9911796707
TMI Blog1971 (5) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... shown as rupee one only. The assessee claimed the amount written off in its assessment for the year 1955-56, which claim was disallowed. Subsequently, the assessee repurchased 700 shares which had been sold to Messrs. J. P. Srivastava and Sons Private Ltd. for a sum of Rs. 35,000. In the result it again became possessed of 3,040 shares, but in the account books these shares were valued at Rs. 35,001. In the relevant accounting year, the assessee sold these 3,040 shares for a sum of Rs. 3,04,000. After deducting the sum of Rs. 35,001, the book value of these shares, there was a surplus of Rs. 2,68,999. It may also be mentioned that during the year 1951-52, the assessee had made a claim for a sum of Rs. 1,05,067 as loss suffered by it. This claim was rejected by the income-tax authorities on the ground that the loss claimed by the assessee was of a capital nature and as such it could not be deducted from the assessee's income for that year. The assessee purported to carry forward this loss of Rs. 1,05,667 all through and up to the assessment year involved in this case. The assessee claimed that, in computing its capital gains for the year in question, following factors should be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be carried forward and set off against the surplus of Rs. 2,68,999 is concerned, the Income-tax Officer held that under the law it was not possible to carry forward that loss and to adjust the same in the capital gains for the year 1958-59. In the result he determined the capital gains of the assessee at Rs. 1,52,000 and included this amount while computing its taxable income. The assessee went up in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner agreed with the Income-tax Officer. He rejected the assessee's case that it was entitled to carry forward the loss of Rs. 1,05,067 suffered by it in the year 1951-52 to the assessment year 1959-60 and to set it off against the capital gains for that year. So far as the question whether the assessee was entitled to the benefits of the third proviso to section 12B(2) is concerned, the Appellate Assistant Commissioner observed that in the year 1951-52 there was no provision in the Income-tax Act for computing the capital gains. There was, accordingly, no determination of any such loss in that year. What had happened was that a claim for a bad debt of Rs. 1,05,067 had been rejected by the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 12B(2). The Tribunal rejected this contention on the ground that from the submissions made on behalf of the assessee, it was not possible to know exactly what effect the appreciation of assets had on the intrinsic value of the shares of the company as on January 1, 1954. The connection suggested by the counsel for the assessee between the increase in the assets of the company and the increase in the market value of the shares was too remote and far-fetched. It also took into consideration other circumstances pointed out by the Appellate Assistant Commissioner and held that the assessee was not entitled to the benefits of the third proviso to section 12B(2). The assessee then moved an application before the Income-tax Appellate Tribunal and at its instance the Tribunal has referred the following questions for the opinion of this court: "(1) Whether, on the facts and in the circumstances of the case and on interpreting the provisions of sections 6(vi), 12B, 24(2A) and 24(2B) of the Indian Income-tax Act, 1922, the Tribunal was right in rejecting the claim of the assessee for the set off of the capital loss of Rs. 1,05,067 incurred in assessment year 1951-52 against the capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, remained unchanged. The result was that no tax under the head "capital gains" was payable in respect of transactions entered into after 31st day of March, 1948. Section 12B was substituted by a new section with effect from 1st April, 1957, and it was provided that tax was to be paid by an assessee under the head "capital gains" in respect of any profits and gains arising from sale, exchange, relinquishment of transfer, taking place after March 31, 1956. This history reveals that there was no liability to pay tax under the head "capital gains" in respect of transactions entered into between 1st of April, 1948, and 31st of March, 1956. The provisions of sections 24(2A) and 24(2B) which provided for the set off of and carry forward of loss falling under the head "capital gains" remained on the statute book throughout. Learned counsel for the assessee contended that, although capital gain in respect of the transactions entered into in the year 1951-52 was not chargeable to income-tax, but because of continued existence of section 24(2B) the assessee was entitled to carry forward the loss under the head "capital gain" for a period of eight years, and to adjust the same against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be set off except against any profit and gain falling under that very head. In other words, loss of profit tinder the head of capital gain cannot be set off against the profit or gain under any other head. Section 24(2B) of the Act further provides that loss of profit sustained by an assessee, and which is not set off as provided in earlier sub-section, is to be carried forward to the following year and set off against capital gains for that year, and if it cannot be set off, the amount thereof not so set off is to be carried forward to the following year and so on up to a certain period. What can be carried forward and set off in the following year is the loss of profit sustained by the assessee under the head "capital gain". What activity will result in earning profit under the head "capital gain" is mentioned in section 12B of the Act. Legislative history pointed out above indicates that at the time of introducing section 12B in the Income-tax Act, 1922, the legislature intended that profits or gains arising from the activity of sale, exchange, relinquishment or transfer of capital assets effected after March 31, 1946, were to be considered to be the income under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "capital gains", which accrued after 1st April, 1956. In the year 1949 the legislature could not contemplate that it would re-introduce tax on income under the head "capital gains" in the year 1956, and for that purpose the loss of profit under the head "capital gains" should becarried forward from year to year. We are, therefore, of opinion that in the circumstances the assessee is not entitled to carry forward losses incurred by it in the year 1951-52 to the year 1959-60 and to adjust them against the profits under the head "capital gains" in that year. Learned counsel for the assessee contended that the question referred to this court implies a finding that loss suffered by the assessee was capital loss. No question about the correctness of that finding has been referred to us and, therefore, we should not answer the question referred to us, on the basis that the loss in question was not a loss falling under the head "capital gain". We are unable to agree with the submission of the learned counsel. In the question the amount in dispute has been described as "capital loss" and not as "loss" falling under the head "capital gain". The expression "capital loss" cannot be equated w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transfer of those assets. If, however, the Income-tax Officer is not in a position to determine the fair market value of the asset transferred as on 1st day of January, 1954, he will have to determine the gains or profits on the basis of actual cost of acquisition of the assets as provided in the substantive part of section 12B. In the present case the assessee urged before the income-tax authorities as also before this court that there was enough material on the record to show that the earning capacity of Messrs. Gwalior Agriculture Co. had substantially increased during the years 1953-54. He contended that the Tribunal misled itself into thinking that the connection between the assets of the company as suggested by the assessee and the fair price of the shares of the company as on January 1, 1954, was too remote, and as such the assessee was not entitled to the benefits of the third proviso to section 12B(2). In our opinion, it is not possible to work out exactly fair market value of the shares of the company merely on the basis that due to certain reasons the assets and the profit earning capacity of the company increased to some extent. The circumstances pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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