2005 (10) TMI 214 - AT - Income Tax

Summary

Issues:
1. Computation of deemed cost under section 55(2)(b)(ii) for computing capital gains on sale of flat No. 19A in Sterling Apartments.
2. Non-allowance of long-term capital loss on transfer of 7 per cent capital investment bonds.

Analysis:

Issue 1: Computation of deemed cost under section 55(2)(b)(ii)
- The assessee raised this issue but did not press it during the hearing, leading to its rejection.

Issue 2: Non-allowance of long-term capital loss on transfer of 7 per cent capital investment bonds
- The Assessing Officer and CIT(A) did not consider the redemption of bonds as a transfer for computing capital gain or loss.
- The CIT(A) referred to the definition of transfer under section 2(47) and emphasized the need for an existing asset at the time of transfer.
- The CIT(A) cited legal precedents to support the view that extinguishment of rights must be linked to the transfer itself.
- The CIT(A) concluded that the redemption of bonds after maturity did not constitute redemption of a capital asset.
- The CIT(A) distinguished a Supreme Court case where redemption of preference shares was considered a sale.
- The AR argued that redemption of capital bonds constitutes an extinguishment of rights and qualifies as a transfer under section 2(47).
- The AR cited legal precedents to support the argument that bonds are capital assets subject to capital gains tax.
- The Tribunal held that the redemption of capital bonds falls within the definition of transfer under section 2(47).
- The Tribunal emphasized that relinquishment or extinguishment of rights in a capital asset amounts to a transfer.
- The Tribunal disagreed with the CIT(A)'s view that there was no asset after redemption, citing a High Court decision.
- The Tribunal concluded that the redemption of bonds gives rise to capital gain/loss, ruling in favor of the assessee.

This detailed analysis highlights the legal arguments, interpretations of relevant sections, and the application of precedents leading to the Tribunal's decision on the non-allowance of long-term capital loss on the transfer of capital investment bonds.