COMMISSIONER OF INCOME TAX Vs. MINOR BABABHAI ALIAS LAVKUMAR KANTILAL

JUDGEMENT

(1.) THE Tribunal, Ahmedabad Bench "B", has referred to us a question of law for our opinion under s. 256(1) of the IT Act, 1961, at the instance of the Revenue. The said question reads as under :

(2.) IN order to appreciate the background against which the aforesaid question came to be referred to us, it is necessary to have a look at the relevant facts. The assessee is an individual. The year of assessment was 1970 71 and the accounting period was the calendar year 1969. The assessee had advanced a sum of Rs. 25,000 to the New Commercial Mills Co. Ltd. on a promissory note. The said mill company had suffered from financial difficulties and was taken in liquidation. A scheme of compromise and arrangement was approved by this Court. As per the said scheme, unsecured creditors like the assessee had to get their claims verified by the auditors of the company, viz., M/s C.C. Chokshi & Co. The assessee could realise only Rs. 13,323 from the said mill company pursuant to the provisions of the scheme approved by this Court in the winding up proceedings. Balance of Rs. 11,617 was claimed by the assessee as capital loss suffered by him during the relevant assessment year. The ITO negatived the said claim of the assessee on the ground that there was no transfer of capital asset involved in the said transaction.

(3.) THE Revenue thereafter went in appeal to the Tribunal and challenged the decision of the AAC. Reliance was placed by the Revenue on the judgment of this Court in CIT vs. R.M. Amin (1971) 82 ITR 194 (Guj) for the proposition that there must be an element of consideration for the extinction of the rights in the capital assets before any gains or losses from such extinguishment can be brought for computation under the head 'capital gains'. The Tribunal, however, held that the judgment in R.M. Amin's case (supra) did not apply to the facts of the present case, in that the said case referred to entirely a different situation which pertained to the question of taxability of capital gains, that the shareholder (assessee) received certain amount in the liquidation of the company, in which he was a shareholder. The Tribunal took the view that in the present case there was extinguishment of the assessee's right in the capital asset and that had brought him a loss of Rs. 11,617. Consequently, the Revenue's contention was rejected by the Tribunal. This order has resulted in the present reference at the instance of the Revenue.