Shri Swami Samarth Cement Depot vs Fourth Income-Tax Officer. on 1 January, 1990

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Bombay High Court
Shri Swami Samarth Cement Depot vs Fourth Income-Tax Officer. on 1 January, 1990
Equivalent citations: 1990 32 ITD 806 Mum


ORDER

Aggarwal, Judicial Member – This appeal has been filed by the assessee against the order passed by the CIT (A) dt. 10-8-87 for the assessment year 1983-84. The following grounds have been taken :-

(1) CIT (A) erred by disallowing short-term capital loss of Rs. 1,52,075 being the loss on sale of shares of Balaji Investments Ltd.

(2) CIT (A) erred in holding that the transfer was complete only on transfer of shares in the share register of the company in the name of the partner.

(3) CIT (A) failed to appreciate that as per the provisions of section 108 of the Companies Act, 1956, the shares can be transferred by the subsequent purchaser in his name in the records of the company at any time before the book closure of the company and that it was not necessary that immediately on receipt of shares, he has to get them transferred in his own name.

(4) CIT (A) erred in disallowing Rs. 2,000 out of professional charges paid to architect and in treating it as a capital expenditure.

2. The first three grounds pertain to short-term capital loss of Rs. 1,52,075 and, thus they are taken up together. The assessee had claimed short-term capital loss of Rs. 1,52,075 on sale of shares of Balaji Investments Ltd., which was disallowed by the ITO as the shares were not actually transferred in the name of the partners during this assessment year and they were actually transferred in August 1983. The said order was confirmed by the CIT (A) on that very ground holding that the transfer not having been completed in this assessment year, the loss could not be allowed in this year. Being aggrieved, the assessee has come up in appeal before the Tribunal.

3. The learned counsel for the assessee vehemently argued that it was a case of sale of shares which was a movable property and, thus, their sale was to be governed by the Sale of Goods Act. Section 20 of the said Act provided that where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passed to the buyer when the contract was made and it was immaterial whether the time of payment of the price or the time of the delivery of the goods were both postponed.

4. In this case, the shares had been sold through the shares-in-stock broker vide his contract Nos. 712 and 748 dt. 17th March and 23rd March, 1983. Even the payment had also been received on 28th March, 1983, by a crossed cheque. Thus, it was stressed that when the delivery of the shares with a blank signed form had been effected and the payment had also been received, the transferor or the seller had done all what was in his capacity to do. Consequently, in view of section 20, the sale had completed and the title in the shares had passed to the purchaser. Once the title passed to the purchaser, the transaction was complete and the loss had crystallised in this year assessment year and, therefore, it should have been allowed. He further stressed that the provisions of the Company Law Act did not affect the sale where it had been provided that the transfer would be complete for purposes of the company when the sale had been registered in the register maintained by the company. In fact, that provision was only for the purpose of the company who was a third party.

On the other hand, the Departmental Representative relied on the order of the CIT (A) in which he confirmed the order of the ITO relying on the provisions of the Companies Act.

5. We have heard the parties at length and have carefully perused the entries facts on record. It is not in dispute that the sale of shares is governed by the Sale of Goods Act. Section 20 of the said Act is specific as to when the title and property in the goods pass and it provides that it passes to the buyer when there is an unconditional contract for the sale of specific goods in a deliverable state. Here, in this case, the shares were definite and even the delivery of the said shares with a blank form signed for the transfer had also been handed over to the purchaser. Even the price of the shares had also been received through the crossed cheque on 28th March, 1983, i.e., within this assessment year. The sale was effected through the shares-in-stock broker and, thus, in the eyes of law, the transaction was completed and the title in the shares had passed to the purchaser. On the receipt of the sale price, the loss had also crystallised and quantified in this assessment year itself. The actual transfer in the transfer register maintained by the company is immaterial as far as the contract for sale of the shares is concerned. In fact, the actual transfer in the register arises only when there is a dispute about the receipt or the payment of the divided and the bonus shares declared by the company after the sale. Here, in this case, the actual transfer is also said to have taken place in August 1983, and thus the question of that dispute in this case did not exist. Taking all these facts into consideration, we hold that the sale had taken place within this assessment year and loss had also crystallised in this year. As a result, the said loss was an allowable deduction and the order to the contrary, passed by the CIT (A), is set aside and the ITO is directed to allow the said short-term capital loss, according to the law. The issues are accordingly decided in favour of the assessee.

6. The other ground pertains to the disallowance of Rs. 2,000 out of professional charges paid to an architect treating the same as capital expenditure. The learned counsel pointed out that this payment to the architect was in connection with any bigger estimate but it was only for a routine repairs of the premises. As it was payment made to an architect for preparing the estimate of a routine repairs, we feel that it does not amount to capital expenditure and the same should, therefore, be allowed as a revenue expenditure. We, therefore, hold that the order of the CIT (A) to the contrary was not proper and justified and the same is, therefore, hereby set aside and the ITO is directed to allow the expenditure of Rs. 2,000 paid towards professional charges to an architect as a revenue expenditure. The issue is decided accordingly.

7. The appeal is allowed.

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