C A NATARAJAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following questions have been referred at the instance of the assessee "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 5, 000 was not a capital loss within the meaning of section 12B of the Indian Income-tax Act, 1922 ?.2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provision of section 12B of the Indian Income-tax Act, 1922, did not apply to the transaction resulting in the loss of Rs. 53, 761 incurred by the assessee ?" *THE assessee who is a chartered accountant purchased in 1948-50 cumulative preference shares in South India Sheet Metal Company Ltd. at a cost of Rs. 5, 000. He was receiving dividend from the said company up to the accounting year relevant for the assessment year 1952-53. In 1956 the company went into liquidation. On December 8, 1960, the official liquidator informed the assessee that the assets of the company were not sufficient even to pay off the secured creditors and that there was no possibility of the shareholders being paid any portion of their capital investment therein. For the assessment year 1961-62, the assessee submitted a return in which he claimed the cost of investment of Rs. 5, 000 as capital loss under section 12B of the Indian Income-tax Act, 1922 (hereinafter called "the Act"), relying on the receipt of the letter from the official liquidatorOn March 31, 1953, the assessee had advanced a sum of Rs. 25, 000 to one M/s. Meera Sahib and Brothers, a client of the assessee. In May, 1954, he advanced a further sum of Rs. 50, 000. THE assessee filed C.S. No. 23/58 on the original side of the High Court for the recovery of these advances and obtained a decree. But he could realise between 1958 and 1960 only a sum of Rs. 20, 539.

(2.) THE assessee claimed a sum of Rs. 53, 761 outstanding under the decree as a loss allowable under section 12B in the same assessment year 1961-62THE Income-tax Officer held that the two claims in respect of Rs. 5, 000 and Rs. 53, 761 were not allowable under section 12B as they were not losses that arose from "the sale, exchange, transfer or relinquishment of a capital asset". This view was confirmed by the Appellate Assistant Commissioner and the Tribunal. In this reference the learned counsel for the assessee contended that there could be no doubt that as a result of the company going into liquidation and the irrecoverability of the decree debt, the assessee had suffered a loss, that the loss incurred by him in these two transactions amounts to a relinquishment within the meaning of section 12B and that, therefore, the assessee was entitled to set off these losses against his other capital gains in that yearShares are movable properties and they are capital assets admits of no doubt. Even in the case of winding up of a company the shareholder who would be a contributory would have a right to participate in the residue after paying the liability. THE question for consideration is whether in view of the fact that the value of the shares have been reduced or became nil value because of the company going into liquidation and the official liquidator finding that the assets of the company were not sufficient even to pay off the secured creditors, the assessee could be said to have suffered a capital loss. It is not every capital loss that is sustained by an assessee that could be claimed as a set-off against the capital gain.