Income Tax Appellate Tribunal - Mumbai
Mrs. Perviz Wang Chuk Basi vs Joint Commissioner Of Income-Tax, Spl. ... on 14 October, 2005
Equivalent citations: [2006]102ITD123(MUM), [2007]290ITR246(MUM), (2006)104TTJ(MUM)805
ORDER
D.C. Agrawal, Accountant Member
1. In this appeal the assessee has raised the following two grounds :
1. Computation of deemed cost under Section 55(2)(b)(ii) for computing capital gains on sale of flat No. 19A in Sterling Apartments.
2. Non-allowance of long-term capital loss on transfer of 7 per cent capital investment bonds.
2. During the course of hearing, the Learned Counsel for assessee did not press ground No. 1, hence, the same is rejected.
3. Regarding ground No. 2, the facts are that the assessee claimed long-term capital gains/loss of Rs. 1,17,920 on redemption of 7 per cent capital investment bonds (for short 'bonds') matured during the year and it is set off against long-term capital gains, which the assessee had earned on sale of its flat. According to the Assessing Officer, the redemption of bonds did not constitute transfer for the purpose computing capital gain or loss. This was confirmed by the CIT(A). While confirming, the CIT(A) considered the definition of transfer under Section 2(47). According to which, there should be an asset existing on the date of the transfer. In the present case, the asset became non-existent after expiry of the period and during that period, the authority which was to redeem the bonds became a debtor. Further, the word 'extinguishment' mentioned in Section 2(47) also presupposes that asset should exist on the date of transfer. Relying on the decision of Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. v. CIT the CIT(A) drew inference that extinguishment of rights on account of transfer cannot be extended to mean any extinguishment independent of it or otherwise than on account of transfer. Thus, it is also not extinguishment of any right existing on transfer as in the present case. The CIT(A) drew the inference that the destruction of an asset, is neither a transfer nor the conveyance. The decision of Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. (supra) was further explained by the Hon'ble Kerala High Court in the case of Grace Collis v. CIT , which was also relied upon by the CIT(A).
4. The learned CIT(A) drew a parallel view with the facts of the present case and inferred that life span of bonds extend only up to the date of maturity. After expiry of the date of maturity, no interest accrues on the bonds nor they can be transferred as per the Government of India notification No. F(1)-WN/82, dated 11-6-1982. Thus, according to CIT(A), neither there was an asset nor there was a transfer and hence the redemption of capital investment bond after maturity is not redemption of a capital asset. The CIT(A) also distinguished the decision in the case of Anarkali Sarabhai v. CIT wherein redemption of preference shares was regarded as sale. Thus, the CIT(A) confirmed the decision of the Assessing Officer.
5. Before us, the learned AR submitted that the decision of Hon'ble Kerala High Court in the case of Grace Collis (supra) on which the CIT(A) has relied has been reversed by the Hon'ble Supreme Court in Grace Collis' case (supra). According to learned AR, the word 'transfer' includes extinguishment of rights in a capital asset, in addition to on account of transfer. Thus, according to learned AR when capital bonds are redeemed, it is an extinguishment of rights and, therefore, it is a transfer within the definition of Section 2(47). Secondly, in Anarkali Sarabhai's case (supra), redemption of preference shares by the company is held to be a sale and also transfer of asset by shareholder. The learned AR also relied on the decision of Hon'ble Madhya Pradesh High Court in MR Financial Corporation v. CIT , according to which, bonds are held to be capital asset and any surplus resulted on sale of bonds is liable to capital gains tax. On the other hand, the learned DR relied on the orders of authorities below.
6. We have heard the rival submissions and considered the facts and material on record. In our view, redemption of these capital bonds is a transfer within the meaning of Section 2(47). Section 2(47)(i) and (ii) reads as under :
47. 'transfer', in relation to a capital asset, includes,
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
7. The word 'relinquishment' would mean that asset is existing and assessee on his own relinquishes its right in favour of transferee. As per the decision of Hon'ble Supreme Court in CIT v. Rasiklal Maniklal takes place when owner withdraw himself from the property and parts his right thereon. It presumes that the property is existing even after relinquishment. In the case of Kartikeya V. Sarabhai v. CIT , it has been held by the Hon'ble Supreme Court that definition of transfer in Section 2(47) in relation to capital asset is inclusive definition, it provides that relinquishment or extinguishment of any right therein amounts a transfer of capital asset. For capital gains to raise, it is not necessary that there should be a sale of capital asset. Sale is only one of the way of transfer envisaged by Section 2(47) of the Act. The relinquishment of an asset or extinguishment of any right in it may not amount to a sale but still can be considered as a transfer for the purpose of Section 45. Extinguishment of right in an asset would mean the end of right in the asset either by operation of law or by contractual agreement. When capital bonds are redeemed, then after the date of redemption, they do not remain bonds but certainly what remains is an asset with assessee. It cannot be denied that there was a right in the asset with the assessee, which was later encashed by surrender to the competent authority and receiving cash thereon. Thus, after the date of redemption, there was an extinguishment of right by operation of contract and also a relinquishment of right in the asset in lieu of which, the assessee received cash from the competent authority. Thus, in either of the situations, the case is covered within the definition of Section 2(47). We are unable to agree with CIT(A) that there was no asset in existence after redemption. The decision of Hon'ble Madhya Pradesh High Court in the case of M.P. Financial Corpn. (supra) will squarely applicable to the facts of the case on hand. It was held by Hon'ble Madhya Pradesh High Court in this case as under:
As regards the third question, it was not disputed before the Tribunal on behalf of the assessee that the bonds in question, which, on surrender, resulted in a gain of Rs. 9,000 to the assessee, were capital assets of the assessee. The Tribunal has, accordingly, found that the bonds in question were the capital assets of the assessee. In view of this finding, the profit earned by the assessee on the surrender of the bonds was rightly held by the Tribunal as liable to be taxed as capital gains. Our answer to the third question is, therefore, in the affirmative and against the assessee.
8. The redemption of these bonds does give rise to capital gain/ loss and, therefore, the assessee deserves to succeed.
9. In the result, the appeal of assessee is partly allowed.
10-12. [These paras are not reproduced here as they involve minor issues.]