COMMISSIONER OF INCOME TAX Vs. R CHIDAMBARANATHA MUDALIAR

JUDGEMENT

(1.) THERE are three questions of law which are referred to us at the instance of the Revenue for our consideration and the questions read as under :

(2.) THE assessment year involved is 1975-76. THE assessee claimed that as against the capital gains that arose in the year 1975-76, a loss of Rs. 20,000 said to have been incurred by the assessee in an earlier year should be set off as capital loss. THE Income-tax Officer rejected the claim of the assessee on the ground that the loss was not a capital loss and it was not capable of being carried forward to set off against the capital gains for the assessment year 1975-76. THE Appellate Assistant Commissioner confirmed the view of the Income-tax Officer. THE Tribunal, however, allowed the appeal preferred by the assessee.

(3.) THE apex court in Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647, held that the capital gains tax would be attracted only by transfer of capital assets and not by extinguishment of rights howsoever brought about, and whatever the mode by which the transfer was brought about, the existence of the asset during the course of transfer was a pre-condition and unless the asset existed in fact, there could not be a transfer of it. Applying the principles laid down by the apex court to the facts of the case, it is apparent that there was no transfer of capital assets as contemplated in Section 2(47) of the Act and when there is no transfer, the loss, even assuming that there was a loss to the assessee, cannot be said to have arisen by the transfer of a capital asset within the meaning of Section 45 of the Act. THE order of the Appellate Tribunal holding that the loss arose within the meaning of Section 2(47) of the Act is unsustainable in view of the decision of the Supreme Court in the case of Vania Silk Mills P. Ltd. [1991] 191 ITR 647.