Vildirect: IncomeTax-caselaws-2003-VIL-191-ITAT-MUM

2003-VIL-191-ITAT-MUM

Equivalent Citation: [2004] 89 ITD 282

Income Tax Appellate Tribunal MUMBAI

IT APPEAL NO. 8395 (BOM.) OF 1995

Date: 21.01.2003

KANTILAL T. SANGHVI

ASSISTANT COMMISSIONER OF INCOME-TAX

P.N. Shah for the Appellant.
M.V. Panikkar for the Respondent.

BENCH

M.K. CHATURVEDI, VICE-PRESIDENT AND SC TIWARI, ACCOUNTANT MEMBER

JUDGMENT

M.K. Chaturvedi, V.P. –

This appeal by the assessee is directed against the order of CIT (Appeals) XXXVI, Bombay, and relates to the assessment year 1993-94.

2. The solitary issue raised in this appeal relates to the sustenance of disallowance of long term capital loss of Rs. 1,41,808 claimed by the assessee on maturity of Indira Vikas Patra.

3. We have heard the rival submissions in the light of material placed before us and precedents relied upon.

4. The assessee purchased Indira Vikas Patra on the following dates :

Date of Purchase	Face Value (Rs.)
31-3-1987	75,000
8-5-1987	1,00,000
6-7-1987	1,00,000

Assessee got back the money on the maturity of Indira Vikas Patra. Applying the index cost, assessee claimed long term capital loss. The maturity period was five years. After maturity, assessee took the realization value, which was the purchase value. Assessing Officer held that there was no transfer of the capital asset. As such there was no capital gain/loss.

5. Being aggrieved, assessee preferred appeal before CIT(A). CIT(A) held that it was a pure case of refund. There was no transfer involved. Therefore he sustained the addition.

6. Shri P.N. Shah, learned counsel for the assessee, relied on the order of the Tribunal rendered in the case of Kirti Babulal Shah v. ITO [IT Appeal No. 2846 (Mum.) of 1999 dated 5-9-2001. In this case, the short question before the Tribunal was whether the benefit of indexation could be allowed to the assessee in respect of capital gain arising on repurchase of units referred to in sub-section (2) of section 80CCB of the Act.

7. The assessee placed reliance on the decision of jurisdictional High Court rendered in the case of Seth Gwaldas Mathuradas Mohata Trust v. CIT [1987] 165 ITR 6201 (Bom.). In this case, Hon’ble High Court has held that redemption of cumulative preference shares amounted to extin-guishment of rights. Therefore the amount received by the assessee on the redemption of the shares was liable to tax as capital gains. In the case of CIT v. Hindustan Welfare Trusts [1994] 206 ITR 1382 (Cal.), it was held that the Tribunal was right in law in holding that investment by the assessee-trust in fixed deposit in Scheduled Banks for a period of 60 days made in the previous year relevant to the assessment year 1981-82 out of sale proceeds of shares of companies amounted to acquiring of another capital asset in terms of section 11(1A) of the Income-tax Act, 1961. In the case of CIT v. Minor Bababhai [1981] 128 ITR 13 (Guj.), assessee advanced a sum of Rs. 25,000 to a company on a promissory note. Company went into liquidation. Scheme of compromise was arranged. Assessee could realize only Rs. 13,323 from the company. The balance of Rs. 11,617 was claimed by the assessee as capital loss suffered by him during the relevant assessment year. Hon’ble Gujarat High Court allowed this loss as capital loss. In the case of Anarkali Sarabhai v. CIT [1997] 224 ITR 4224 (SC) it was held that the difference between sum received by the assessee on redemp- tion of the shares and the sum earlier paid for purchasing was taxable as capital gains. The Court held that when preference shares are redeemed by the company, the shareholder has to abandon or surrender the shares, in order to get the amount of money in lieu thereof. There is, therefore, also a relinquishment, which brings the transaction within the meaning of section 2(47)(i) of the Income-tax Act.

8. Attention was also invited on the instruction of CBDT being No. 883 dated 24-9-1975. Relevant portion, which was relied upon by the learned counsel, is extracted here as under :

"The Board had occasion to examine whether investment of the net consideration in fixed deposit with a bank would be regarded as utilization of the amount of the net consideration for acquiring ‘another capital asset’ within the meaning of section 11(1A) of the Income-tax Act, 1961. The Board has been advised that investment of the net consideration in fixed deposit with a Bank for a period of 6 months or above would be regarded as utilization of the net consideration for acquisition of ‘another capital asset’ within the meaning of section 11(1A)."

9. In the case of CIT v. Bharat Bajoria [1992] 107 CTR (Cal.) 6, it was held that long term capital loss occurred where promissory note was assigned and exchanged against allotment of shares having lesser face value.

10. In the case of CIT v. Surat Cotton Spg. & Wvg. Mills (P.) Ltd. [1993] 202 ITR 9321 (Bom.), it was held that redemption of preference shares amounts to ‘transfer’ within the meaning of section 2(47).

11. Reference was also made to the circular No. 2 of 2002 dated 15th February, 2002 in respect of treatment of deep discount bonds and strips reported in 254 ITR (statute) 241 and the press note in connection with tax treatment of deep discount bonds and strips reported in 254 ITR (statute) 302.

12. We have considered the text and context of the various precedents relied upon. It is clear that none of the precedents discussed in the court deals with the present situation. We are concerned with the issue that whether Indira Vikas Patra could be construed to be a capital asset. In that context, it is important to ascertain that whether surrender of Indira Vikas Patra on its maturity amounts to relinquishment of right in the asset. De hors transfer, there cannot be capital gain.

13. Adverting to the scheme of Indira Vikas Patra, we find that this can be purchased in the form of certificates from Post Office of various denomi-nations by paying cash or locally executed cheque, pay order or demand draft drawn in favour of the Postmaster or by presenting a duly signed withdrawal form or cheque together with the passbook for withdrawal from Post Office savings accounts standing to the credit of the purchaser at the same Post Office. No format application was required for the purchase of Indira Vikas Patra. On payment being made, certificates were issued immediately and the date of payment used to be the date of certificate. At the time of issuance, the certificates did not bear the name of any person. However these certificates were transferable as per the rule. These certificates can be encashed at any time after the expiry of a period of five years from the date of issue by presenting before the Post Office of issue.

14. A person presenting a certificate for encashment was required to sign in the space provided on the back thereof in token of having received the payment. He was also required to indicate thereon his name and address. The Post Office was not responsible for any loss caused to a holder by any person obtaining possession of the certificate and fraudulently encashing it. Having regard to the nature of the certificate, in our opinion, it cannot be compared with the preference shares, units of UTI and other documents discussed in the various cases in the preceding paras. It is like deposit of money with the Post Office on interest with a peculiar feature that the depositor’s name is nowhere recorded and it can be encashed by anyone. That is how the instrument becomes transferable. The context of transferability is akin to that of currency note. Currency note is also freely transferable. It does not bear the name of holder. No documentation is required for effecting the transfer.

15. In order to subject any profit or gain received by or accruing to an assessee to the charge of capital gain, the sine qua non is that the receipt or accrual must have originated in a transfer within the meaning of section 45(1) read with section 2(47). There must, therefore, be a casual nexus between the transfer and the profit or gain received by or accruing to the assessee. Section 2(47) defines ‘transfer’ in relation to capital asset, to include "the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law". ‘Transfer’ is a word of the widest import and includes every means by which the property may be passed from one person to another. It includes transfer by operation of law in invitem. Transfer presumes both the existence of the asset and the transferee to whom it is transferred. It was vehemently argued before us that in the present case there was transfer by relinquishment. The word ‘relinquish’ is derived from the latin ‘relinquere’ implying leaving behind, means to withdraw or retreat from, abandon; to desist from, to give over possession or control of. ‘Relinquish’ usually does not imply strong feelings but may suggest some regret, reluctance, or weakness. It implies that the person ceases to own the asset concerned by some act on his part. The property continues to exist, but the interest therein of the owner is either given up or abandoned. The property continues to exist after the relinquishment.

16. The word ‘transfer’ spoken of in respect of ‘extinguishment of any rights therein’ includes within its ambit the cases where there was extinguishment of the capital asset itself. A right in any property can be extinguished even when the property ceased to exist. Reading the word ‘transfer’, in the light of the use of the word ‘effected’ in section 45, it can be said that in the case of corporeal property, unless the owner of the capital asset is divested of his rights by the process of extinguishment resorted to and unless there is consideration for such extinguishment, there can be no transfer of the capital asset for the purpose of sections 45 and 48. According to the rule of Noscitur a Sociis, the expression ‘extinguishment of any rights therein’ would take colour from the associated words and expression will have to be restricted to the sense analogous to them. If the Legislative intended to extend the definition to any extinguishment of right, it would not have included the obvious instances of transfer, viz., sale, exchange, etc. Hence, the expression ‘extinguishment of any rights therein’ will have to be confined to the extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of rights independent of or otherwise than on account of transfer.

17. The act of purchase of Indira Vikas Patra tantamounts to the depositing of the money in the Post Office for a specific period on a specified rate of interest. On the maturity of the amount when the assessee gets his money back, he is not getting the amount for transferring any asset. He is only getting his money, which Post Office promised to pay back after a specified period. As such, there is no transfer. Resultantly, there is no capital gain. Ex Consequenti, it is not open to the assessee to avail the benefit of indexed cost of acquisition as contemplated under Explanation (iii) to section 48. Accordingly, we uphold the impugned order.

18. In the result, appeal of the assessee stands dismissed.

In favour of revenue

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