COMMISSIONER OF INCOME TAX Vs. SANTOSH L CHOWGULE

JUDGEMENT

(1.) BY this reference under s. 256(l) of the Income Tax Act, 1961, the Tribunal has referred the following questions of law to this Court for opinion at the instance of Revenue:

(2.) WHETHER , on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the capital loss on sale of irredeemable cumulative preference shares of Chowgule and Co. Ltd. constitute short -term capital loss to the assessee?' These questions arise out of orders of the six appeals. As the facts of all the six appeals are identical, a single consolidated reference has been made by the Tribunal. The main order of the Tribunal being in ITA No. 102/Pn/1982 in case of Mrs. Sulakshana. S. Chowgule, the facts of that case have been set out in the statement of the case. 2. The material facts of Sulakshana Chowgule's case are as follows ..

(3.) MR . S. N. Inamdar, learned counsel for the assessee, on the other hand, submits that this is a clear case of short -term capital loss because the asset transferred by the assessee, viz., irredeemable preference shares, came into existence only on 30 -9 -1971, by virtue of the resolution of the company of that date and were acquired by the assessee as a result thereof. The said shares were sold by the assessee within 60 months from the above date in July, 1976. Our attention was drawn by the learned counsel to s. 85 of the Companies Act, which states that equity share capital is different from the preference share capital. It was contended that the two kinds of shares, i.e., equity shares and preference shares, are quite different in nature, in as much as rights and liabilities attached to them are entirely different. According to the learned counsel, no preference share ever existed prior to the resolution dt. 30 -9 -1971, and so there was no question of acquiring preference shares prior to that date. It was further contended that there was an exchange of equity shares held by the assessee by new set of shares including the irredeemable preference shares in question by resolution of the company dt. 30 -9 -1971. Reliance was placed in support of this contention on the decision of the Andhra Pradesh High Court in Nizam's Second Supplementary Family Trust case (supra).