Decided on June 24,2016

Bijal Investment Co. Pvt. Ltd. Appellant


Mr. K.S. Jhaveri, J. - (1.) Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'C' (hereinafter referred to as the Tribunal) dated 28.10.2005 in ITA Nos. 1245/Ahd/2000 Deputy CIT v. Bijal Investment Co. P. Ltd. (2008) 303 ITR (AT) 350 (Ahd) for the Assessment Years 1995-96, the assessee has preferred the present Tax Appeal for consideration of the following substantial question of law which were framed while admitting the matters : "(i) Whether, in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the appellant is not entitled to long term capital loss of Rs. 19,61,617/- as there is no valid transfer of the shares sold ? (ii) Whether, in the facts and circumstances of the case the income Tax Appellate Tribunal was right tin law in holding that the cost of shares which are pledge cannot be ascertained and resultantly since the machinery provisions of Section 48 fails, loss arising from such transfer has to be disallowed ?
(2.) The facts of the case are that the appellant-assessee is a company registered under the Companies Act. During the previous year to the relevant assessment year 1994-1995, the assessee had pledged 27410 equity shares with the IDBI Bank, which had gone in liquidation when it was pledged. The assessee had shown a long term capital gain of Rs. 19,61,617/on sale of such shares of RMIL to its sister concern. On such sale of shares, the assess had claimed long term capital loss of Rs. 19,61,617/. 2. 1 The Assessing Officer noted that the shares of Rustom Mills and Industries Ltd. which the assessee sold were pledged with the IDBI Bank and treated the transfer of the impugned 27410 shares as valid in the eye of law. The Assessing Officer disallowed the loss arising on the sale of the shares of RMIL( being 27410 in number) amounting to Rs. 19,61,617/. The assessee therefore, preferred appeal before the CIT (Appeals). The CIT (Appeals) upheld the assesse's claim directing the allowance of the long term capital loss. 2. 2 The revenue therefore carried the appeal in the Tribunal. The Tribunal has distinguished its own view and allowed the revenue's appeal. Being aggrieved and dissatisfied with the impugned order passed by the Tribunal, the assessee has preferred the present Tax appeal for consideration of aforesaid substantial question of law.
(3.) Learned advocate appearing for the appellant submitted that the shares in the company are movable property and can be transferred through deed of assignment and stated that the transfer is valid and long term capital loss should be allowed to assessee company. Learned advocate appearing for the assessee relied upon the decision of this Court in case of Assistant Commissioner of income Tax v. Biraj Investment (P) Ltd. [2012] 24 273 (Gujarat) : [2012] 210 Taxman 418 (Gujarat) wherein it is held that the assessee, having entered the agreement with the purchaser company and further having given power of attorney and received the full sale consideration from the purchaser company, by virtue of section 2(47), for the purpose of income-tax, transfer of share was complete. It is further held that it may be that by virtue of pledging of shares with the bank having handed over the original share certificates to such financial institution along with the duly signed transfer forms, insofar as the assessee's relation with the bank is concerned, there would be a serious question of validity of such transaction. The High Court, however, in the present proceedings, is concerned with such internal possible dispute between the assess and the said financial institution. It may also be that if the purchaser company desired to have such shares transferred in its name, such attempt would run into serious roadblock. Primarily, without the original share certificates in possession of the purchaser company, which were in possession of the IDBI bank, the company would in view of Section 108 of the Companies Act, be able to register such transfer. Further it is held that the assessee did transfer whatever rights it had in the shares to the purchaser company. If such transfer is recognised by the IDBI and there are other legal implications of breach of undertaking given to IDBI, such issue would have to be thrashed out between the concerned parties. It is further held that in so far as income tax proceedings are concerned, by virtue of section 2(47), the assessee was entitled to claim that upon transfer of shares or interest thereon, it had suffered long term capital loss which it was entitled to set off against the capital gain on sale of shares during the same previous years.;

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