1987 (9) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Whether the demolition of a building constitutes a "transfer" under Section 2(47) of the Income-tax Act.
2. Whether the resulting loss from the demolition can be claimed as a short-term capital loss.

Detailed Analysis:

Issue 1: Whether the demolition of a building constitutes a "transfer" under Section 2(47) of the Income-tax Act.

Arguments by the Assessee:
- The assessee argued that the demolition of the building resulted in the "extinguishment of rights" in the capital asset, thus constituting a "transfer" under Section 2(47) of the Income-tax Act.
- The assessee cited various judicial pronouncements, including the Supreme Court's decision in CIT v. R. M. Amin [1977] 106 ITR 368, which held that unilateral acts could lead to the extinguishment of rights.
- The assessee also referred to the Gujarat High Court's decision in Kartikey V. Sarabhai v. CIT [1982] 138 ITR 425, which supported the notion that voluntary extinguishment could fall within the definition of "transfer."

Arguments by the Revenue:
- The ITO and IAC argued that the act of demolition was voluntary and did not involve any relinquishment of rights or transfer.
- The IAC emphasized that a unilateral act of demolition could not result in the extinguishment of rights unless interpreted too technically.
- The IAC also noted that there was no registered document to signify a transfer of immovable property, and the rights in the assets continued to exist in the form of demolished materials.

Tribunal's Findings:
- The Tribunal agreed that the demolition of the building led to the "extinguishment" of rights in the capital asset.
- However, it was crucial to determine the point at which this extinguishment occurred and whether it constituted a "transfer" under Section 2(47).
- The Tribunal referred to the Gujarat High Court's decision in Vania Silk Mills (P.) Ltd.'s case, which stated that "extinguishment" has a wide ambit and can occur even if the asset itself is destroyed.
- The Tribunal concluded that the extinguishment occurred when the demolition was completed by Raju, and no consideration was received for this extinguishment.

Issue 2: Whether the resulting loss from the demolition can be claimed as a short-term capital loss.

Arguments by the Assessee:
- The assessee computed a short-term capital loss based on the cost of acquisition of the building, expenses on demolition, and the sale price of the debris.
- The assessee argued that the loss should be allowed as a capital loss since it resulted from the extinguishment of rights in the capital asset.

Arguments by the Revenue:
- The Revenue contended that there was no "transfer" within the meaning of Section 2(47), and hence no capital loss could be claimed.
- The Revenue emphasized that the sale of debris and remaining materials was an independent transaction and not linked to the extinguishment of rights in the building.

Tribunal's Findings:
- The Tribunal analyzed the facts and found that the loss did not arise from the extinguishment of rights in the capital asset but from the sale of the demolished materials.
- The Tribunal cited the Gujarat High Court's decision in Vania Silk Mills (P.) Ltd.'s case, which emphasized that there must be a causal nexus between the extinguishment of rights and the profit or loss.
- The Tribunal concluded that the transaction of selling the debris was independent of the extinguishment of rights in the building.
- Therefore, the Tribunal held that there was no "transfer" within the meaning of Section 2(47), and the assessee was not entitled to claim the capital loss of Rs. 1,12,875.

Conclusion:
The appeal was dismissed as the Tribunal found no causal nexus between the extinguishment of rights in the building and the claimed short-term capital loss. The Tribunal emphasized that the sale of demolished materials was an independent transaction and did not constitute a "transfer" under Section 2(47) of the Income-tax Act.