Transfer by extinguishment of rights can be taxable, but no capital gain arose where no profit or gain accrued to the transferor.

A transfer by relinquishment or extinguishment of rights in shares and other property fell within the statutory meaning of transfer, because the assessee parted with ownership and the wife became owner. However, no taxable capital gain arose because the property was given in connection with an agreement to live apart under a consent decree, and the assessee received no material benefit constituting profit or gain chargeable under the capital gains head. The transaction was therefore a transfer, but on the facts found it did not generate capital gains.

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Issues: (i) Whether any capital gain arose to the assessee on the transfer of shares and other property given to the wife in connection with an agreement to live apart. (ii) Whether the transaction amounted to a transfer of a capital asset within the meaning of the Act.

Issue (i): Whether any capital gain arose to the assessee on the transfer of shares and other property given to the wife in connection with an agreement to live apart.

Analysis: Capital gains arise only when profits or gains result from the transfer of a capital asset. The property was not given as consideration for a commercial return, but in connection with an agreement to live apart pursuant to a consent decree. On the facts found, the assessee did not receive any material benefit capable of being treated as profit or gain chargeable under the head capital gains.

Conclusion: No capital gain arose to the assessee. The answer to this issue is in favour of the assessee and against the Revenue.

Issue (ii): Whether the transaction amounted to a transfer of a capital asset within the meaning of the Act.

Analysis: Transfer includes relinquishment of an asset and extinguishment of rights therein. By parting with the shares and other property, the assessee extinguished his rights in the assets and the wife became owner of the property. The transaction therefore fell within the statutory meaning of transfer.

Conclusion: The transaction amounted to a transfer of capital asset. The answer to this issue is in favour of the Revenue and against the assessee.

Final Conclusion: The reference was answered by holding that the transaction was a transfer, but it did not give rise to taxable capital gains on the facts found.

Ratio Decidendi: A transfer of a capital asset by way of relinquishment or extinguishment of rights will fall within the charging scheme only if it results in profits or gains arising to the transferor.

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