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TMI Blog2020 (2) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... were self-prepared giving only the particulars of the credit amount, number of shares, rate of sale and name of the company, without there being any particulars of shares i.e. distinctive number or names of the persons in whose names those shares were standing, etc. Tribunal has also found as a matter of fact that there is no material on record to prove that the shares were actually delivered by the assessee to the GAFL even subsequently as there is total absence of any document to remotely indicate such fact. Tribunal has also found that there is no matching of the shares which were sold and purchased subsequently through some share brokers. It was also found that, even in the broker s voucher, distinctive numbers of those shares were not given and the broker had also not stated that from whom he has purchased these shares for assessee and in whose names such shares were standing. The Tribunal therefore found that there is absence of proof on record to hold that the shares were actually delivered by the assessee to GAFL. Considering the provision of Sections 2(14) r/w. 2 (47) of the Act, 1961, if the estate or interest which it purported to assign had at the date of the deed did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 671/AHD/1997 filed by late Shri Vijaykumar Gupta. 6.Tax Appeal No. 211 of 2008 is filed against the order passed in ITA No.672/AHD/1997 filed by Smt. Sulochana V. Gupta. 7.For the sake of convenience, Tax Appeal No. 194 of 2008 is treated as a lead matter. 8.1. The assessee filed return of income for A.Y. 1992-93 on 30.07.1993 declaring total income of ₹ 3,02,099/. During the course of assessment proceedings, the Assessing Officer found that assessee had claimed short term loss of ₹ 16,88,750/on the following transactions: "8. The assessee i.e. Smt. Sulochana V. Gupta had shown loss of ₹ 16,88,750/on the following transactions: Name of shares No. of shares Purchase Price Date & Rate Sale Price Date & Rate Short term capital loss Mysore Cement 10,000 12,62,500/- 7.1.92 126.25 11,05,000 8/1/92 110.50 ₹ 1,57,000/- UTI Master a) 50,000 17,37,500 12.2.92 34.75 14,00,000 16.1.92 28.00 ₹ 3,37,500/- b) 5,000 2,01,250 19.2.92 40.25 9,80,000 16.1.92 ₹ 4,43,750/- c) 30,000 12,22,500 19.2.92 40.75 28 L & T 19,45,000 18.2.92 a) 10,000 194.50 21,30,000 b) 5,000 9,35,000 19.2.92 187.00 21.1.92 142.00 ₹ 7,50,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter going through rival contentions and after personally hearing Shri P.S. Vasava, I am of the opinion that the claim of the assessee with respect to short term capital loss cannot be rejected, this find is supported by following accepted / acceptable facts: (i) The purchases have been made through a share broker, which establishes the purchase along with its purchase value. The Assessing Officer has accepted the purchases and its price to be genuine. (ii) Once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock. Since these are not part of the closing stock, the inference is that corresponding sale is there. That confirms the accepted fact that corresponding sales are there. (iii) The sales are confirmed by seller and purchases are confirmed by purchaser who are two separate taxable entities, assessed to tax. (iv) The purchases in the hands of the purchaser and its subsequent sale to a third party, earning profit in the process have been accepted and taxed by the revenue. This profit could have been earned only after purchases from the appellant are genuinely accepted. (v) Agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Script Date Opening Rate Highest Rate Lowest Rate Closing Rate Average Rate Mysore Cement 8.1.92 120.00 125.00 117.05 123.75 121.50 UTI Master 16.1.92 27.25 29.00 26.00 27.50 27.56 L & T 20.1.92 134.00 140.00 132.00 139.00 136.25 (Note 02 21.1.92 i.e. date of sale of L & T Shares) The market was closed and thus rates on the previous date are considered) It will be seen that sale of UTI Master was at ₹ 28.00 against the average of 27.56 per share, while sale of L & T was at ₹ 142/against average rate of ₹ 136. 25. As both these sale rates were on the higher side, no adverse inference needs to be therefore drawn, since the sales were at a rate which was higher than the average rate. The average rates are desirable to be taken since it can simply not be presumed that the transactions running into thousands of shares will be on the maximum rate available on that particular day. Even without giving credit to net realizable value after deducting brokerage & D. D. charges, the sale rates are far better otherwise. As such no further adjustment is called for. 14. But so far sale of shares of Mysore Cement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions in the light of material placed before us. The assessee is engaged in the activity of sale and purchase of shares. The loss claimed in respect of UTI Master shares and L & T shares is doubted on the ground that without having possession of those shares assessee had sold these shares to a group concern. The sales are made without intervention of any broker. This fact created a suspicion regarding the transaction. The sale of these shares/ securities to group concern by the assessee is supported by only evidence which is a debit note prepared by the assessee copy of which is placed at pages 50 to 52 of the documents attached with the appeal relating to Smt. Sulochana V Gupta. We have perused the copy of these vouchers which are self prepared giving the particulars of credit amount, number of shares, rate of sale and name of company. On these vouchers neither the particulars of shares i.e. distinctive number nor names of persons in whose names those shares were standing etc. have been given. Ld. Counsel of the assessee admitted that apart from these debit notes there is no material on record to prove the factum of sale more particularly that what were the distinctive numbers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particularly in the circumstances when onus is on assessee who is claiming the loss to be set off against other income." 8.7. The Tribunal thereafter, referred to the decisions, i.e. (i) in the case of CIT v. Ganga Prasad Birla (HUF) reported in 199 ITR 173 (Cal.), (ii) CIT v. Shekhawati Rajputana Trading Co. (P). Ltd. reported in 236 ITR 950 (Cal.), (iii) M.Ravji & Co. v. ITO reported in 55 TTJ (Ahd) 625, (iv) CIT v. L.N. Dalmia reported in 207 ITR 89 (Cal.), and thereafter, held as under: "22. As the onus was on assessee and it has not been discharged by producing evidence which in case of genuine transaction could well be proved by producing evidence in this regard, the transactions entered into by the assessee are liable to be ignored particularly when sales are made without ownership of the shares and that too without intervention of a broker. As pointed out earlier the transaction is between the assessee and its associate concern and it was not physically impossible for assessee to bring on record all the relevant record which were time and again asked to be produced by the assessing officer. Even before us assessee could not produce evidence to conclusively show that sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate, Shri J.P.Shah, appearing for the assessee, has submitted that in the instant case the Tribunal has not considered that the amount of tax which is alleged to have been avoided by the assessee; has already been paid by the sister concerns of the assessee. According to him, in fact, there is no avoidance of tax because the sister concerns had earned income from the said transactions and had paid tax thereon. In other words, the learned advocate has submitted that even if some tax has been avoided, the tax so payable by the assessee has already been paid by the sister concerns of the assessee, who earned profit on account of the said transactions of sale. It has been, therefore, submitted by him that without considering the fact that the amount of tax has already been paid by the sister concerns, the Tribunal ought not to have come to a conclusion that there was avoidance of tax. According to him, if one looks at the overall picture by considering the total amount of tax, which has been paid by the assessee as well as the sister concerns, in fact, there is no avoidance of tax and there is no loss caused to the revenue. It has been, therefore, submitted by him that without asce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been conclusively established by the assessee. 26. In view of above discussion, we hold that as assessee could not establish the factum of sales made to his/her associate concern and the transactions are without the intervention of broker, the loss claimed is not allowable." 9.1. Learned advocate Mr. B.S. Soparkar appearing for the assessee submitted that the Tribunal has committed an error in holding that since the assessee could not establish the factum of sale of the shares made to associate concern and the said transactions of sale were made without intervention of broker, the capital loss claimed by the assessee is not allowed ignoring the fact that the assessee has delivered the shares for consideration after purchasing the same through share broker in order to fulfill the obligation on the part of the assessee, pursuant to the transaction of sale which had admittedly taken, prior in point of time. 9.2. It was submitted that, it is nowhere provided in the provisions of the Income Tax Act, 1961 that the assessee should have the physical possession of the shares at the time of sale of such shares. In this context, it was pointed out that the Tribunal has not considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded by the Tribunal in the impugned order made on behalf of the assessee as under: "14. Further he contended that GAFL has shown profit on sale of shares on which the loss has been denied to the assessee. He in this regard referred to the assessment order of GAFL which is dated 19.01.1995 in which income has been assessed at ₹ 8,68,478/. However, it was seen that at page 88 the assessee has enclosed computation of total income of GAFL according to which income has been computed at NIL by chiming unabsorbed business loss brought forward from Asst. Year 199192 at ₹ 16,38,462/and in the note total business loss to be carried forward to asst. year 199394 are computed at ₹ 6,91,502/. 15. In paragraph 12 of the assessment order it has been mentioned by Assessing Officer that according to the assessment order for Asst. Year 1991-92 read with order under section 154 there is no carry forward loss, therefore, no set off of the same is given." 9.4. Referring to the above facts which are not in dispute, it was submitted that the Tribunal has brushed aside the relevant facts and has relied upon the irrelevant facts to hold that the assessee is not entitled to claim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and vouchers, there is no material on record to prove the factum of sale, more particularly, that what were the distinctive numbers of shares which were delivered by the assessee to GAFL and on which date, such delivery was given by the assessee. It was submitted that, merely because the purchase of such shares were made subsequently, cannot entitle the assessee to claim capital loss to be set off. It was pointed out that, there is no material record to prove that the shares were actually delivered by the assessee to GAFL even subsequently. 10.2. It was therefore submitted that, the Tribunal has rightly considered the fact that the assessee was under obligation to bring on record the evidence to prove conclusively that shares in particular were actually delivered to GAFL. 10.3. It was further submitted that, the Tribunal has also arrived at an admitted fact that the sale of the shares were prior in point of time to associate concern, inasmuch as, the assessee failed to produce any evidence with regard to subsequent delivery of shares and receipt of sale consideration from GAFL. It was therefore contended that in such circumstances, the Tribunal has rightly held that the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 (42 of 1956); (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.-For the purposes of this subclause, "population" means the population according to the last preceding census of which the relevant fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. Section 45 Capital gains. "45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to incometax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. (1A) Notwithstanding anything contained in subsection (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of- (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y delivered by the assessee to GAFL. In such circumstances, it would be necessary to refer to the decision of the Privy Council in case of Aveline Scott Ditcham v. James J. Miller reported in AIR 1931 Privy Council 203, wherein it is held as under: "That deed poll, remarkable as it is, and it is a notable example of salvage conveyancing, was not in their Lordships' judgment, effective for its purpose. The Supreme Court took the view that as between the company and the three persons whose title it purported to confirm, it amounted to a legal assignment in writing of the leasehold interest in the property with all rights appurtenant thereto which included the right to obtain payment of compensation under the Act of 1921. It certainly did not purport to be more than this. But, so regarded it was at law quite inoperative, inasmuch as the estate or interest which it purported to assign had at the date of the deed no existence, and it is well settled that neither at law nor in equity can the assignment of such an interest operate according to its tenor: see Sweet v. Shaw, (1), Collyer v. Isaacs (2), Performing Rights Society v. London Theatre of Varieties, Limited (3) and Performin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "conveys" immediately preceding "property" and not the word "property". The conveyance may be in present or in future, but the conveyance should be of property in existence. A purported transfer of property, not in existence at the time of the contract, can only operate as a contract to be performed in future. Reference in this connection may be made to the decision of the Privy Council in Ranee Bhobosoondree Dassee v. issur Chunder Dutt, (1872) 18 Suth WR 140 (PC). There, a person who had not the means to institute a suit for the recovery of the property he was entitled to, agreed to sell and sold a moiety of the property to another in consideration of a sum of money, which the other person was to pay for the purpose of carrying on the suit, both of them to figure as plaintiffs. Shortly after the conveyance, the owner compromised with the opposite party, who was in possession of the property. Affirming the dismissal of the suit in ejectment filed by the person who had advanced the money as on a sale against the owner and the opposite party, their Lordships observed that the transaction of sale did not operate as a present transfer of the property, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion to In re Bajraj Singh, (1887) ILR 9 All 585 (FB), also a reference under the Stamp Act, as authority for the proposition that future property could be subject of mortgage. Having perused the judgment carefully, we find no warrant for such an inference. What was hypothecated there was produce of a field with sugarcane, then existing property, and there was no discussion in the case whether property not in existence could be the subject of mortgage; nor does the decision in Secretary to the Commr. of Salt, Abkari and Separate Revenue, Madras v. Mrs. Orr, ILR 38 Mad 646 = (AIR 1917 Mad 374), cited for the State advance the contention. The question there was, whether the instrument was a mortgage within the meaning of Sec. 2(17) of the Stamp Act and was chargeable with stamp duty under Art. 40 or was a declaration of trust chargeable under Art. 64. The instrument was between the proprietors of a business and the Bank of Madras, who had agreed to advance moneys. The deed covered besides machinery, plant, etc., stock-in-trade, goods, chattels and effects of the business in Madras and Rangoon, described in the schedule to the instrument. The net profits realised after payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormalities are required for the creation of a mortgage of moveable property. A parole mortgage of goods is perfectly valid though a transfer on an actionable claim will have to comply with the requirement of Section 130 of the Transfer of Property Act. For the purpose of the Stamp Act, the effect of the instrument has to be examined at the time of the execution; whether in fact there is an operative transfer or mortgage on the execution of the instrument and by virtue of the instrument. In this connection we may refer to the observations of the Supreme Court in AIR 1955 SC 376 already cited, where it is observed as follows: "Where there is a contract for the transfer of property which is not in existence at the date of the contract, the intending transferee may, when the property comes into existence, enforce the contract by specific performance, provided the contract is of the kind which is specifically enforceable in equity. It is only when the transferor voluntarily executes a deed of transfer a sin all conscience he should do or is compelled to do so by a decree for specific performance that the legal title of the transferor in that property passes from him to the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains tax or capital loss, the essential requirements are that there should be a transfer of a capital asset effected in the previous year. This would require ascertainment of the meaning of the terms transfer and capital assets. Transfer has been defined, in relation to a capital asset, to include various contingencies stipulated by sub-clauses of Section 2(47) of the Act. Sub-clause (ii) of Section 2(47) of the Act states that transfer includes the extinguishment of any right therein. That requires assigning meaning to the term therein. In other words, for the purposes of transfer of a capital asset, it would suffice if there is extinguishment of any rights in a capital asset. However, even for the purposes of extinguishment of any rights, existence of a capital asset is a must. 7. Section 2(14) of the Act defines capital asset to mean property of any kind held by an assessee. For the present, it is not necessary to refer to the exclusionary clauses. The definition stipulates existence of property of every description and such property must be held by an assessee. 8. As can be seen from the facts of the case, the assessee had entered into a contract for purchase of machinery. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding a right, which itself was a capital asset, is not supported by the facts of the case. The only right that the assessee had, till the point of time it cancelled the contract, was to perform its part of the contract and seek performance of the contract from its suppliers. This could not be termed to be a capital asset, howsoever wide the definition of property may be cast. 10. In these circumstances, when the Tribunal came to the conclusion that the concluded contract between the assessee and the suppliers through the exchange of letters was not a capital asset in the hands of the assessee, and there was no transfer whatsoever within the meaning of Section 2(14) of the Act, it cannot be said to be incorrect. Even if the unilateral act of cancellation of contract would amount to extinguishment, it would be extinguishment only of the right to seek performance of the contract after showing the willingness to perform its part of the contract. 11. Therefore, in absence of any infirmity in the impugned order of Tribunal, question No. 2 is answered in the affirmative. The Tribunal was right in law in holding that the assessee was not entitled to deduction of ₹ 80,000/as sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pro and contra in regard to each one of them and what were was the reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court." 18. In overall view of the matter and in absence of any infirmity in the impugned order of the Tribunal, the question is answered in affirmative. The Tribunal was right in holding that if the assessee could not establish the factum of sale of the shares made to her associate concern and the said transaction of sale is made without the intervention of the broker, the capital loss claimed by the assessee is not allowable. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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