Income Tax Appellate Tribunal - Mumbai
Voltas Ltd. vs First Income-Tax Officer on 30 April, 1990
Equivalent citations: [1990]35ITD498(MUM)
ORDER
R.P. Garg, Accountant Member 1 to 5. [These paras are not reproduced here, as they involve minor issues.]
6. In assessee's appeal, ground No. 5 is regarding loss claimed on account of non-recovery of the trade advances due from erstwhile Tata-Merlin & Gerin Ltd. (TMG) and National Electrical Industries Ltd. (NEI), amounting to Rs. 2,19,74,819. The facts are that the assessee is engaged in the business of supplies of electrical machinery. It was acting as the principal selling agent of Tata-Merlin & Gerin Ltd. a manufacturer of switchgears. it was also acting as the selling agent for the National Electrical Industries Ltd. (NEI), a manufacturer of transformers and motors. The assessee was holding 13% of the equity capital in TMG and 29% of the equity capital in NEI. The assessee advanced funds to TMG and NEI on current accounts against pending orders. These advances were to be adjusted from invoices raised by TMG and NEI. Under a scheme of amalgamation approved by the Bombay High Court and also by the Central Government Under Section 72 A of the Income-tax Act, TMG and NEI were amalgamated with the assessee with effect from 1st July 1979. On the date of amalgamation, a sum of Rs. 1,13,16,515 was due to the assessee from TMG and another sum of Rs. 2,87,82,068 was due from NEI on advances account. As a result of the merger, all the assets and liabilities of TMG and NEI were taken over by the assessee. Since the total assets, after paying the outside liabilities, taken over from TMG and NEI were inadequate, the assessee claimed the following amounts as a deduction while computing the total income of the assessee:
(i) outstanding advances amounting to Rs. 3,66,55,647 due from TMG and NEI;
(ii) the excess liabilities of TMG amounting to Rs. 1,29,65,253.
(iii) the shares and debentures of the assessee issued to the erstwhile shareholders of TMG amounting to Rs. 24,31,202.
(iv) the loss of equity capital of Rs. 19,38,900 invested by the assessee in TMG.
The ITO disallowed all these claims on the following grounds :
(a) for the purpose of determining the loss on account of irrecoverable trade advances, the value at which the assets were taken over should be considered and not the written down value of assets as per the Income-tax Rules ;
(b) since the outstanding advances had become irrecoverable, due to the loss suffered by TMG and NEI and since the past losses of the two companies are being allowed to the assessee-company Under Section 72-A, additional allowance of irrecoverable trade advances, would amount to double deduction ;
(c) on the facts and circumstances of the case, the loss on account of irrecoverable amount of trade advances would be in the nature of excess payment for acquisition of a new business ;
(d) as far as the loss in the value of investment by the appellant-company in TMG the same was not allowable as it was not incidental to business. At best, it could be treated as a capital loss and since there was no transfer within the meaning of Section 2(47), the capital loss was not allowable. The ITO relied on the decision reported in 92 ITR 347 for the proposition that the capital loss was not allowable although the shares had become worthless.
7. Before the CIT(A) an alternative claim was also made by the assessee for deduction of Rs. 2,19,74,819 arrived at by computing the market value of the assets taken over be at least allowed as the same had 'become irrecoverable because of the inadequate assets of the two companies.
The details are given as under :
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Particulars TMG NEI Total ----------------------------------------------------------- 1. Total assets taken 7,42,89,084 5,66,60,620 13,09,49,704 over 2. Outside liabilities 6,94,73,560 3,98,19,557 10,92,93,117 taken over 3. Balance of assets 48,15,524 1,68,41,063 2,61,56,587 available to discharge various amounts due to Voltas Ltd. 4. Utilised for issue of 24,31,202 11,01,621 35,32,823 shares and debentures of Voltas Ltd., to erstwhile shareholders 5. Amount available to 23,84,322 1,57,39,442 1,81,23,764 discharge advances due to Voltas Ltd 6. Trade advances due 1,13,16,515 2,87,82,068 4,00,98,583 to Voltas Ltd. 7. Trade advances 89,32,193 1,30,42,626 2,19,74,819 becoming rrecoverable because of inadequate assets.
8. The CIT(A) did not accept the contention either for the claim of Rs. 5,39,91,007 based on W.D.V. or the alternative claim of the assessee for the claim of Rs. 2,19,74,819 by giving the following reasons thereof:
(a) That in view of the purpose of the amalgamation spelt out in para 4 of the statement Under Section 393 of the Companies Act, 1956 filed before the High Court, the amalgamation had been effected with a view to safeguard the financial interest of all the creditors including the assessee whereby for the recovery of TMG and NEI in the operation of financial institutions and bank was possible with proper managerial, technical and financial assistance;
(b) That in view of Clause (iv) of para 6 of the Statement, even the shareholders of TMG and NEI were to be compensated, although not fully, by the issue of shares and debentures of Voltas yet as the shareholders were to get back a part of their capital invested in the two companies by way of shares and debentures from Voltas, it cannot be said that the realisable value of the assets of the two companies was less than the outstanding liabilities of the creditors ;
(c) That in view of Clause (ii) of para 6 of the Statement and para 3 of the Scheme of amalgamation, the assessee had taken over all the assets and liabilities of TMG and NEI and the liabilities of the two companies became the liabilities of the assessee. The same could not be allowed either as trading loss Under Section 28 or Under Section 29 or as a bad debt Under Section 36;
(d) Fourthly, if TMG and NEI had been amalgamated with some other company and if the other company had taken over the assets and liabilities of the other company, viz., TMG and NEI, the advances due to the assessee would have been treated as recoverable and the assessee would not have been able to claim a deduction in respect thereof. The position, according to him, could not be different simply because TMG and NEI have been amalgamated with Voltas.
9. The CIT(A) however, allowed the claim of the assessee for the deduction of capital loss of Rs. 19,38,900 under the head'capital gain'in respect of equity capital of TMG by observing that as a result of amalgamation the shares held by the assessee became worthless and that the extinguishment of the assessee's right in those shares was a transfer in terms of definition Under Section 2(47) of the Act. The Madras High Court decision in the case of C.A. Natarajan v. CIT [1973] 92 ITR 347, relied upon by the ITO was distinguishable, according to him, because that decision was rendered under 1922 Act where under the term'transfer' did not include extinguishment of right of an assessee in a capital asset
10. Both the assessee and the revenue are in appeal before us. The assessee, for the disallowance of its alternative claim of Rs. 2,19,74,819 and the revenue for the allowance of loss of Rs. 19,38,900 under the head "capital gains".
11. The learned counsel for the assessee submitted that the advances made by the assessee to TMG and NEI were in the nature of trade debts and therefore, any loss relating thereof would be on revenue account. Due to amalgamation nothing was received by the assessee and therefore, the loss as reduced by the value of assets remaining with the company after the issue of capital, debentures and provision for liability the loss is allowable to the assessee. He referred to the decision in the case of Addl. CIT v. W.A. Beardsell & Co. (P.)Ltd. [1981] 130 ITR 159 (Mad.) wherein the expenditure on amalgamation has been held to be revenue in nature and contended that on the same parity the loss incurred by the assessee should be allowed while computing the income. The learned departmental representative, on the other hand, submitted that the advantages of the two amalgamating companies did also pass on to the assessee including the benefit Under Section 72-A and therefore, the recoveries should not be said to be remained outstanding. There was nothing in the scheme to write off such debts. At best, it could be said to be like a payment of Rs. 14 crores, as according to him consideration for acquiring an asset worth Rs. 13 crores. It was not the loss on revenue account. It was also not shown to be irrecoverable. On amalgamation, he submitted, the liability of the two amalgamated companies became the assessee's own liability and therefore, no question of its non-recoverability from self would arise. He also referred to Explanation 7 to Section 43, providing for adoption of actual cost in the hands of amalgamated company at the same value as it would have been if the amalgamating company had continued to treat the capital asset for its business.
12. As regards the loss on account of shareholding of the assessee in TMG disputed in revenue's appeal, the learned departmental representative submitted that there was no transfer Under Section 2(14) of the Act on amalgamation. The shares of the two companies have become valueless not by transfer but due to merger of TMG and the assessee-company. He however, submitted that there was no consideration to the shareholders of TMG as the issue of shares by the amalgamated company was not because of transfer but the pre-existing rights of the shareholders in that company. The allotment was in pursuance of a scheme of merger. In this connection, he referred to the decision of the Supreme Court in the case of CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198/43 Taxman 259. In any case, he submitted that the consideration in assessee's case, if any, was indeterminate and therefore, as held by the Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 507/23 Taxman 14W the transaction would not be subject to capital gain provision of the Act. The learned counsel of the assessee, on the other hand, submitted that the decision of the Supreme Court in the case of Rasiklal Maneklal (supra) was under 1922 Act wherein the term 'transfer' had a restricted meaning. It had no application under 1961 Act wherein even "the extinguishment of rights of an assessee in a capital asset" is meant a transfer. He, therefore, submitted that it is not the Supreme Court decision in Rasiklal Maneklal (HUF)'s case (supra) which is applicable but it is the decision of the Gujarat High Court in the case of CIT v. R.M. Amin [1971] 82 ITR 194 which was confirmedby the Supreme Court in CIT v. R.M. Amin [1977] 106 ITR 368, which has the application. It was, in his submission, a transfer within the meaning of Section 2(47) of the Act and therefore subject to capital gain provisions. As the assessee had obtained nothing on such extinguishment of the rights in the shares of TMG, the decision of Sunil Siddharthbhai' s case (supra) would have no application. On a clarification sought for by the Bench on the ratio of the two decisions - one of the Calcutta High Court in the case of Shaw Wallace & Co. Ltd. v. CIT [1979] 119 ITR 399 and the other by Karnataka High Court in the case of CIT v. Master Raghuveer Tmrt [1985] 151 ITR 368, the learned counsel for the assessee submitted that in Calcutta decision, there was an amalgamation of 100% subsidiary and therefore, would have no application in the present case because the assessee was holding only a small portion of the shareholding of TMG. He drew our attention to the passages of the judgment at page 404 dealing with the contentions of the counsel of the assessee before the High Court, viz., that the assets, rights and liabilities of the amalgamating company were first transferred to and vested in the assessee and it was only thereafter that the amalgamating company stood dissolved as provided for in the scheme and as a result of such a dissolution of the rights of the assessee in the shares of the amalgamating companies stood extinguished, amounting to a transfer as a result of which the assessee suffered a capital loss. The computation of such loss was the value of the net assets vesting in the assessee from the amalgamating companies minus the cost of acquisition of the shares. He also referred to the following portion of the judgment at pages 408 and 409 :
In the instant case, under the scheme, there has been, firstly, a transfer of the capital assets of the amalgamating companies to the amalgamated company. This part of the scheme, in our opinion, is clearly covered by Section 47(vi) of the Act and there cannot be any capital gain or loss arising from such a transfer because the section excludes this type of transfer from the ambit of the amalgamating companies. This part of the scheme involves an operation where we fail to find any elementof transfer. The dissolution takes place by operation of the scheme sanctioned by law and as a result of this dissolution the rights of the assessee, if any, remaining in the shares of the amalgamating companies come to an end. If we keep these two parts of the scheme in watertight compartments as has been suggested by Dr. Pal then the extinguishment of the rights of the assessee in the shares in the instant case does not involve either a transfer involving another person or any consideration passing as a result thereof.
On the other hand, if we do not keep the two parts of the scheme separately, then extinguishment of the rights in the said shares is extricably linked with the transfer of the capital assets of the amalgamating companies to the amalgamated company. Under Section 47(vi) such a transaction has to be excluded from the operation of Section 45 and there cannot be any capital gain or loss.
(Emphasies supplied).
13. Both the questions, according to him, should be taken as inter-linked and not in the watertight compartments. He also cited the Supreme Court decision in the case of A.R. Krishnamurthyv. CIT'[1989] 176 ITR 417 for the proposition that the consideration has to be worked out on cost proportion basis. He further submitted that the decision of Banerji J. in the Calcutta High Court case is against the very concept of the separate legal entity of the company and the shareholder and also the Gujarat High Court in the case of CIT v. Chunilal Khushaldas [1974] 93 ITR 369.
He further submitted that if that be the interpretation placed for amalgamation then Section 47(vii) was not necessary. Similar was the position stated with regard to the decision of the Karnataka High Court in the case of Master Raghuveer Trust (supra). As the consideration in this case was also the issue of debentures besides the allotment of shares of assessee company, the provisions of Section 47(vii) would not be operating against the assessee.
14. We have heard the parties and considered the rival submissions. The larger claim of Rs. 3,66,55,647 based on W.D.V. the claim of excess liability of TMG amounting to Rs. 1,29,65,253 and the claim for a sum of Rs. 24,31,202 for which the assessee issued shares and debentures to erstwhile shareholders of TMG and NEI were not raised before us. We, therefore, confine our decision only on the alternative claim of the assessee for the loss of Rs. 2,19,74,819 raised for the first time before the CIT(A) and is the only ground as per the memo of appeal filed by the assessee.
15. By virtue of the two separate orders of the High Court of Bombay both dated 3-7-1980, the schemes of amalgamation were sanctioned whereby TMG and NEI got merged with the assessee with effect from 1-7-1979 ordering the entire business and undertaking of the amalgamating companies including all its properties, moveable and other assets of whatsoever nature, including industrial and other licences and quota, rights, trade marks and other industrial property rights, leases and tenancy rights, if any, benefit of all agreements and all other interests, rights or powers of every kind, nature and description whatsoever (collectively referred to in the scheme of Amalgamation sanctioned as "the undertaking") be transferred without further act or deed to the assessee company as the same would pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and do vest in the assessee-company free from all estate and interest of the amalgamating companies and that as on and from the Appointed Day all debts, liabilities, duties and obligations of the amalgamating companies were transferred without further act or deed to the assessee-company and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and do become duties, liabilities, duties and obligations of the assessee-company.
16. Clause (3) of the Scheme is to the following effect:
On and from the Appointed Day all debts, liabilities, duties and obligations of the Transfer company shall also be and shall stand transferred without any further act or deed to the Transferee company pursuant to the provisions of Section 394 and/or any other applicable provisions of the said Act so as to become the debts, liabilities, duties and obligations of the Transferee company.
From the above, it is clear that the debts due by the amalgamating companies i.e., TMG and NEI became the debts of the assessee-company. In this way, on one hand, the assessee was to receive from two amalgamating companies and on the other hand, it had to pay to itself as the liability of those two companies. If the assessee had lost its right to recover from the two amalgamating companies, it had obtained the benefit by exonerating the two companies from making the payment to the assessee due to their merger. In these circumstances, there could arise no question of loss or profit to the assessee.
17. If one sees the position in terms of net worth of the two companies obtained by the assessee, the assessee knew the position and had agreed to take a lesser-value asset in satisfaction of the debts receiveable, it was nothing but a consideration for the acquisition of asset of these two companies. The so-called recovery had arisen not due to short realisation of debts but due to amalgamation, the assessee's right to receive were squared up by the equivalent liability of those companies. In any case one must also not forget that the assessee had advantage of claiming unabsorbed losses of those companies Under Section 72-A of the Act to the extent of Rs. 1,66,62,982 and Rs. 43,85,841, unabsorbed depreciation of Rs. 16,92,302 and Rs. 1,82,93,766, the unabsorbed development rebate of Rs. 7,18,432, the unabsorbed investment allowance of Rs. 6,57,430 and the capital expenditure Under Section 35(1) of Rs. 4,35,209. These are the figures mentioned in the assessment order for the year under consideration. These losses were subject to the loss to be determined for the assessment year 1977-78 which assessment was pending set aside. We agree with the CIT(A) in observing that due to amalgamation the liability of the two amalgamating companies become the liability of the assessee-company and therefore, there could arise no question of any short recovery or gain to the assessee resulting from such adjustments. The right of recovery from the two amalgamating companies was squared up by the liability of the two companies. In these circumstances, we uphold the order of the CIT(A) rejecting the claim of the assessee for the loss of Rs. 2,19,74,819.
18. We shall now deal with the revenue's appeal against the allowance of loss of Rs. 19,38,900 in respect of shares held by the assessee in TMG. To attract the liability of capital gain or in the negative sense to obtain the benefit of set off and carry forward of the losses under the head 'capital gains' the two things are required (1) there must be a transfer of capital asset; and (2) the provisions dealing with computation of capital gain apply. To be precise the transfer must be for a consideration.
19. The word "transfer" is defined in Section 2(47) of the Act to include sale, exchange or relinquishment of the asset or the extinguishment of any rights therein; or the compulsory acquisition thereof under any law. All these transactions require continued existence of the asset upon such a transfer. If looked at on the basis of the principles of ejusdem generis, one might say that in the fourth category of transaction also the asset must continue existence as contended by the learned departmental representative. However, in view of the Gujarat High Court decision in the case of R.M. Amin (supra) as affirmed by Supreme Court in CIT. R.M. Amin [1977] 106 ITR 368 and CIT v. Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 (Guj.) and Calcutta High Court decision in the case of Shaw Wallace & Co. (supra), we have to accept the contention of the learned counsel of the assessee that in a case of transfer within the fourth category i.e., extinguishment of right therein, it is not necessary that the asset must continue existence on transfer. In other words, there is no requirement that the extinguishment of any rights in a capital asset would amount to transfer only in a case where the asset remained in existence. In the present case, the shares of TMG have been cancelled by virtue of the scheme sanctioned by the High Court and ceased to be in existence, therefore, the assessee's right in such shares would also come to an end. Therefore, in so far as the first aspect of the matter is concerned, we agree with the learned counsel for the assessee that there could be a transfer within the meaning of Section 2(47) of the Act on cancellation of shares under a scheme of amalgamation.
20. The next question which arises for our consideration is, was there any extinguishment of assessee's right? Under the provisions of the Companies Act, a shareholder has the following rights:
(1) Participation in the dividend of the transferor-companies when declared.
(2) Right to take part in the management of the transferor-companies by voting in the meetings of the transferor-companies and on certain specified circumstances and on fulfilment of certain specified conditions could call an extraordinary general meeting by requisition.
(3) Participation in the capital and asset of the transferor-companies on liquidation.
21. Keeping the above legal position in view, the Calcutta High Court in the case of Shaw Wallace & Co. Ltd. (supra) examined the position of a shareholder of the amalgamating company and held that none of the aforesaid rights extinguished on amalgamation. The Court held that the entire profits that might be earned by or through an undertakings, assets, rights and powers of the transferor-companies would become the profits of the assets and thus there was no extinguishment of the assessee's right to participate in the dividends of the transferor-companies rather it was an enlargement of such right of participation. It was also held that in managing its own affairs the amalgamated company would also be solely managing the entire affairs of the amalgamating company and therefore, there was no extinguishment of the right of the assessee as a shareholder to take part in the management of the transferor-companies, but again enlargement of such right. The entire capital and assets of the amalgamating company vested in the amalgamated company and thereby the latter became the sole owner of the capital of the amalgamating company. There was, therefore, no extinguishment of the right of the assessee in participating in the assets on the liquidation of the transferor-companies. The Court also observed that the assessee was a party to the said schemes of amalgamation and consented and agreed to the same where under, as noted earlier, no shares were to be issued to the assessee in lieu or exchange of the shares held by it in the amalgamating company. The shares held by the assessee in the amalgamating company represented the capital invested by the assessee in the said companies and by the said amalgamations the assessee became the sole owner of the entire capital of the amalgamating company. By virtue of the said amalgamations the assessee as the amalgamated company became the sole repository of all the rights which flowed from or were imbedded in the shares held by the assessee as the amalgamated company.
22. It is true that this was a case of amalgamation of 100% subsidiary company but that would make no difference while dealing with the case where the assessee in whom the amalgamating company merged had only a part of the shareholding, except to the extent that in the former case 100% rights were held by the amalgamated company whereas in the present case, the assessee had only 13% of such rights. The assessee as a holder of 13% equity shares, participated in the dividends declared in the profits of the company to the extent of 13% prior to amalgamation. It became the owner of 13 % of profits of this amalgamated company on amalgamation. Similarly, it was managing the affairs of the company with 13% voting rights in the amalgamating company which continue to be exercised even after amalgamation an owner of 13% of TMG undertaking with the other 87% of the shareholding of those two companies becoming the shareholder of the assessee-company. The capital of TMG to the extent of 13% became the capital of the assessee-company and only for the balance 87% the shares have been issued to the other shareholder. In these circumstances, in our opinion, the decision of the Calcutta High Court squarely applies to the facts of the case.
23. It may be stated that the said decision had been followed by the Bombay High Court in the case of Forbes Forbes Campbell & Co. Ltd. v. CIT [1984] 150 ITR 529. It was, however, with a caution that their concurrence of the Calcutta High Court was to a case of amalgamation of 100% subsidiary with its parent company and that should not be taken to mean that the identical position may exist in other types of amalgamation as they were not considering the question of amalgamation of a company with another company which did not own 100% of the shareholding of the transferor-company. Their Lordships left the question open by observing that that position would he examined and considered in an appropriate case and stated that different considerations might perhaps exist in such a case. In the aforesaid paragraphs we have already stated that the decision would be applicable in a case of amalgamation company with the amalgamated company where the former held even less than 100% shareholding. The decision cited by the learned counsel of the assessee, viz., Chunilal Khushaldas (supra) had no bearing to the question at issue. In that case the question was of determination of the date of acquisition of bonus shares to find out whether the capital gain earned by the assessee on the sale of bonus shares would be long term or short term and in that context, it was held that the bonus shares came into existence only when they were allotted and that would be the date of acquisition for determining the period of its holding.
24. Even if we agree with the contention of the learned counsel of the assessee that there was extinguishment of right of the assessee in the shares held by it in TMG, the next question arises i.e., was the transfer with consideration. The loss Claimed by the assessee would not be an allowable loss under the head 'capital gains' because as aforesaid to get the allowance of the loss, there must be consideration for the transfer, which, in our opinion, was absent in the present case. By amalgamation of TMG with the assessee-company, the shares held by the assessee became worthless and there was no consideration for such a transfer by extinguishment. The undertaking of TMG vests in the assessee by operation of law in pursuance of the scheme of amalgamation Under Section 394 and 395 of the Companies Act and not as a consideration of transfer of assessee's rights by extinguishment.
25. The Supreme Court in the case of Rasiklal Maneklal (HUF) (supra) held that the capital gain arising on amalgamation was not taxable. Two reasons are given therefor-(1) there was no transfer within the meaning of Section 12-B of the Act which included sales, exchange and relinquishment of capital asset in its definition of transfer ; and (2) when the assessee was allotted shares of the amalgamated company, he was entitled to such allotment because of his holding of certain shares in the amalgamating company and that the holding of the shares in the amalgamating company were merely a qualifying condition entitling the assessee to the allotment of the shares in the amalgamated company. The dissolution of the amalgamating company on amalgamation deprived the holding of the shares of that company of all value. The shares so held upon amalgamation lost all value as that company stood dissolved.
26. Similarly, in the case of R.M. Amin (supra), the Gujarat High Court dealing with the case of receipt of money by the shareholder on liquidation of the company held that the consideration was received in satisfaction of the rights which belonged to the assessee by virtue of the holding of the shares and not by way of consideration for the extinguishment of the right in the shares. The shares merely represented the right to receive money on distribution of the net assets of the company in liquidation and that right was satisfied and, by satisfaction, extinguished when such moneys were received by the shareholder. Such moneys received by the shareholder did not represent any consideration received by him as a result of the extinguishment of his right sin the share. It was not the extinguishment of his fights in the shares for which consideration was received by him, it was rather because moneys representing his share in the distribution were received by him that his rights in the shares were extinguished. That decision has the approval of the Supreme Court and which is reported in R.M. Amin's case (supra).
27. One of the reasons given by the Calcutta High Court in the case of Shaw Wallace & Co. Ltd. (supra) is that there involve neither a transfer involving other person nor any consideration passing as a result thereof even though there might be an extinguishment of rights. In the decision of Karnataka High Court in Master Raghuveer Trust's (supra), it was held that by process of amalgamation, the shares held by the assessee in the amalgamating company was struck off the register as required Under Section 394(1)(iv) of the Companies Act and that the assessee, as a member of the amalgamating company was entitled to some shares, bonds, etc., from the amalgamating company which were neither in satisfaction of its rights nor as a consideration for the transfer and therefore, the amalgamation and consequent allotment of shares by the amalgamated company to the shareholders of the amalgamating company did'not result any transfer of capital asset of the assessee for consideration within the meaning of Section 2(47) so as to be chargeable to income-tax under the head "capital gains".
28. We, therefore, hold that there was neither a consideration involved in the transaction nor was the same, if any, in the transfer by extinguishment of the assessee's right. The Supreme Court decision in the case of Sunil Siddharthbhai (supra) relied upon by the learned departmental representative, wherein the capital gain provisions were held to be not applicable to a case, where the consideration was incapable of being computing and the decision of the Supreme Court in the case of AM. Krishnamurthy (supra) relied upon by the learned counsel of the assessee, wherein some apportionment of consideration were suggested, would have no application.
29. Before parting with the case, we may deal with the contention of the assessee that if it was to be so construed, there was no necessity for existence of Section 47(vii) of the Act. It would be suffice to say that merely because the provision grants exemption to a particular transaction that fact alone could not be taken to be an exposition of law that if the case of the assessee is not covered by that exemption it was taxable.
30. In view of the aforesaid discussions, we are of the opinion that there was neither extinguishment of the rights of the assessee nor was there any consideration for such extinguishment and therefore, the loss claimed by the assessee would not be the loss Under Section 45 of the Act. We therefore, reverse the order of the CIT(A) on this point and restore the order of the ITO.
31 to 39. [These paras are not reproduced here as they involve minor issues.]