9911796707
TMI Blog1985 (9) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... r accepted the assessee's claim for the non-taxability of items Nos. (ii) and (iii) but so far as item No. (i) is concerned, he brought it to tax under section 12(2) of the Income-tax Act as it then stood. The assessee carried the matter in appeal. The Appellate Assistant Commissioner concurred with the view expressed by the Income-tax Officer and partly allowed the appeal in regard to the computation of capital gains tax. In further appeal, the Tribunal held that the view taken by the authorities below on the interpretation of section 12(2) of the Act as it then stood was not sustainable. The Revenue sought a reference under section 256(1) of the Act and, accordingly, the following question came to be referred for this court's decision: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that since the donations made by the donor-trust to the assessee-trust were towards the corpus or the capital fund of the assessee, such contributions cannot be treated as income of the assessee-trust ?" In our view, this question is directly covered by the decision of this court in CIT v. Bal Utkarsh Society [1979] 119 ITR 137. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered partnership firm. The net value of the properties donated was Rs. 54,680. On the same day, the donee-trust accepted the offer subject to the encumbrance as is evidenced by annexure " H " to the statement of the case. While accepting the donation, the donee-trust further resolved that the charge of Sheth Karamchand Premchand on the aforesaid 60 shares should be discharged out of the sale proceeds of the shares of Ahmedabad Mfg. and Calico Printing Co. Ltd. Accordingly, the 200 ordinary shares of Ahmedabad Manufacturing and Calico Printing Co. Ltd. received by the donee-trust from Shreyas Foundation were sold for Rs. 80,990 and out of the sale proceeds, a sum of Rs. 80,500 came to be paid to the creditor, Sheth Karamchand Premchand. On the repayment of the loan, the share certificates concerning the 60 ordinary shares of Messrs. Karamchand Premchand Pvt Ltd., were taken possession of by the donee-trust. In the background of these facts, the second question which arises for our determination has been formulated as under : " (2) Whether the net consideration received on the sale proceeds of the 200 ordinary shares of the Calico Mills and utilised for the redemption of the charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-trust subject to an encumbrance of Rs. 80,500 of Sheth Karamchand Premchand. Because of this encumbrance, the net value of these 60 shares was estimated at Rs. 54,680. Smt. Leenaben was indebted to Sheth Karamchand Premchand in the sum of Rs. 80,500 on the overdraft account and had placed the 60 shares in question by way of security for the loan amount. After the 60 shares were donated to the assessee-trust, the latter disposed of 200 ordinary shares of Calico Mills for consideration of Rs. 80,900 and from the price so realised, discharged the debt of Rs. 80,500 to Seth Karamchand Premchand and obtained delivery of the 60 ordinary shares from the said firm. Sub-section (1A) of section 1 which is relevant for our purpose states that where a capital asset, being property held under trust, wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent : (i) where the whole of the net consideration is utilised in acquiring the new ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above question, it is necessary to understand the real nature of the transaction between Smt. Leenaben A. Sarabhai on the one hand and Sheth Karamchand Premchand on the other in relation to the 60 ordinary shares of Messrs. Karamchand Premchand Pvt. Ltd. We have already pointed out earlier that Smt. Leenaben was indebted to the parnership firm of Messrs. Karamchand Premchand, inter alia, in the sum of Rs. 80,500 advanced against the security of the 60 shares in question. These shares were lying in the custody of the said partnership firm on March 23, 1972, when they came to be donated to the assessee-trust. In the letter, annex. " J ", dated March 7, 1972, addressed to Smt. Leenaben A. Sarabhai by Messrs. Karamchand Premchand, it is stated that the loan has been advanced on the pledge of share certificates along with blank transfer forms duly signed by the debtor. After the receipt of the donation, the assessee-trust addressed a letter, annex. " N ", dated March 25, 1972, to Sheth Karamchand Premchand stating that the shares were donated subject to the loan and charge of Rs. 80,500. By the said letter, a cheque in the sum of Rs. 80,500 was forwarded to the said firm in full disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharge the debt within the stipulated time, the pawnee being entitled to sell the goods to recover the principal amount together with interest and all necessary expenses incurred in respect of and for the preservation of the pledged goods. In Halsbury's Laws of England, third edition, volume 29, the following statement appears on page 218 : " The pawnee has a special property or special interest in the thing pledged, while the general property therein continues in the owner. That special property or interest exists so that the pawnee can compel payment of the debt, or can sell the goods when the right to do so arises. This special property or interest is to be distinguished from the mere right of detention which the holder of a lien possesses, in that it is transferable in the sense that a pawnee may assign or pledge his special property or interest in the goods or may, as agent of the pawner, in due course, sell the goods .... .." It would appear from this statement that where goods are pledged, the pawnee has a right to their possession and until the debt for which the pledge is a security is tendered or paid, the pawnee would be entitled to retain the goods. He would be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sell the goods after giving a reasonable notice." In Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322, the Supreme Court observed that once the debt is satisfied or the engagement extinguishes the pawn, the pawnee on such satisfaction is bound to deliver the property to the pawner. The pawner has an absolute right to redeem the property pledged upon tender of the amount advanced but that right would be lost if the pawnee has in the meantime lawfully sold the property pledged. The pawnee's right of sale, observed the Supreme Court, is derived from an implied authority from the pawner and such a sale is for the benefit of both the parties. It also pointed out that there was no difference between the common law of England and the codified law found in sections 172 to 176 of the Contract Act. In the case of Bank of Bihar v. State of Bihar [1971] 41 Comp Cas 591 (SC), the Supreme Court referred to the statement in Halsbury's Laws of England extracted earlier and observed that the pawnee has special property and lien which is not of ordinary nature on the goods and so long as his claim is not satisfied, no other creditor of the pawner has any right to take away the goods or its price. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 80,500 to the creditor, M/s. Karamchand Premchand, it acquired any capital asset so as to entitle it to claim the benefit of sub-section (1A) of section 11 of the Act ? The creditor had merely the right to retain the shares so long as the payment was not forthcoming. It also had the right to sell the shares after notice to realise the debt. However, so far as the debtor is concerned, it had to meet the obligation of payment and there was no question of acquiring any property, that is, a capital asset, while discharging that duty. The ownership in the shares remained with the pawner and no part of the bundle of rights constituting the ownership had passed on to the pawnee when the shares were pledged as security for the debt incurred by Smt. Leenaben. The assessee-trust walked into the shoes of Smt. Leenaben when it accepted the donation with the encumbrance. By accepting the onerous gift, it undertook the liability to discharge the debt before the creditor sold the shares to recover his dues. By discharging its obligation under the pledge, no property or capital asset was acquired. Merely the way was cleared for receiving back the shares pledged with the creditor. We are, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame being pledged by way of security for the loan advanced to the debtor. As observed by the Rangoon High Court in the case of Dwarika, AIR 1939 Rang 413, "in the case of a pledge, the pledgee has no property in the pawn, but merely the right to sell ". We are, therefore, of the view that since the pawnee had no property in the pawn, there was no question of extinguishment of any right qua title to the thing pledged so as to amount to acquisition of a capital asset an discharge of the debt by the debtor. The Tribunal placed reliance on the decision of the Supreme Court in Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471, in support of its impugned order. In that case, certain beneficiaries under a wakf-alal-aulad received income from the wakf estate. During the relevant assessment years, the beneficiaries were not only assessed to income-tax in respect of the said income but were also assessed to wealth-tax on the premise of their aliquot share. The assessees raised two contentions, viz., (i) the right to receive a definite share of the net income from wakf estate was not " asset " under section 2(e); and (ii) the right of the beneficiaries under the wakf was mere annuity not capable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee contended that the question of capital gains did not arise since no transfer of capital asset within the meaning of section 45 read with section 2(47) of the Act had taken place. This contention found favour when the proceedings reached the Appellate Tribunal. The Tribunal while setting aside the order of the Income-tax Officer held that unless the transfer of capital asset is effected by an assessee, section 45 would not come into play, since there was no voluntary act on the part of the assessee effecting the transfer. This court held that when there was an extinguishment of the assessee's rights in the property because of the destruction thereof by fire, it tantamounted to transfer within the meaning of section 2(47) read with section 45 of the Act. The court observed that the legislature had deliberately chosen language of the widest amplitude so as to cover every possible transaction which results in the destruction, annihilation, extinction, termination, cessation or cancellation, by satisfaction or otherwise, of all or any of the bundle of rights-qualitative or quantitative-which the assessee has in a capital asset, whether such asset is corporeal or incorporeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 500 which was reduced to Rs. 50 per share, of which the reduced cost to the assessee was Rs. 80 per share. The question which arose for consideration was, whether there was any extinguishment of the right of the shareholders to the extent of the reduction of the face value of the preference shares and, if yes, whether the profits or gains arising therefrom became chargeable to income-tax as capital gains under section 45 read with section 2(47) of the Act. This court held that on the date of the reduction of the face value of the shares, there was a proportionate extinguishment as regards the right in praesenti to claim dividends on the basis of the shares held by the assessee. This extinguishment had a direct nexus to the decision of the company to reduce the share capital under section 100(1)(c) of the Companies Act, 1956. This court, therefore, held that as a result of the reduction of the share capital of the company and the consequential payment of the proportionate amount reducing the face value of the share to Rs. 50, the shareholder's right stood extinguished pro tanto and hence he was liable to capital gains. Mr. Patel submitted that if on account of the reduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
