1973 (5) TMI 3 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rs. 5, 000 was not a capital loss within the meaning of section 12B of the Indian Income-tax Act 1922 ? 2. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the provision of section 12B of the Indian Income-tax Act 1922 did not apply to the transaction resulting in the loss of Rs. 53, 761 incurred by the assessee ? - we answer both the questions referred to us in the affirmative and against the assessee

Summary

Issues:
1. Whether the sum of Rs. 5,000 was a capital loss under section 12B of the Indian Income-tax Act, 1922.
2. Whether the provision of section 12B applied to the loss of Rs. 53,761 incurred by the assessee.

Analysis:
1. The assessee, a chartered accountant, purchased preference shares in a company that went into liquidation, resulting in the loss of his investment. The assessee claimed this as a capital loss under section 12B. The court held that for a capital loss to be claimed, there must be a "sale, exchange, relinquishment or transfer of a capital asset." In this case, the shares were held by the assessee even after the company's liquidation, and the rights of the shareholder remained intact. As there was no relinquishment of ownership, the loss did not qualify as a capital loss eligible for set-off against capital gains.

2. The assessee also claimed a loss of Rs. 53,761 due to an unrecovered debt from a client. The court noted that writing off the debt unilaterally in the books did not constitute a relinquishment of rights. The decree debt remained enforceable until the limitation period expired, and the debtor could not claim satisfaction based on the write-off. As the debt was not relinquished legally, it could not be set off against other capital gains. The court emphasized that until a legal satisfaction of the decree occurred, the debt remained enforceable, and the write-off by the assessee did not change this legal status.

In conclusion, the court held that neither the loss from the company going into liquidation nor the unrecovered debt constituted eligible capital losses under section 12B. The court answered both questions in the affirmative, ruling against the assessee.