9911796707
TMI Blog1983 (1) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... terested. According to the ITO, the sale of the shares made by the assessee were not genuine. Hence, the loss is not allowable. 2. The assessee appealed to the AAC and contended that the action of the ITO was not justified. The AAC agreed with the assessee that there was no case for holding the sales made by the assessee to be not genuine. In this respect, he pointed to the order dt. 5th November, 1980 of the CIT(A) wherein the CIT(A) had also come to the same conclusion in the case of T.D. Chowgule under similar facts and circumstances. Thus, the AAC did not agree with the ITO that the loss claimed by the assessee could be disallowed on the ground that the sales were not genuine. However, he gave a different reason in upholding the disallowance. According to the AAC the capital loss which was genuine was not a short-term capital loss but a long-term one. He observed that the company, Messrs Chowgule and Co. Pvt. Ltd. first came into existence in 1965 with equity shares of Rs. 100 each. On 30th September, 1971, the following resolutions were passed by the said company: "Resolved that 3,00,250 equity shares of Rs. 100 each subscribed and paid-up by the Company each be sub-divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond Supplementary Trust did not apply to the facts of this case, because in that reported case, the share-holders were given an option to convert their Preference Shares into Equity Shares. On the above reasoning, he came to the conclusion that there was neither exchange nor transfer of the shares on 30th September, 1971. Hence, the assessee's arguments failed. According to the AAC, the Preference Shares sold by the assessee during the year under consideration were actually acquired in 1965 by an HUF and on the partition of the said family, the assessee came to acquire these Equity Shares. As the Preference Shares sold by the assessee could be treated to be original Equity Shares acquired in 1965, the AAC rejected the contention of the assessee on the ground that the capital loss though genuine was not a short-term capital loss. 3. Shri S.N. Inamdar, the ld. representative for the assessee, urged before us that the AAC erred in his decision. At the outset, he pointed out that s. 85 of the Companies Act clearly stated that Equity Shares are on a different kind of the assets than the Preference Shares. These two kinds of Shares are different in nature inasmuch as the rights and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument given by the AAC in his order, he stated that in case his arguments stated in the earlier paragraphs his arguments, then he would like to urge that the AAC erred in his conclusion that there was no transfer or exchange on 30th September, 1971. He also relied on the decision in the case of Nizam's Second Supplementary Trust. He stated that the test laid down in that case was that there should be two types of property in existence which could be exchanged with each other. He explained that the assessee already had one kind of property, namely Equity Shares and she exchanged the same for Preference Shares and other Equity Shares. The Preference Shares which were allotted to the assessee obviously came into existence atleast a moment before they were allotted to the assessee. Hence he urged that the case of Nizam's Second Supplementary Trust actually helped the case of the assessee in arriving at the conclusion that there was indeed an exchange amounting to transfer on 30th September, 1971 between the Equity Shares held by the assessee and the Preference Shares acquired by her on 30th September, 1971. 6. Shri Roy Alphanso, the ld. representative for the department, on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The question that is raised in this appeal is whether the shares sold by the assessee in July, 1976, were acquired by her on 30th September, 1971 or earlier. The assessee owned Equity Shares prior to 30th September, 1971 on which date the company changed the nature of its Equity Shares by a resolution. This change was two-fold. Firstly, each share of Rs. 100 was devided into three shares of Rs. 33.3 each. Secondly, out of every six such sub-divided shares, one share was changed into an Irredeemably Cumulative Preference Shares. As pointed out by the ld. representative for the assessee, s. 85 of the Companies Act does make a distinction between Equity Shares and Preference Shares. The rights and liabilities attached to these two types of shares are different and so they cannot be considered as the same type of assets. In our considered opinion, the Preference Shares are not the same as the Equity Shares, because the rights and liabilities attached to the latter. We find force in the argument raised for the assessee that there is no question of acquiring a share prior to the date on which it came into existence. Evidently, the Preference Shares came into existence only on 30th Sept ..... X X X X Extracts X X X X X X X X Extracts X X X X
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