Law: Income Tax Act, 1961

Section: 2,2(47),45

Income-tax--Business loss---Capital or revenue loss---Amount deposited in a company could not be recovered as company was wound up----No transfer of capital asset as contemplated in S.2(47)---Loss not arising from transfer of capital asset within meaning of S.45---Loss cannot be set off against capital gain--­Indian Income Tax Act, 1961, Ss.2(47) & 45. The assessee made a deposit of Rs.20,000 in the assessment year 1972-73 in a company that was later wound up and the assessee was unable to recover the deposit. For the assessment year 1975-76, the assessee claimed that the capital loss incurred in 1972-73 be adjusted against the capital gains for the assessment year 1975-76. The Income-tax Officer rejected the claim on the ground that it was not capital loss. The Appellate Assistant Commissioner confirmed the view of the Income-tax Officer. On a revision petition the Commissioner of Income-tax held that the capital loss for 1972-73 would be carried forward in accordance with law. The Tribunal allowed the appeal preferred by the assessee. On a reference: Held, (i) that there was no transfer of capital assets as contemplated in section 2(47) of the Income Tax Act, 1961, and when there was no transfer, the loss could not be said to have arisen by the transfer of a capital asset within the meaning of section 45 of the Income-tax Act. (ii) That the Commissioner had determined the loss and allowed the loss to be carried forward to the subsequent years according to law. But the Commissioner had not stated that the loss had accrued in the computation of loss under section 45 of the Act. The claim of the assessee before the income-tax authorities was that it was a bad debt and since it was not a capital loss which arose in the computation of loss under section 45 of the Act, it was impermissible for the assessee to carry forward the loss and set off the same against the capital gains of the subsequent years. CIT v. East India Charitable Trust (1994) 206 ITR 152 (Cal.) and Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647 (SC) fol. Natarajan (C.A.) v. CIT (1973) 92 ITR 347 (Mad.) ref. JUDGMENT N.V. BALASUBRAMANIAN, J.---There are three questions of law which are…

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