Income Tax Appellate Tribunal - Kolkata
Assistant Commissioner Of Income-Tax vs Turner Morrison And Co. Ltd. on 26 July, 1993
Equivalent citations: [1993]47ITD638(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This appeal by the revenue is directed against the order of the CIT (A) for the assessment year 1986-87. The only ground raised is as under :
For that the Ld. CIT(A) was not justified in allowing capital loss of Rs. 36.43,221 arising out of sale of shares of M/s. Grahmas Trading Co. (I) Ltd. and M/s. Shalimar Works Ltd. (in liquidation) by the assessees.
2. The appeal arises this way. During the year, the assessee sold a flat in Bombay and there was a capital gain of Rs. 35,70,661. On 24-12-1985 the assessee sold two lakh equity shares of M/s. Grahmas Trading Co. (I) Ltd. and 10,500 equity shares of M/s. Shalimar Works Ltd. The cost price of these shares (Rs. 10 face value) was Rs. 24,05,332 and Rs. 13,40,514. These shares were held as investments in the assessee's balance-sheet. These shares have been held by the assessee for quite some time. They were sold for Rs. 1 lakh in respect of the shares in M/s. Grahmas Trading Co. (I) Ltd. and for Rs. 2,625 in respect of the shares in M/s. Shalimar Works Ltd. The long-term capital loss came to Rs. 36,43,221. The loss was set off against the capital gains in the return. The ITO did not accept the claim. He summoned the broker to whom the shares were sold under Section 131 of the Act and examined him as well as his books of account. He noticed that 75,000 shares of M/s. Grahmas Trading Co. (I) Ltd. had been sold by the broker on 7-5-1987 for a profit of 3 paise per share and shares of M/s. Shalimar Works Ltd. were still lying with him unsold. According to the ITO, it was not acceptable that a prudent share broker would lock up a sum of Rs. 1,02,625 for a period of 1 1/2 years merely to earn a profit of 3 paise per. share. He, therefore, took the view that the sale of shares by the assessee was a colourable device resorted to merely for avoiding the tax on the capital gains. He invoked the doctrine in McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) and disallowed the capital loss. On appeal, the CIT(A) took the view that since the ITO did not challenge the genuineness of the sale of shares to the broker it was not open to him to defeat the assessee's claim merely because the assessee sought to set off the capital loss against the capital gain. The CIT(A) also found that there was nothing on record to suggest that there was collusion between the assessee and the share broker in effecting the sale of shares and in the absence of this, the McDowell doctrine had been wrongly invoked. In this view of the matter he upheld the assessee's claim.
3. The revenue is in appeal to contend that the CIT(A) should have upheld the view of the ITO. We are unable to uphold the contention. Firstly there is nothing on record to show that the sale of shares to the share broker was sham. The CIT(A) has recorded a categorical finding that there is nothing on record to suggest any collusion between the assessee and the share broker. Even the ITO does not appear to take a view that the sale of shares to the share broker is sham or a make-belief transaction in spite of having summoned the broker and having examined him and his books of account. In the absence of any such conclusion, the view of the ITO that the assessee is not entitled to claim set off of the loss in the share transaction against the long-term capital gain is not justified. Secondly, even assuming that the assessee had deliberately chosen to sell the shares in the accounting year, having held them for quite a long period, it cannot be stated that the assessee cannot take advantage of the provisions of the Income-tax Act. As the facts would show, the shares were not worth much and in any case there was no point in the assessee holding on to them. It is not as if the shares were blue-chip investments and were sold for a lesser price deliberately to purchase a loss to be set off against the capital gains. The shares in any case would have to be sold only at a loss; that the assessee chose this particular year, that too towards the close of the accounting year which was the calendar year, does not automatically lead to the conclusion that the loss should be disallowed and should not be set off against the long-term capital gains. For one thing, as stated earlier, the transaction is a genuine transaction and nothing has been said against it. No facts have been brought on record to impeach the genuineness of the sale of shares. If so much is granted, there is nothing to prevent the assessee from selling the shares in order to reduce the tax liability in respect of the capital gains. The doctrine laid down in McDowell does not apply to the cases like the present one in M.V. Valliappan v. ITO [1988] 170 ITR 238, the Madras High Court held that a legitimate transaction which does not amount to a dubious device is not hit even by the new approach adopted by the Supreme Court in McDowell & Co. Ltd. 's case (supra). In that case a partial partition effected by the assessee was not recognised on the ground that under Section 171(9) of the Act, any partial partition effected after 31-12-1978 cannot be recognised by the ITO. The provisions of Section 171(9) were challenged as being violative of Article 14 of the Constitution of India. One of the defences of the revenue before the High Court was that the derecognition of partial partition was enacted as a measure to prevent tax evasion and should, therefore, be upheld having regard to the decision in McDowell's case. It was while repelling the above defence that the Madras High Court presided over by his Lordship, the Learned Chief Justice M.N. Chandurkar, held that a real and genuine transaction which is not a dubious device for avoiding the tax is not hit even by the doctrine of McDowell & Co. Ltd. (supra). In Union of India v. Playworld Electronics (P.) Ltd. [1990] 184 ITR 308 the Supreme Court has held that tax planning may be legitimate provided it is within the frame work of the law. In the present case it can hardly be suggested that the assessee cannot take advantage of the provisions of the Income-tax Act to claim set off of the capital loss against the capital gain. The department would have to go to the extent of proving the sale of shares as a sham transaction if it were to so suggest. But that is not the case here and as stated earlier no evidence has been let in to show that the sale of the shares was not genuine or was a collusive transaction. Thus the transaction is genuine and is also within the frame work of law but it results in a tax advantage to the assessee. In such circumstances the tax advantage cannot be stated to the result of a dubious device. We are fortified in this view by the observations at paragraph 16 at page 53 of the decision in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.) (SB).
4. For the aforesaid reasons we uphold the order of the CIT(A) directing the ITO to set off the capital loss of Rs. 36,43,221 against the capital gains arising on the sale of shares.
5. In the result, the appeal is dismissed.