1990 (1) TMI 104 - AT - Income Tax

Assessment Year, Business Expenditure, Capital Expenditure, Capital Loss, Loss On Sale, Revenue Expenditure, Stock Broker, Year In Which Assessable

Summary

Issues:
1. Disallowance of short-term capital loss on sale of shares.
2. Interpretation of completion of transfer of shares for capital loss deduction.
3. Disallowance of professional charges as capital expenditure.

Analysis:
1. The appeal was filed against the disallowance of a short-term capital loss on the sale of shares of a company. The Assessing Officer disallowed the loss as the shares were not transferred in the name of the partners during the assessment year, but in the subsequent year. The CIT(A) upheld this decision. The Tribunal considered the Sale of Goods Act, emphasizing that the sale was complete when there was an unconditional contract for the sale of specific goods in a deliverable state. The shares were sold through a broker, payment was received, and delivery was made within the assessment year. The Tribunal held that the sale was complete, and the loss had crystallized in the same year, allowing the deduction.

2. The interpretation of the completion of the transfer of shares for capital loss deduction was crucial. The appellant argued that the sale was governed by the Sale of Goods Act, and the transfer was complete when the shares were delivered with a signed form and payment was received. The Departmental Representative relied on the Companies Act. The Tribunal held that the actual transfer in the company's register was immaterial for the contract of sale. The sale was considered complete within the assessment year, and the loss was allowed as a deduction.

3. The third issue involved the disallowance of Rs. 2,000 as capital expenditure for professional charges paid to an architect. The appellant argued that the payment was for routine repairs, not a capital expense. The Tribunal agreed, stating that the payment for preparing an estimate for routine repairs should be treated as a revenue expenditure. The CIT(A)'s decision to treat it as a capital expenditure was set aside, and the expenditure was allowed as a revenue expense. The appeal was allowed in favor of the assessee.