury in Holroyd v. Marshall (1862) 10 HLC 191, 210-211, in the following words: It is quite true that the deed which professes to convey property which is not in existence at the time is as a conveyance void at law, simply because there is nothing to convey. So in equity a contract which engages to transfer property, which is not in existence, cannot operate as an immediate alienation merely because there is nothing to transfer. But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. The equitable principle flowing from the above that equity treats as done what ought to be done does not make out any new contract between the parties or alter the true character of the original instrument. 15. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of capital asset as defined under section 2(14) of the Act. The right that the assessee had till that point of time was to make payment of the balance amount and take delivery of the machinery for which the order had been placed by the assessee. In other words, the assessee was required to perform its part of the contract or show or express readiness and willingness to perform its 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 fulfill 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 that the assessee was not in possession of any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that the assess is not entitled to claim capital loss arising out of the transactions of sale of shares, which were not in actual possession of the assessee. 17. With regard to the decision of this Court in the case of Biraj Investment (supra), the facts of the said case were different as the assessee in that case was owner of the shares but such shares were pledged by the assessee with the IDBI Bank and all original share certificates were also lying with the said Bank along with the duly executed transfer forms. In such circumstances, it was held that, though it was not possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms, but by itself it 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. However, in the facts of the case, the assessee was not having either the possession or the ownership of the shares which were sold to GAFL. Moreover, it is also finding of fact arrived at by the Tribunal that there is no evidence as to the actual delivery or the time of receipt of sale consideration by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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