SULOCHANA V. GUPTA V. INCOME TAX OFFICER

TAXAP/194/2008

AI Insights

The case involves Smt. Sulochana V. Gupta, who appealed against the decision of the Income Tax Appellate Tribunal, which had denied her claim of short-term capital loss for the Assessment Year 1992-93. The Tribunal's decision was based on the grounds that the assessee failed to prove the actual sale of shares to her associate concern and that these transactions were conducted without the involvement of a broker, which raised suspicions about their genuineness. The High Court upheld the Tribunal's decision, agreeing that the assessee did not provide sufficient evidence to substantiate her claims.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 750468 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 04-02-2020
• Assessment Year: misc
• Other Referred Cases: CIT v. Ganga Prasad Birla (HUF), CIT v. Shekhawati Rajputana Trading Co. (P). Ltd., M. Ravji & Co. v. ITO, CIT v. L.N. Dalmia, Patel Chemical Works Vs. CIT, Assistant Commissioner of Income-tax v. Biraj Investment (P.) Ltd., Omar Salay Mohamed Sait v. Commissioner of Income Tax, Madras, Patel Brass Works v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: B S SOPARKAR; SWATI SOPARKAR
• Keywords: Broker intervention; Capital loss; Sale of shares; Short Term Capital Loss; Speculation loss
• Section: 2(14); 45; 2(47)

Judgement Text

"C/TAXAP/194/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 194 of 2008 With R/TAX APPEAL NO. 195 of 2008 With R/TAX APPEAL NO. 196 of 2008 With R/TAX APPEAL NO. 211 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ================================================================ SULOCHANA V. GUPTA Versus INCOME TAX OFFICER ================================================================ Appearance: MR. B.S. SOPARKAR FOR MRS SWATI SOPARKAR(870) for the Appellant(s) No. 1 MR.VARUN K.PATEL(3802) for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 04/02/2020 Page 1 of 41 C/TAXAP/194/2008 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.These Tax Appeals are arising in case of Smt. Sulochana V. Gupta and late Shri Vijaykumar Gupta for the Assessment Year 1992­93, raising common issues and are admitted by framing the following question of law by the Co­ordinate Bench of this Court vide an order dated 08.05.2008 as under: “Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in holding that since the assessee could not establish the factum of sale of the shares made to her associate concern and the said transactions of sale were made without intervention of broker, the (capital) loss claimed by the assessee is not allowable?” 2.The Income Tax Appellate Tribunal, Ahmedabad ‘A’ Bench, Ahmedabad passed a common order dated 05.01.2007 in respect of all these appeals for the A.Y. 1992­1993 in cross­ appeals filed in case of each of the assessee. 3.Tax Appeal No. 194 of 2008 is arising out of the order in ITA No. 763/AHD/1997 dated 05.01.2007 filed by the revenue in case of Smt. Sulochana V. Gupta. Page 2 of 41 C/TAXAP/194/2008 JUDGMENT 4.Tax Appeal No. 195 of 2008 is filed against the order passed in ITA No. 631/AHD/1997 filed by the revenue in case of late Shri Vijaykumar Gupta. 5.Tax Appeal No. 196 of 2008 is filed against the order passed in ITA No. 671/AHD/1997 filed by late Shri Vijaykumar Gupta. 6.Tax Appeal No. 211 of 2008 is filed against the order passed in ITA No.672/AHD/1997 filed by Smt. Sulochana V. Gupta. 7.For the sake of convenience, Tax Appeal No. 194 of 2008 is treated as a lead matter. 8.1. The assessee filed return of income for A.Y. 1992­93 on 30.07.1993 declaring total income of Rs.3,02,099/­. During the course of assessment proceedings, the Assessing Officer found that assessee had claimed short term loss of Rs.16,88,750/­ on the following transactions: “8. The assessee i.e. Smt. Sulochana V. Gupta had shown loss of Rs.16,88,750/­ on the following transactions: Name of shares No. of shares Purchase Price Date & Rate Sale Price Date & Rate Short term capital loss Mysore Cement 10,000 12,62,500/­ 7.1.92 126.25 11,05,000 8/1/92 110.50 Rs.1,57,000/­ UTI Master a) 50,000 17,37,500 14,00,000 Rs.3,37,500/­ Page 3 of 41 C/TAXAP/194/2008 JUDGMENT 12.2.92 34.75 16.1.92 28.00 b) 5,000 2,01,250 19.2.92 40.25 9,80,000 16.1.92 Rs.4,43,750/­ c) 30,000 12,22,500 19.2.92 40.75 28 L & T 19,45,000 18.2.92 a) 10,000 194.50 21,30,000 b) 5,000 9,35,000 19.2.92 187.00 21.1.92 142.00 Rs.7,50,000/­ Total LossRs.16,88,250/­ 8.2. The Assessing Officer after verification found that the assessee had sold the shares prior in point of time without involving any broker, and thereafter, purchased the shares through brokers. The Assessing Officer noticed that shares of Mysore Cement were not sold at the prevailing market price on 08.01.1992. The prevailing market price of shares of Mysore Cement on 08.01.1992 was Rs.125/­ per share, whereas, the assessee has sold the share at Rs.110.50 /­ per share. The Assessing Officer further found that shares of UTI Master and Larson & Tubro (L & T) were purchased through share broker on 12.02.1992 and 19.02.1992 respectively, but these shares were stated to be sold without involving any share broker to the closely connected company, viz. Gujarat Ambuja Finstock Ltd. (GAFL) on 16.01.1992 and 21.01.1992 receptively, and thus, sale of shares Page 4 of 41 C/TAXAP/194/2008 JUDGMENT preceded to purchase of shares. 8.3. The Assessing Officer also found that the assessee was a Director in various companies of Ambuja group and GAFL was one of the closely connected companies of Ambuja group. It was also found by the Assessing Officer that the loss has been shown only on the basis of the debit notes issued by the assessee on paper, without actual delivery of the shares, as the assessee was not having the possession of the shares on the date of sale. Alternatively, the Assessing Officer also recorded the finding that sale of these shares were effected without taking or giving actual delivery, total loss arising from such transactions was in the nature of speculation loss, and hence, the same cannot be given set off against regular income of the assessee except to be adjusted with speculation profit, if any, arising to the assessee in business. 8.4. The Assessing Officer therefore refused to give set off of the loss of Rs.16,88,750/­ paid by the assessee against the regular business for capital gain. 8.5. The assessee, being aggrieved and dissatisfied with the assessment order, filed Page 5 of 41 C/TAXAP/194/2008 JUDGMENT an appeal before the CIT (A) contending that the entire loss has wrongly been denied to be set off against the other incomes of the assessee. The assessee made several submissions before the CIT (A). The CIT (A) thereafter allowed the loss claimed by the assessee except to the tune of Rs.75,000/­ in respect of the shares of Mysore Cement by holding as under: “11. After going through rival contentions and after personally hearing Shri P.S. Vasava, I am of the opinion that the claim of the assessee with respect to short term capital loss cannot be rejected, this find is supported by following accepted / acceptable facts: (i) The purchases have been made through a share broker, which establishes the purchase along with its purchase value. The Assessing Officer has accepted the purchases and its price to be genuine. (ii) Once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock. Since these are not part of the closing stock, the inference is that corresponding sale is there. That confirms the accepted fact that corresponding sales are there. (iii) The sales are confirmed by seller and purchases are confirmed by purchaser who are two separate taxable entities, assessed to tax. (iv) The purchases in the hands of the purchaser and its subsequent sale to a third party, earning profit in the process have been accepted and taxed by the revenue. This profit could have been earned only after purchases from the appellant are genuinely accepted. (v) Against the sale / purchase of shares, payments have been received, though after a time gap, which is not an illegality under any existing provisions of law. (vi) The sales without involving a share broker are not illegal one and are permissible. Page 6 of 41 C/TAXAP/194/2008 JUDGMENT 12. Once purchases and subsequent sales are beyond doubt, there is no way one can wish away transactions involved to be not genuine, the element of profit or loss notwithstanding. I therefore, hold that these purchases and sales have genuinely taken place and the short term capital loss claimed by the assessee is genuine. I shall revert to the question of sale on market rate or otherwise in the following paras, after first deciding the alternate finding of the assessing officer that if not a bogus loss, it is a speculative one. 13. It has been observed by the Assessing Officer that the sale of shares appeared to be effected without taking actual delivery. In Short, when the shares were stated to have been sold i.e. the date of selling, the assessee was not in possession of these shares. But once a person is accepted to be dealing in shares, to my knowledge there was no legal bar at the given time of sale to sell the shares first and then buy these to effect actual delivery. It is simply not the case of buying and selling from / to the same person without effecting actual delivery. It is also not the case where only accounts have been squared to get the loss. Actual payments in full are reported to be made for purchases and sales both and these are from / to different parties. As per bills of share brokers, full details of the shares involved are available which goes on to prove that the transactions were of specific shares. Once actual delivery is proved, followed by full payments, transactions are just not speculative by any stretch of imagination. I therefore, hold that the short term capital loss is not speculative, either as claimed by the assessing officer. Before the question of sale of shares, whether on market rate or otherwise is decided, it is desirable to reproduce the chart indicating rates pertaining to sale of shares, which is as under: A. Rates at which shares have been sold: Name of Script No. of shares Date of sale Rate of sale Mysore Cement 10000 8.1.92 110.50 UTI Master 85000 16.1.92 28.00 L & T 15000 21.1.92 142.00 Page 7 of 41 C/TAXAP/194/2008 JUDGMENT B. Actual Prevailing Rates as per B.S.E.: Name of Script Date Opening Rate Highest Rate Lowest Rate Closing Rate Average Rate Mysore Cement 8.1.92 120.00 125.00 117.05 123.75 121.50 UTI Master 16.1.92 27.25 29.00 26.00 27.50 27.56 L & T 20.1.92 134.00 140.00 132.00 139.00 136.25 (Note 02 21.1.92 i.e. date of sale of L & T Shares) The market was closed and thus rates on the previous date are considered) It will be seen that sale of UTI Master was at Rs. 28.00 against the average of 27.56 per share, while sale of L & T was at Rs. 142/­ against average rate of Rs. 136. 25. As both these sale rates were on the higher side, no adverse inference needs to be therefore drawn, since the sales were at a rate which was higher than the average rate. The average rates are desirable to be taken since it can simply not be presumed that the transactions running into thousands of shares will be on the maximum rate available on that particular day. Even without giving credit to net realizable value after deducting brokerage & D. D. charges, the sale rates are far better otherwise. As such no further adjustment is called for. 14. But so far sale of shares of Mysore Cement is concerned, obviously the same is not on market rates. Rate shown by the assessee is of Rs. 110.50 while rate adopted by the assessing officer is of Rs.125/­ only, which is the maximum. To my mind adopting the highest rate is not a very practical proposition since it cannot be presumed that transactions running into thousands of shares will be on the maximum rate available on that particular date. To be more realistic, since only a fair estimate market rate has to be made, it will be more scientific and authentic to take the average of such rates on the particular day of sale. The average rate as indicated above comes to Rs. 121.56. When confronted with the average rate enhancement and addition on account of market rate, the plea of the appellant is that since while making purchases, element brokerage and DD. Charges is also there, similar adjustment be made, in all fairness this adjustment is called for. If Page 8 of 41 C/TAXAP/194/2008 JUDGMENT concession for brokerage and DD. Charges is given, net realizable rate comes to Rs.118/­only. On this rate, adjusted sale price will come to Rs.11,80,000/­ (i.e.. 10000 x 118 = 11,80,000/­) against Rs. 11l,05,000/­as shown by the assessee. The loss will therefore get reduced by Rs.75,000/­ consequently. The loss of Rs.1,57,000/­ only will get reduced to Rs. 82,000/­ i.e. Rs. 1,57,000 ­ Rs. 75,000/­. Same loss of Rs. 82,000/­is therefore directed to be allowed in the sale of shares of Mysore Cement. As regards UTI master and L & T shares, no rate adjustment is called for and loss as claimed of Rs. 15,31,250/­ is to be allowed in full. Thus, total short term capital loss of Rs. 15,31,250/­ + 82,000 ( Rs. 16,13,250/­) is directed to be allowed against the claim of Rs. 16,88,250/­ only.” 8.6. Being aggrieved and dissatisfied by the order of the CIT (A), revenue as well as assessee filed appeals before the Tribunal. The Tribunal after considering the submissions and material on record held that the CIT has committed an error by allowing the short term loss claimed by the assessee, though the assessee could not establish the factum of sales made to the associate concern and the transactions were without the intervention of the broker. The tribunal therefore allowed the appeal filed by the revenue rejecting the appeal filed by the assessee, holding as under: “21. We have carefully considered the rival submissions in the light of material placed before us. The assessee is engaged in the activity of sale and purchase of shares. The loss claimed in respect of UTI Master shares and L & T shares is doubted on the ground that without Page 9 of 41 C/TAXAP/194/2008 JUDGMENT having possession of those shares assessee had sold these shares to a group concern. The sales are made without intervention of any broker. This fact created a suspicion regarding the transaction. The sale of these shares/ securities to group concern by the assessee is supported by only evidence which is a debit note prepared by the assessee copy of which is placed at pages 50 to 52 of the documents attached with the appeal relating to Smt. Sulochana V Gupta. We have perused the copy of these vouchers which are self prepared giving the particulars of credit amount, number of shares, rate of sale and name of company. On these vouchers neither the particulars of shares i.e. distinctive number nor names of persons in whose names those shares were standing etc. have been given. Ld. Counsel of the assessee admitted that apart from these debit notes there is no material on record to prove the factum of sale more particularly that what were the distinctive numbers of shares which were delivered by the assessee to its group concern namely GAFL and on which date these deliveries were given. However, it is the contention of Ld. Counsel that the purchases of similar quantity of shares were made by assessee through share broker and such purchase is an evidence of having delivered these shares by the assessee to GAFL subsequently. We are unable to accept such submissions. There is no material on record to prove that the shares were actually delivered by the assessee to GAFL even subsequently as on record there is complete absence of particulars of those shares which are alleged to have been delivered subsequently by purchasing the same from broker on subsequent dates. Even in the brokers voucher distinctive numbers of those shares were not given. The broker has also not stated that from whom he has purchased these shares for assessee and in whose names these shares were standing. Thus there is absence of proof on record to hold that shares were actually delivered by the assessee to GAFL. Merely on the basis of presumption it cannot be held that as the shares have been purchased subsequently they must have been delivered by the assessee to GAFL. It has not been controverted that GAFL is an associate concern of the assessee. Entering into transaction with the associate concern without intervention of a broker (more particularly when Page 10 of 41 C/TAXAP/194/2008 JUDGMENT all other transactions are done through broker only) creates suspicion and to remove this suspicion, the assessee was under an obligation to bring on record the evidence to prove conclusively that shares in particular were actually delivered to GAFL. Not only such evidence of delivery is absent but there is no evidence on record to prove the sale of those shares on alleged dates by the assessee to GAFL. The shares are identifiable items and if they change hands i.e. if their ownership is transferred to somebody else, it is necessary that evidence should be there to prove that change in hands. Thus it cannot be claimed by the assessee that he/ she does not have evidence to prove the factum of sale or purchases. Therefore, producing evidence in this regard was not physically impossible for the assessee and if the same is not produced or no reason has been given for non production of evidence then according to well established principle of law, it will be presumed that assessee’s claim is not genuine particularly in the circumstances when onus is on assessee who is claiming the loss to be set off against other income.” 8.7. The Tribunal thereafter, referred to the decisions, i.e. (i) in the case of CIT v. Ganga Prasad Birla (HUF) reported in 199 ITR 173 (Cal.), (ii) CIT v. Shekhawati Rajputana Trading Co. (P). Ltd. reported in 236 ITR 950 (Cal.), (iii) M.Ravji & Co. v. ITO reported in 55 TTJ (Ahd) 625, (iv) CIT v. L.N. Dalmia reported in 207 ITR 89 (Cal.), and thereafter, held as under: “22. As the onus was on assessee and it has not been discharged by producing evidence which in case of genuine transaction could well be proved by producing evidence in this regard, the Page 11 of 41 C/TAXAP/194/2008 JUDGMENT transactions entered into by the assessee are liable to be ignored particularly when sales are made without ownership of the shares and that too without intervention of a broker. As pointed out earlier the transaction is between the assessee and its associate concern and it was not physically impossible for assessee to bring on record all the relevant record which were time and again asked to be produced by the assessing officer. Even before us assessee could not produce evidence to conclusively show that sales were actually made of specific shares, which are stated to be later on bought by the assessee and delivered to the associate concern. 23. The contention of Ld. Counsel that on similar advance sales profits had accrued to assessee and it has been taxed, therefore, similar treatment should be given to the relevant transaction and loss should be accepted, is also not acceptable as in those transactions profits has accrued to the assessee and there is no material on record to show that said transactions of profit was also without the intervention of broker. Thus the said transaction cannot be held to be similar to the relevant transaction. 24. There is also no force in the contention of assessee that subsequent purchases of shares sold in advance and absence of those shares in the balance sheet of the assessee is indicative of the fact that actually these shares were delivered by the assessee to associate concern. Unless it is conclusively shown that subsequently purchased shares were actually delivered by the assessee to his/her associate concern, presumption in this regard cannot take colour of conclusive proof. It has already been pointed out that it was not physically impossible for the assessee to bring relevant material on record to prove the factum of subsequent delivery as the transaction is between the assessee and his / her associate concern. Therefore, only on the basis of presumption it cannot be conclusively established that as assessee Page 12 of 41 C/TAXAP/194/2008 JUDGMENT had subsequently purchased shares to satisfy the transaction of sale to his/ her sister concern and absence of that quantity of shares in balance sheet or closing stock is indicative of certainty of assessee having delivered the similar quantity of shares to sister concern. Therefore, this contention of assessee is also liable to be rejected. 25. The contention of assessee that GAFL had earned profit on the shares purchased by it from assessee and thus the gain has suffered tax in the hands of GAFL has nothing to do with the loss claimed by the assessee as it has been held, that the sale by the assessee is not supported by conclusive evidence. More so, in case of Patel Chemical Works Vs. CIT (Supra) a decision relied upon by Ld. DR, similar contention was raised on behalf of assessee. The contentions of assessee as recorded by their Lordships of Jurisdictional High Court are as under:­ “The learned advocate, Shri J.P.Shah, appearing for the assessee, has submitted that in the instant case the Tribunal has not considered that the amount of tax which is alleged to have been avoided by the assessee; has already been paid by the sister concerns of the assessee. According to him, in fact, there is no avoidance of tax because the sister concerns had earned income from the said transactions and had paid tax thereon. In other words, the learned advocate has submitted that even if some tax has been avoided, the tax so payable by the assessee has already been paid by the sister concerns of the assessee, who earned profit on account of the said transactions of sale. It has been, therefore, submitted by him that without considering the fact that the amount of tax has already been paid by the sister concerns, the Tribunal ought not to have come to a conclusion that there was avoidance of tax. According to him, if one looks at the overall picture by considering the total amount of tax, which has been paid by the assessee as well as the sister concerns, in fact, there is no avoidance of Page 13 of 41 C/TAXAP/194/2008 JUDGMENT tax and there is no loss caused to the revenue. It has been, therefore, submitted by him that without ascertaining the fact whether the revenue had suffered any loss, the tribunal should not have come to a conclusion that payment of tax had been avoided by the assessee”. Giving decision on these contentions, the observations of their Lordships are as under: We have heard the learned advocates at length. The assessee has not challenged the findings on the ground of perversity. Moreover, it is not in dispute that the goods were sold by the assessee to its sister concerns at a very low price and at times, even at a price lower than the cost of production. It is also not in dispute that the goods, which were sold by the assessee to its sister concerns, were immediately sold to third parties at a subsequently higher rate and in the same lot and delivery of the goods was given by the assessee directly to the third parties without sending the goods to the sister concerns. The said facts, which have been ascertained by the Assessing Officer and confirmed by the Tribunal, have become final. Looking to the said facts, the tribunal has come to a conclusion that the payment of tax had been avoided by the assessee. “Once it has been established that the payment of tax has been avoided, in our opinion, it was not necessary for the Revenue to ascertain whether any loss had been caused to it. In our opinion, it was also not necessary for the revenue to see whether the sister concerns had paid tax and if so, how much tax was paid by the sister concerns. We are also of the view that it was not necessary for the revenue to look at the overall effect with regard to receipt of tax by the Revenue before coming to the conclusion whether payment of tax was avoided by the assessee. Thus, in our opinion, the tribunal was right when it came Page 14 of 41 C/TAXAP/194/2008 JUDGMENT to the conclusion that tax was avoided and for coming to the said conclusion it was not necessary for the tribunal to ascertain whether any loss was caused to the Revenue on account of non­inclusion of income in question in the assessee’s assessment and it is inclusion in the assessment of the sister concerns”. Viewing the present case in the light of above observations of their Lordships, the contention of assessee that his/ her associate concern had paid tax on the gains, accrued by sales of relevant shares, is irrelevant for deciding the allowability or otherwise of loss shown by the assessee on alleged sale of these shares, as sales have not been conclusively established by the assessee. 26. In view of above discussion, we hold that as assessee could not establish the factum of sales made to his/her associate concern and the transactions are without the intervention of broker, the loss claimed is not allowable.” 9.1. Learned advocate Mr. B.S. Soparkar appearing for the assessee submitted that the Tribunal has committed an error in holding that since the assessee could not establish the factum of sale of the shares made to associate concern and the said transactions of sale were made without intervention of broker, the capital loss claimed by the assessee is not allowed ignoring the fact that the assessee has delivered the shares for consideration after purchasing the same through share broker in order to fulfill the obligation on the part of the assessee, pursuant to the Page 15 of 41 C/TAXAP/194/2008 JUDGMENT transaction of sale which had admittedly taken, prior in point of time. 9.2. It was submitted that, it is nowhere provided in the provisions of the Income Tax Act, 1961 that the assessee should have the physical possession of the shares at the time of sale of such shares. In this context, it was pointed out that the Tribunal has not considered this aspect that the Assessing Officer has taxed the profit earned by the assessee in similar circumstances of selling the shares in prior point of time then the purchase of shares, because in all there were 19 transactions which were carried out by the assessee during the previous year, wherein, in some of the transactions, assessee sold the shares in advance, and thereafter, purchased the shares, resulting into profit which is offered to tax. Learned advocate invited the submission made on behalf of the assessee before the Tribunal, as recorded by the Tribunal in para­13 as under: “13. Shri J.P. Shah, Ld. Counsel, appearing on behalf of assessee, invited our attention towards page 4 of the paper book, wherein assessee has annexed statement showing details of profits and loss from shares for the year under consideration. As per said chart consolidated sum of profits and loss shown by assessee in respect of sale and purchase of Page 16 of 41 C/TAXAP/194/2008 JUDGMENT shares can be summarized as under: 1 Long term profits 17,27,200/­ 2 Short term profits 11,03,600/­ 3 Short term loss 16,88,750/­ The consolidated figures of sale and purchase of shares are as under:­ Purchase Price Rs. 85,84,750/­ Sale Price Rs. 97,26,800/­ In all total 19 transactions have been done by assessee. Referring to transaction No.10 which is in respect of shares of Ambuja Port Ltd, he pointed out that assessee had sold 25,000 shares on 29.11.91@ Rs. 45/­ per share against which purchase were made on 27.12.91 of 23,900 shares @ Rs.10/­ and 1100 shares on 1.3.90 @ Rs.10/­. Thus he pleaded that assessee had earned a sum of Rs. 38,500/­ as long term profit and Rs.8,36,500/­ as short term profit. He contended that if Assessing Officer is treating loss as not allowable arising to assessee out of shares of UTI Master Shares and L & T Shares on the ground that sale proceeded the purchase then Assessing Officer cannot treat the profit arising on similar transaction on different footing as the same will be discriminatory.” Referring to the above submissions made before the Tribunal, it was pointed out that while considering the issue, the Tribunal has ignored this fact. 9.3. Learned advocate further submitted that, the GAFL has shown profit on sale of shares on which the assessee claimed loss, which has been denied by the Assessing Officer. He Page 17 of 41 C/TAXAP/194/2008 JUDGMENT referred to the following submissions recorded by the Tribunal in the impugned order made on behalf of the assessee as under: “14. Further he contended that GAFL has shown profit on sale of shares on which the loss has been denied to the assessee. He in this regard referred to the assessment order of GAFL which is dated 19.01.1995 in which income has been assessed at Rs.8,68,478/­. However, it was seen that at page 88 the assessee has enclosed computation of total income of GAFL according to which income has been computed at NIL by chiming unabsorbed business loss brought forward from Asst. Year 1991­92 at Rs. 16,38,462/­ and in the note total business loss to be carried forward to asst. year 1993­94 are computed at Rs.6,91,502/­. 15. In paragraph 12 of the assessment order it has been mentioned by Assessing Officer that according to the assessment order for Asst. Year 1991­92 read with order under section 154 there is no carry forward loss, therefore, no set off of the same is given.” 9.4. Referring to the above facts which are not in dispute, it was submitted that the Tribunal has brushed aside the relevant facts and has relied upon the irrelevant facts to hold that the assessee is not entitled to claim the loss suffered by it. The Tribunal has also not considered that the CIT (A) after considering in detail the material on record has arrived at following findings of fact recorded in para­10 of the order of the CIT (A): Page 18 of 41 C/TAXAP/194/2008 JUDGMENT “10….. (i) The purchases have been made through a share broker, which establish the purchases along with its purchase value. The Assessing Officer has accepted the purchases and its price to be genuine. (ii) Once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock. Since these are not part of the closing stock, the inference is that corresponding sales are there. (iii)The sales are confirmed by seller and purchases are confirmed by purchaser who are two separate taxable entities, assessed to tax. (iv) The purchases in the hands of the purchaser and its subsequent sale to a third party, earning profit in the same, earned only after purchases from the appellant are genuinely accepted. (v) Against the sale/purchase of shares, payments have been received, though after a time gap which is not an illegality under any existing provisions of law. (vi) The sales without a share broker are not illegal ones and are permissible.” 9.5. Referring to the aforesaid findings, it was pointed out that, in view of such finding of facts arrived at by the CIT (A), the Tribunal could not have given different finding of facts contrary to record, which is based on the findings arrived at by the Assessing Officer. 9.6. Learned advocate for the appellant placed reliance upon the decision of the Co­ordinate Bench of this Court in case of Assistant Commissioner of Income­tax v. Biraj Page 19 of 41 C/TAXAP/194/2008 JUDGMENT Investment (P.) Ltd. reported in (2012) 24 taxman.com 273 (Guj.) to submit that the Court in similar situation has held that simply because the assessee had sold shares to group company at loss during previous year by itself would not mean that it was a colourable device and the loss cannot be allowed to be set off. Reliance was placed upon the following findings of the Court which reads thus: “17. We are not inclined to accept the Revenue's contention that this was a colourable device and that the entire arrangement was a paper arrangement. Firstly, there is no provision in the Act which would prevent the assessee from selling loss making shares. Simply because such shares were sold during the previous year when the assessee had also sold some shares at profit by itself would not mean that this is a case of colourable device or that there is a case of tax avoidance. Further, there is no restriction that such sale or transaction cannot be effected with a group company. As long as the Revenue could not doubt the sale price of the shares, it would not be open for the Revenue to contend that the assessee had shown loss which it did not really suffer. In the present case, it is not even the case of the Revenue that shares were sold at a price lower than the market rate. If that be so, the question of inflating the loss by transferring the shares to group company would not arise. Under ordinary circumstances, it is always open to the assessee in his own wisdom to either hold on to certain bunch of shares or to sell the same to avoid further loss, if he finds that market value of the shares is fast diminishing. It is equally open for the Page 20 of 41 C/TAXAP/194/2008 JUDGMENT assessee to effect such sale during the same year when he also chooses to dispose of certain profit making shares. In the present case, of course, there is a further angle of the shares in question being pledged to IDBI and therefore it would not be possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms. As already noted, such special angle may have repercussion insofar as the legal relation between the assessee and the IDBI is concerned and insofar as the purchaser's right to have shares transferred in its name is concerned. This, however, by itself would not establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of Commissioner of Income Tax v. Sakarlal Balabhai, 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 18. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra)and the observations made in the later decision in the case of Vodafone (supra), we do not find that this a case which would fall within the parameters of Page 21 of 41 C/TAXAP/194/2008 JUDGMENT the decision in the case of McDowell & Company Ltd (supra).” 10.1. On the other hand, learned advocate for the revenue Mr. Varun K. Patel submitted that the Tribunal has arrived at finding of fact, considering that the copies of vouchers which are self­prepared by the assessee giving the particulars of credit amount, number of shares, rate of sale and name of the company does not inspire confidence, as neither distinctive number nor names of the persons in whose names the shares which were sold were mentioned on such vouchers. It was submitted that, apart from these debit notes and vouchers, there is no material on record to prove the factum of sale, more particularly, that what were the distinctive numbers of shares which were delivered by the assessee to GAFL and on which date, such delivery was given by the assessee. It was submitted that, merely because the purchase of such shares were made subsequently, cannot entitle the assessee to claim capital loss to be set off. It was pointed out that, there is no material record to prove that the shares were actually delivered by the assessee to GAFL even subsequently. 10.2. It was therefore submitted that, the Tribunal has rightly considered the fact that the assessee was under obligation to bring on record Page 22 of 41 C/TAXAP/194/2008 JUDGMENT the evidence to prove conclusively that shares in particular were actually delivered to GAFL. 10.3. It was further submitted that, the Tribunal has also arrived at an admitted fact that the sale of the shares were prior in point of time to associate concern, inasmuch as, the assessee failed to produce any evidence with regard to subsequent delivery of shares and receipt of sale consideration from GAFL. It was therefore contended that in such circumstances, the Tribunal has rightly held that the claim of the assessee is not genuine in the facts of the case and the assessee failed to discharge the onus to claim loss to be set off against the other income. 10.4. It was further submitted that, in view of the facts emerging from record, the Tribunal has rightly held that the assessee is not entitled to claim the capital loss arising out from the transaction to be set off against the other income of the assessee. 11. Having heard the learned advocates of the respective parties and having gone through the material on record, in order to answer the questions framed, it would be germane to refer to relevant provisions of the Income Tax Act, Page 23 of 41 C/TAXAP/194/2008 JUDGMENT 1961 as under: Section 2 (14) \"capital asset\" means— (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), but does not include— (i) any stock­in­trade [other than the securities referred to in sub­clause (b)], consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes— (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation 1.—For the purposes of this sub­ clause, \"jewellery\" includes— (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi­precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi­precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel. Explanation 2.—For the purposes of this clause— Page 24 of 41 C/TAXAP/194/2008 JUDGMENT (a) the expression \"Foreign Institutional Investor\" shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; (b) the expression \"securities\" shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iii) agricultural land in India, not being land situate— (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,— (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.—For the purposes of this sub­clause, \"population\" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government; (v) Special Bearer Bonds, 1991, issued by the Central Government ; (vi) Gold Deposit Bonds issued under the Gold Page 25 of 41 C/TAXAP/194/2008 JUDGMENT Deposit Scheme, 1999 1[or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government. Explanation.—For the removal of doubts, it is hereby clarified that \"property\" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever; Section 2 (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 (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock­in­trade of a business carried on by him, such conversion or treatment; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co­ operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanations: 1. For the purposes of sub­clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA. 2. For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or Page 26 of 41 C/TAXAP/194/2008 JUDGMENT parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India. Section 45 Capital gains. “45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income­tax under the head \"Capital gains\", and shall be deemed to be the income of the previous year in which the transfer took place. (1A) Notwithstanding anything contained in sub­ section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of— (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or (ii) riot or civil disturbance; or (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war), then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income­tax under the head \"Capital gains\" and shall be deemed to be the income of such person of the previous year in which such money or other asset was received and for the purposes of section 48, value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset. Page 27 of 41 C/TAXAP/194/2008 JUDGMENT Explanation.—For the purposes of this sub­ section, the expression \"insurer\" shall have the meaning assigned to it in clause (9) of section 2 of the Insurance Act, 1938 (4 of 1938).” 12. It is not in dispute that the Tribunal has arrived at finding of fact and the findings arrived at by the CIT (A) in its order allowed the claim of the capital loss made by the assessee. The CIT (A) has gone on a tangent in arriving at a finding on presumption that once the purchases have been found to be genuinely made, either there should be corresponding sales or the shares should form part of the closing stock and because the shares are not part of the closing stock, the inference was drawn that corresponding sale is also genuine. As against that, the Tribunal has relied upon only the evidence which is debit note prepared by the assessee which was produced on record. On perusal of such debit note, it was found by the Tribunal that the same were self­prepared giving only the particulars of the credit amount, number of shares, rate of sale and name of the company, without there being any particulars of shares i.e. distinctive number or names of the persons in whose names those shares were standing, etc. Moreover, the Tribunal has also found as a matter of fact that there is no material on record to prove that the shares were actually delivered by Page 28 of 41 C/TAXAP/194/2008 JUDGMENT the assessee to the GAFL even subsequently as there is total absence of any document to remotely indicate such fact. The Tribunal has also found that there is no matching of the shares which were sold and purchased subsequently through some share brokers. It was also found that, even in the broker’s voucher, distinctive numbers of those shares were not given and the broker had also not stated that from whom he has purchased these shares for assessee and in whose names such shares were standing. The Tribunal therefore found that there is absence of proof on record to hold that the shares were actually delivered by the assessee to GAFL. In such circumstances, it would be necessary to refer to the decision of the Privy Council in case of Aveline Scott Ditcham v. James J. Miller reported in AIR 1931 Privy Council 203, wherein it is held as under: “That deed poll, remarkable as it is, and it is a notable example of salvage conveyancing, was not in their Lordships' judgment, effective for its purpose. The Supreme Court took the view that as between the company and the three persons whose title it purported to confirm, it amounted to a legal assignment in writing of the leasehold interest in the property with all rights appurtenant thereto which included the right to obtain payment of compensation under the Act of 1921. It certainly did not purport to be more than this. But, so regarded it was at law quite inoperative, inasmuch as the estate or interest which it purported to assign had at the date of the deed no existence, and it is well settled that neither at law nor in equity can the Page 29 of 41 C/TAXAP/194/2008 JUDGMENT assignment of such an interest operate according to its tenor: see Sweet v. Shaw, (1), Collyer v. Isaacs (2), Performing Rights Society v. London Theatre of Varieties, Limited (3) and Performing Rights Society v. London Theatre of Varieties (4). In equity such a transfer may in certain circumstances create equitable rights, but at law it is useless. The deed poll accordingly was for this reason alone of no effective service to the respondent. And there are other objections to its efficacy. If it may be assumed, as it seems to have been, that the \"shareholders\"' already referred to and the \"debtors“ were the same persons, then it was the title of these shareholders as contributors of the company, and that title only, which the company in 1980 had by its liquidator any right to confirm. No assignment of this interest of theirs now for the first time emanating from the company was, as has been seen, made by the trust deed of 14th January 1931, and accordingly they, as contributors, were alone entitled to have their title perfected. Putting it in another way, without their concurrence in the deed poll as assignors, that deed, even if otherwise unobjectionable, was inoperative to assign any interest to the respondent and his two co­assignee's.” 13. Therefore, in view of the aforesaid dictum of law and considering the provision of Sections 2(14) r/w. 2 (47) of the Act, 1961, if the estate or interest which it purported to assign had at the date of the deed did not exist, it is well settled that neither at law nor in equity can the assignment of such an interest operate according to its tenor. Similarly, in the facts of the case, when the shares were not in existence on the date of sale, then the same could not have been considered as capital asset, so as to fall within the definition of transfer under Section 2 Page 30 of 41 C/TAXAP/194/2008 JUDGMENT (47) of the Act. 14. The Madras High Court in the case of Chief Controlling Revenue Authority, Madras, Referring Officer v. Sudarsanam Picture, Madras­18 reported in AIR 1968 Madras 319, in the context of Transfer of Property Act has held as under: “(5) The word \"conveyance\" is used in this definition in a wide sense so as to include sale, mortgage, charge, lease, etc. As will be seen presently, it is settled law that while a transfer of property may take place not only in the present, but also in the future, the property must be in existence at the time of the transfer, for an instrument to be a deed of transfer. The words \"in present or in future\" in the definition, it is manifest, qualify the word \"conveys\" immediately preceding \"property\" and not the word \"property\". The conveyance may be in present or in future, but the conveyance should be of property in existence. A purported transfer of property, not in existence at the time of the contract, can only operate as a contract to be performed in future. Reference in this connection may be made to the decision of the Privy Council in Ranee Bhobosoondree Dassee v. issur Chunder Dutt, (1872) 18 Suth WR 140 (PC). There, a person who had not the means to institute a suit for the recovery of the property he was entitled to, agreed to sell and sold a moiety of the property to another in consideration of a sum of money, which the other person was to pay for the purpose of carrying on the suit, both of them to figure as plaintiffs. Shortly after the conveyance, the owner compromised with the opposite party, who was in possession of the property. Affirming the dismissal of the suit in ejectment filed by the person who had advanced the money as on a sale against the owner and the opposite party, their Lordships observed that the transaction of sale did not operate as a present transfer of the property, but only as an agreement to transfer so much of it as might be recovered in Page 31 of 41 C/TAXAP/194/2008 JUDGMENT a suit to be instituted. They referred to earlier observations of the Privy Council in Rajah Sahib Perhlad Sein v. Y. Baboo Budhee Singh, (1867­68) 12 Moo Ind App 275, 286, 307 (PC), where it is stated: \"To support it, the execution of the bill of sale must be treated as a constructive transfer of possession. But how can there be any such transfer, actual or constructive, upon a contract under which the vendor sells that of which he has no possession and to which he may never establish a title. The bill of sale in such a case can only be evidence of a contract to be performed in future and upon the happening of a contingency of which the purchaser may claim a specific performance, if he comes into Court showing that he has himself done all that he was bound to do.\" In Jugalkishore Saraf v. Raw Cotton Co., Ltd., AIR 1955 SC 376, the Supreme Court points out that \"under the Transfer of Property Act, there can be no transfer of property which is not in existence at the date of the transfer.\" If there can be no transfer in praesenti of property not in existence, it stands to reason and follows that there can be no creation of a right over, or in respect of such property. In our view, the principles that govern the construction of the word 'transfer' in relation to property under the Transfer of Property Act, would equally apply to the transfer or creation of right provided under the definition \"mortgage deed\" in Sec. 2(17) of the Stamp Act. The Lahore High Court in Miran Baksh v. Emperor, AIR 1945 Lah 69 (SB) on a Stamp Reference observed: \"A transfer of property that is not in existence operates as a contract to be performed in future which may be specifically enforced as soon as the property comes into existence, but it does not operate as a transfer. I am of opinion that the same principles must govern the construction of the words 'transfer' and 'property' used in Section Page 32 of 41 C/TAXAP/194/2008 JUDGMENT 2(17) of the Stamp Act, and in order that a document by which property is transferred may come within the purview of a mortgage deed for the purposes of the Act, the property to which it relates must be in existence.\" The learned Government Pleader drew our attention to In re Bajraj Singh, (1887) ILR 9 All 585 (FB), also a reference under the Stamp Act, as authority for the proposition that future property could be subject of mortgage. Having perused the judgment carefully, we find no warrant for such an inference. What was hypothecated there was produce of a field with sugarcane, then existing property, and there was no discussion in the case whether property not in existence could be the subject of mortgage; nor does the decision in Secretary to the Commr. of Salt, Abkari and Separate Revenue, Madras v. Mrs. Orr, ILR 38 Mad 646 = (AIR 1917 Mad 374), cited for the State advance the contention. The question there was, whether the instrument was a mortgage within the meaning of Sec. 2(17) of the Stamp Act and was chargeable with stamp duty under Art. 40 or was a declaration of trust chargeable under Art. 64. The instrument was between the proprietors of a business and the Bank of Madras, who had agreed to advance moneys. The deed covered besides machinery, plant, etc., stock­in­trade, goods, chattels and effects of the business in Madras and Rangoon, described in the schedule to the instrument. The net profits realised after payment of expenses under the instrument in question were also to be retained by the trustee under the instrument in trust to pay and apply the same in payment of sums advanced by the bank. The Special Bench held that so far as stock­in­trade etc., described in the deed as trust properties were concerned, the properties were specified and that the instrument was a mortgage deed. But as to net profits, which had also to be applied in payment of the sums advanced by the bank, it was observed, at p. 649: \"It may be that the net profits here are not 'specified property' within the meaning of the definition\". Crompton Engineering Co., Madras, Ltd. v. Chief Controlling Revenue Authority, Madras (FB) Page 33 of 41 C/TAXAP/194/2008 JUDGMENT again as only an authority for the position that stock­in­trade is 'specified property' within the meaning of Section 2(17). In that case it was held that the document was not a mortgage deed, as there was no transfer of rights in accordance with the requirements of Sec. 59 of the Transfer of Property Act. Apart from the stock­in­trade, there were other items of properties and immoveable property comprised in the transaction, all one and indivisible, and the instrument was unattested. While holding, in the circumstances, that there was no mortgage, their Lordships pointed out that to make a document liable to stamp duty as a mortgage deed it was not enough if the document purported to effect a transfer, but that it must transfer. Authority for the view that stock­in­trade is 'specified property' under Sec. 2(17) is not authority for the position that future property could be the subject of immediate transfer. Stock­in­trade is not future property. If stock­in­trade is mortgaged, there is existing property for the transfer to act upon, the security takes in all the effects then available as stock­in­trade. No doubt substituted property may be effectually included in the security by apt words, which can be found and are usually found in mortgages of stock, machinery, plant and the like where the subject­matter may change from day to day. It is a matter of construction of the deed whether effects subsequently brought in on the promises for the purposes of replacing those disposed of or consumed in the course of the business are covered by the mortgage. They are future property, but when the instrument is executed, there is existing property. No formalities are required for the creation of a mortgage of moveable property. A parole mortgage of goods is perfectly valid though a transfer on an actionable claim will have to comply with the requirement of Section 130 of the Transfer of Property Act. For the purpose of the Stamp Act, the effect of the instrument has to be examined at the time of the execution; whether in fact there is an operative transfer or mortgage on the execution of the instrument and by virtue of the instrument. In this connection we may refer to the observations of the Supreme Court in AIR Page 34 of 41 C/TAXAP/194/2008 JUDGMENT 1955 SC 376 already cited, where it is observed as follows: \"Where there is a contract for the transfer of property which is not in existence at the date of the contract, the intending transferee may, when the property comes into existence, enforce the contract by specific performance, provided the contract is of the kind which is specifically enforceable in equity. It is only when the transferor voluntarily executes a deed of transfer a sin all conscience he should do or is compelled to do so by a decree for specific performance that the legal title of the transferor in that property passes from him to the transferee. This transfer of title is brought about not by the prior agreement for transfer but by subsequent deed of transfer. This process obviously involves delay, trouble and expense. To obviate these difficulties, equity steps in again to short circuit the process.\" Their Lordships easier refer to the equitable principles enunciated by Lord Westbury in Holroyd v. Marshall (1862) 10 HLC 191, 210­211, in the following words:­­ \"It is quite true that the deed which professes to convey property which is not in existence at the time is as a conveyance void at law, simply because there is nothing to convey. So in equity a contract which engages to transfer property, which is not in existence, cannot operate as an immediate alienation merely because there is nothing to transfer. But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired.\" Page 35 of 41 C/TAXAP/194/2008 JUDGMENT The equitable principle flowing from the above that equity treats as done what ought to be done does not make out any new contract between the parties or alter the true character of the original instrument.” 15. Similarly, in the case of Patel Brass Works v. Commissioner of Income Tax reported in (2006) 286 ITR 598 (GUJ.), in case of claim of capital loss on cancellation of order of supply of machinery, it was held that, the claim of the assessee for loss on account of cancellation charges as business loss or in alternative as short term capital loss cannot be allowed as there was no capital asset existing in the hands of the assessee and there was no transfer within the meaning of Section 2 (47) of the Act, 1961, as under: “6. The Scheme of the Act envisages a conjoint reading of provisions of Sections 45, 2(47) and 2(14) of the Act. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall be deemed to be the income of the previous year in which the transfer took place. Therefore, for the charge of capital gains tax or capital loss, the essential requirements are that there should be a transfer of a capital asset effected in the previous year. This would require ascertainment of the meaning of the terms transfer and capital assets. Transfer has been defined, in relation to a capital asset, to include various contingencies stipulated by sub­clauses of Section 2(47) of the Act. Sub­ clause (ii) of Section 2(47) of the Act states that transfer includes the extinguishment of any right therein. That requires assigning Page 36 of 41 C/TAXAP/194/2008 JUDGMENT meaning to the term therein. In other words, for the purposes of transfer of a capital asset, it would suffice if there is extinguishment of any rights in a capital asset. However, even for the purposes of extinguishment of any rights, existence of a capital asset is a must. 7. Section 2(14) of the Act defines capital asset to mean property of any kind held by an assessee. For the present, it is not necessary to refer to the exclusionary clauses. The definition stipulates existence of property of every description and such property must be held by an assessee. 8. As can be seen from the facts of the case, the assessee had entered into a contract for purchase of machinery. The contract had been executed and entered into by the parties to the contract. The contract was in subsistence till the point of time the assessee cancelled the contract. Therefore, till that point of time, the assessee did not have any right which could be termed to be property so as to fall within the definition of capital asset as defined under section 2(14) of the Act. The right that the assessee had till that point of time was to make payment of the balance amount and take delivery of the machinery for which the order had been placed by the assessee. In other words, the assessee was required to perform its part of the contract or show or express readiness and willingness to perform its obligation as emanating from the contract, namely, making payment of the balance amount towards machinery to be purchased, and then call upon the supplier to fulfill its part of the contract, namely, supply the machinery. Upon the supplier refusing to perform its part of the contract, the only right that could come into existence would be a right to sue for specific performance, and in the alternative, claim damages. However, in the present case, it was the assessee who was not willing to perform its part of the contract. Therefore, to claim that the assessee was in possession of a right which could be termed to Page 37 of 41 C/TAXAP/194/2008 JUDGMENT be a capital asset within the meaning of section 2(14) of the Act, cannot be accepted and the Tribunal was justified in holding that the assessee was not in possession of any capital asset. 9. As already seen hereinbefore, the assessee was not holding any capital asset so as to enable the assessee to claim extinguishment of any rights in such a capital asset. Whether extinguishment per se is sufficient or whether it could operate as distinct and independent of transfer of a capital asset is not the issue in the present case, and hence, the decision in case of C.I.T. v. Mrs. Grace Collis (supra) relied upon by the learned advocate for the assessee, cannot carry the case of assessee any further. Even if the contention that extinguishment by itself is sufficient to constitute transfer is accepted, nonetheless, it is necessary for the assessee to establish that extinguishment is of any rights in a capital asset. The facts of the case reveal that the assessee never held any capital asset. The endeavour on behalf of the assessee to contend that the assessee was holding a right, which itself was a capital asset, is not supported by the facts of the case. The only right that the assessee had, till the point of time it cancelled the contract, was to perform its part of the contract and seek performance of the contract from its suppliers. This could not be termed to be a capital asset, howsoever wide the definition of property may be cast. 10. In these circumstances, when the Tribunal came to the conclusion that the concluded contract between the assessee and the suppliers through the exchange of letters was not a capital asset in the hands of the assessee, and there was no transfer whatsoever within the meaning of Section 2(14) of the Act, it cannot be said to be incorrect. Even if the unilateral act of cancellation of contract would amount to extinguishment, it would be extinguishment only of the right to seek performance of the contract after showing Page 38 of 41 C/TAXAP/194/2008 JUDGMENT the willingness to perform its part of the contract. 11. Therefore, in absence of any infirmity in the impugned order of Tribunal, question No. 2 is answered in the affirmative. The Tribunal was right in law in holding that the assessee was not entitled to deduction of Rs. 80,000/­ as short term capital loss. The question is accordingly answered in favour of the revenue and against the assessee.” 16. In view of the aforesaid settled legal position and in view of the findings of fact arrived by the Tribunal, it cannot be said that the Tribunal has committed any error in holding that the assess is not entitled to claim capital loss arising out of the transactions of sale of shares, which were not in actual possession of the assessee. 17. With regard to the decision of this Court in the case of Biraj Investment (supra), the facts of the said case were different as the assessee in that case was owner of the shares but such shares were pledged by the assessee with the IDBI Bank and all original share certificates were also lying with the said Bank along with the duly executed transfer forms. In such circumstances, it was held that, though it was not possible for the assessee to deliver the original share certificates to its purchaser along with the duly signed transfer forms, but by itself it would not Page 39 of 41 C/TAXAP/194/2008 JUDGMENT establish that the sale of shares was only a paper transaction and a device contrived by the assessee to claim loss which it did not suffer. However, in the facts of the case, the assessee was not having either the possession or the ownership of the shares which were sold to GAFL. Moreover, it is also finding of fact arrived at by the Tribunal that there is no evidence as to the actual delivery or the time of receipt of sale consideration by the assessee. In such circumstances, in view of the settled legal position as held by the Supreme Court in case of Omar Salay Mohamed Sait v. Commissioner of Income Tax, Madras reported in (1959) 37 ITR 151 (SC), the Tribunal which is a fact finding authority, has arrived at its own conclusion of facts after due consideration of the evidence before it, therefore, this Court will not interfere. The Supreme Court held as under: “34. We are aware that the Income­tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were was the reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any Page 40 of 41 C/TAXAP/194/2008 JUDGMENT irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.” 18. In overall view of the matter and in absence of any infirmity in the impugned order of the Tribunal, the question is answered in affirmative. The Tribunal was right in holding that if the assessee could not establish the factum of sale of the shares made to her associate concern and the said transaction of sale is made without the intervention of the broker, the capital loss claimed by the assessee is not allowable. The question is accordingly answered in favour of the revenue and against the assessee. 19. Appeals therefore fail and are accordingly dismissed. There shall be no order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) Pradhyuman Page 41 of 41 "