COMMISSIONER OF INCOME TAX Vs. VEENABEN VADILAL

JUDGEMENT

(1.) THE Tribunal has referred the following questions to this Court under S. 256(1) of the IT Act, 1961 (hereinafter referred to as "the Act") :

(2.) THE respondent assessee is a beneficiary under the Veenaben Vadilal Trust. The assessee possessed shares of Sayaji Mills Ltd. As a sharebolder of Sayaji Mill Ltd., she got 186 shares of Rajesh Textile Mills Ltd. The trust also held shares of Sayaji Mills Ltd., and, as a shareholder, it got 157 shares of Rejesh Textile Mills Ltd. During the asst. year 1971 72, the assessee sold her 186 shares and the trust sold 157 shares of Rajesh Textiles Mills Ltd. In the return of income filed for that year, the assessee claimed a capital loss of Rs. 42,317 on sale of 343 shares of Rajesh Textile Mills Ltd. While working out the capital loss, the assessee claimed the cost of the share which was Rs. 100 per share and also a deduction Rs. 108.75 per share, being the difference between the cum right and ex right quotations of the shares of Sayaji Mills Ltd. The ITO disallowed the deduction of Rs. 108.75 per share claimed by the assessee and determined the capital gains at Rs. 4,104. Rs. 2,139 was found to be the capital gain in respect of the sale of shares which belonged to her personally and Rs. 1,963 in respect of sale of shares held by the trust. We are not referring to the other claims which were disallowed as that is not necessary for the purpose of this reference. As the assessee's claim for deduction of capital loss was rejected by the ITO, she preferred an appeal to the AAC. It was contended before the AAC that, while determining the capital loss on account of sale of shares of Rajesh Textile Mills Ltd., the assessee was entitled to deduction on account of the fall in value of shares in Sayaji Mills Ltd., as the shares of Rajesh Textile Mills Ltd., were received as right shares. The AAC, following the decision of the Tribunal in IT Appeal No. 1206 (Ahd)/70 71, held that the assessee was entitled to the deduction of the fall in value of shares in Sayaji Mills Ltd., while computing the capital gain in respect of shares of Rajesh Textile Mills Ltd. Therefore, the addition of Rs. 2,139 made by the ITO was ordered to be deleted and he was directed to verify the claim of capital loss made by the assessee and allow the same. As regards the similar claim made in respect of sale of 157 shares of Rajesh Textile Mills Ltd., by the trustee, the AAC did not accept the assessee's contention and agreed with the finding of the ITO that capital loss suffered on that account cannot be considered in the hands of the assessee as a beneficiary.

(3.) THE Revenue, feeling aggrieved by the said decision of the Tribunal, filed an application for referring the two questions which are quoted above and a third question which is as follows :