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TMI Blog2020 (2) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... wable?" 2.The Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad passed a common order dated 05.01.2007 in respect of all these appeals for the A.Y. 19921993 in cross-appeals filed in case of each of the assessee. 3.Tax Appeal No. 194 of 2008 is arising out of the order in ITA No. 763/AHD/1997 dated 05.01.2007 filed by the revenue in case of Smt. Sulochana V. Gupta. 4.Tax Appeal No. 195 of 2008 is filed against the order passed in ITA No. 631/AHD/1997 filed by the revenue in case of late Shri Vijaykumar Gupta. 5.Tax Appeal No. 196 of 2008 is filed against the order passed in ITA No. 671/AHD/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 Rs. 3,02,099/. During the course of assessment proceedings, the Assessing Officer found that assessee had claimed short term loss of Rs. 16,88,750/on the following transactions: "8. The assessee i.e. Smt. Sulochana V. Gupta had shown l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n business. 8.4. The Assessing Officer therefore refused to give set off of the loss of Rs. 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 Rs. 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 accepted 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 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 Rate Highest Rate Lowest Rate Closing Rate Average Rate Mysore Cement 8.1.92 120.00 125.00 117.05 123.75 121.50 UTI Master 16.1.92 27.25 29.00 26.00 27.50 27.56 L & T 20.1.92 134.00 140.00 132.00 139.00 136.25 (Note 02 21.1.92 i.e. date of sale of L & T Shares) The market was closed and thus rates on the previous date are considered) It will be seen that sale of UTI Master was at Rs. 28.00 against the average of 27.56 per share, while sale of L & T was at Rs. 142/against average rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as assessee filed appeals before the Tribunal. The Tribunal after considering the submissions and material on record held that the CIT has committed an error by allowing the short term loss claimed by the assessee, though the assessee could not establish the factum of sales made to the associate concern and the transactions were without the intervention of the broker. The tribunal therefore allowed the appeal filed by the revenue rejecting the appeal filed by the assessee, holding as under: "21. We have carefully considered the rival submissions in the light of material placed before us. The assessee is engaged in the activity of sale and purchase of shares. The loss claimed in respect of UTI Master shares and L & T shares is doubted on the ground that without having possession of those shares assessee had sold these shares to a group concern. The sales are made without intervention of any broker. This fact created a suspicion regarding the transaction. The sale of these shares/ securities to group concern by the assessee is supported by only evidence which is a debit note prepared by the assessee copy of which is placed at pages 50 to 52 of the documents attached with the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds i.e. if their ownership is transferred to somebody else, it is necessary that evidence should be there to prove that change in hands. Thus it cannot be claimed by the assessee that he/ she does not have evidence to prove the factum of sale or purchases. Therefore, producing evidence in this regard was not physically impossible for the assessee and if the same is not produced or no reason has been given for non production of evidence then according to well established principle of law, it will be presumed that assessee's claim is not genuine particularly in the circumstances when onus is on assessee who is claiming the loss to be set off against other income." 8.7. The Tribunal thereafter, referred to the decisions, i.e. (i) in the case of CIT v. Ganga Prasad Birla (HUF) reported in 199 ITR 173 (Cal.), (ii) CIT v. Shekhawati Rajputana Trading Co. (P). Ltd. reported in 236 ITR 950 (Cal.), (iii) M.Ravji & Co. v. ITO reported in 55 TTJ (Ahd) 625, (iv) CIT v. L.N. Dalmia reported in 207 ITR 89 (Cal.), and thereafter, held as under: "22. As the onus was on assessee and it has not been discharged by producing evidence which in case of genuine transaction could well be proved by prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that GAFL had earned profit on the shares purchased by it from assessee and thus the gain has suffered tax in the hands of GAFL has nothing to do with the loss claimed by the assessee as it has been held, that the sale by the assessee is not supported by conclusive evidence. More so, in case of Patel Chemical Works Vs. CIT (Supra) a decision relied upon by Ld. DR, similar contention was raised on behalf of assessee. The contentions of assessee as recorded by their Lordships of Jurisdictional High Court are as under:- " The learned advocate, Shri J.P.Shah, appearing for the assessee, has submitted that in the instant case the Tribunal has not considered that the amount of tax which is alleged to have been avoided by the assessee; has already been paid by the sister concerns of the assessee. According to him, in fact, there is no avoidance of tax because the sister concerns had earned income from the said transactions and had paid tax thereon. In other words, the learned advocate has submitted that even if some tax has been avoided, the tax so payable by the assessee has already been paid by the sister concerns of the assessee, who earned profit on account of the said trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tribunal to ascertain whether any loss was caused to the Revenue on account of non-inclusion of income in question in the assessee's assessment and it is inclusion in the assessment of the sister concerns". Viewing the present case in the light of above observations of their Lordships, the contention of assessee that his/ her associate concern had paid tax on the gains, accrued by sales of relevant shares, is irrelevant for deciding the allowability or otherwise of loss shown by the assessee on alleged sale of these shares, as sales have not been conclusively established by the assessee. 26. In view of above discussion, we hold that as assessee could not establish the factum of sales made to his/her associate concern and the transactions are without the intervention of broker, the loss claimed is not allowable." 9.1. Learned advocate Mr. B.S. Soparkar appearing for the assessee submitted that the Tribunal has committed an error in holding that since the assessee could not establish the factum of sale of the shares made to associate concern and the said transactions of sale were made without intervention of broker, the capital loss claimed by the assessee is not allowed ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the purchase then Assessing Officer cannot treat the profit arising on similar transaction on different footing as the same will be discriminatory." Referring to the above submissions made before the Tribunal, it was pointed out that while considering the issue, the Tribunal has ignored this fact. 9.3. Learned advocate further submitted that, the GAFL has shown profit on sale of shares on which the assessee claimed loss, which has been denied by the Assessing Officer. He referred to the following submissions recorded by the Tribunal in the impugned order made on behalf of the assessee as under: "14. Further he contended that GAFL has shown profit on sale of shares on which the loss has been denied to the assessee. He in this regard referred to the assessment order of GAFL which is dated 19.01.1995 in which income has been assessed at Rs. 8,68,478/. However, it was seen that at page 88 the assessee has enclosed computation of total income of GAFL according to which income has been computed at NIL by chiming unabsorbed business loss brought forward from Asst. Year 199192 at Rs. 16,38,462/and in the note total business loss to be carried forward to asst. year 199394 are compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany at loss during previous year by itself would not mean that it was a colourable device and the loss cannot be allowed to be set off. Reliance was placed upon the following findings of the Court which reads thus: "17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, learned advocate for the revenue Mr. Varun K. Patel submitted that the Tribunal has arrived at finding of fact, considering that the copies of vouchers which are self-prepared by the assessee giving the particulars of credit amount, number of shares, rate of sale and name of the company does not inspire confidence, as neither distinctive number nor names of the persons in whose names the shares which were sold were mentioned on such vouchers. It was submitted that, apart from these debit notes and vouchers, there is no material on record to prove the factum of sale, more particularly, that what were the distinctive numbers of shares which were delivered by the assessee to GAFL and on which date, such delivery was given by the assessee. It was submitted that, merely because the purchase of such shares were made subsequently, cannot entitle the assessee to claim capital loss to be set off. It was pointed out that, there is no material record to prove that the shares were actually delivered by the assessee to GAFL even subsequently. 10.2. It was therefore submitted that, the Tribunal has rightly considered the fact that the assessee was under obligation to bring on record the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miprecious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel. Explanation 2.-For the purposes of this clause- (a) the expression "Foreign Institutional Investor" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; (b) the expression "securities" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of doubts, it is hereby clarified that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. Section 45 Capital gains. "45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to incometax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. (1A) Notwithstanding anything contained in subsection (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In such circumstances, it would be necessary to refer to the decision of the Privy Council in case of Aveline Scott Ditcham v. James J. Miller reported in AIR 1931 Privy Council 203, wherein it is held as under: "That deed poll, remarkable as it is, and it is a notable example of salvage conveyancing, was not in their Lordships' judgment, effective for its purpose. The Supreme Court took the view that as between the company and the three persons whose title it purported to confirm, it amounted to a legal assignment in writing of the leasehold interest in the property with all rights appurtenant thereto which included the right to obtain payment of compensation under the Act of 1921. It certainly did not purport to be more than this. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude sale, mortgage, charge, lease, etc. As will be seen presently, it is settled law that while a transfer of property may take place not only in the present, but also in the future, the property must be in existence at the time of the transfer, for an instrument to be a deed of transfer. The words "in present or in future" in the definition, it is manifest, qualify the word "conveys" immediately preceding "property" and not the word "property". The conveyance may be in present or in future, but the conveyance should be of property in existence. A purported transfer of property, not in existence at the time of the contract, can only operate as a contract to be performed in future. Reference in this connection may be made to the decision of the Privy Council in Ranee Bhobosoondree Dassee v. issur Chunder Dutt, (1872) 18 Suth WR 140 (PC). There, a person who had not the means to institute a suit for the recovery of the property he was entitled to, agreed to sell and sold a moiety of the property to another in consideration of a sum of money, which the other person was to pay for the purpose of carrying on the suit, both of them to figure as plaintiffs. Shortly after the conveyance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 12:06:32 IST 2020 C/TAXAP/194/2008 JUDGMENT 2(17) of the Stamp Act, and in order that a document by which property is transferred may come within the purview of a mortgage deed for the purposes of the Act, the property to which it relates must be in existence." The learned Government Pleader drew our attention to In re Bajraj Singh, (1887) ILR 9 All 585 (FB), also a reference under the Stamp Act, as authority for the proposition that future property could be subject of mortgage. Having perused the judgment carefully, we find no warrant for such an inference. What was hypothecated there was produce of a field with sugarcane, then existing property, and there was no discussion in the case whether property not in existence could be the subject of mortgage; nor does the decision in Secretary to the Commr. of Salt, Abkari and Separate Revenue, Madras v. Mrs. Orr, ILR 38 Mad 646 = (AIR 1917 Mad 374), cited for the State advance the contention. The question there was, whether the instrument was a mortgage within the meaning of Sec. 2(17) of the Stamp Act and was chargeable with stamp duty under Art. 40 or was a declaration of trust chargeable under Art. 64. The instrument was betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of construction of the deed whether effects subsequently brought in on the promises for the purposes of replacing those disposed of or consumed in the course of the business are covered by the mortgage. They are future property, but when the instrument is executed, there is existing property. No formalities are required for the creation of a mortgage of moveable property. A parole mortgage of goods is perfectly valid though a transfer on an actionable claim will have to comply with the requirement of Section 130 of the Transfer of Property Act. For the purpose of the Stamp Act, the effect of the instrument has to be examined at the time of the execution; whether in fact there is an operative transfer or mortgage on the execution of the instrument and by virtue of the instrument. In this connection we may refer to the observations of the Supreme Court in AIR 1955 SC 376 already cited, where it is observed as follows: "Where there is a contract for the transfer of property which is not in existence at the date of the contract, the intending transferee may, when the property comes into existence, enforce the contract by specific performance, provided the contract is of the kind wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 assets. Transfer has been defined, in relation to a capital asset, to include various contingencies stipulated by sub-clauses of Section 2(47) of the Act. Sub-clause (ii) of Section 2(47) of the Act states that transfer includes the extinguishment of any right therein. That requires assigning meaning to the term therein. In other words, for the purposes of transfer of a capital asset, it would suffice if there is extinguishment of any rights in a capital asset. However, even for the purposes of extinguishment of any rights, existence of a capital asset is a must. 7. Section 2(14) of the Act defines capital asset to mean property of any kind held by an assessee. For the present, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accepted, nonetheless, it is necessary for the assessee to establish that extinguishment is of any rights in a capital asset. The facts of the case reveal that the assessee never held any capital asset. The endeavour on behalf of the assessee to contend that the assessee was holding a right, which itself was a capital asset, is not supported by the facts of the case. The only right that the assessee had, till the point of time it cancelled the contract, was to perform its part of the contract and seek performance of the contract from its suppliers. This could not be termed to be a capital asset, howsoever wide the definition of property may be cast. 10. In these circumstances, when the Tribunal came to the conclusion that the concluded contract between the assessee and the suppliers through the exchange 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 willingn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were was the reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court." 18. In overall view of the matter and in absence of any infirmity in the impugned order of the Tribunal, the question is answered in affirmative. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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