Transfer of pledged shares void under Companies Act; claimed long-term capital loss dismissed. Cost unascertainable. Revenue appeal upheld.

The High Court held that the transfer of pledged shares was void under Section 536(2) of the Companies Act, rendering the claimed long-term capital loss irrelevant. Even if the transfer were valid, the cost of the shares was deemed unascertainable, leading to the dismissal of the appellant's claim for long-term capital loss. The Court ruled in favor of the Revenue, denying the appellant's appeal.

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Issues:
Validity of transfer of pledged shares for claiming long-term capital loss.

Analysis:
Issue 1: Validity of Transfer of Pledged Shares
The case involves a dispute over the validity of the transfer of 27410 pledged shares by the appellant to its sister concern, leading to a claimed long-term capital loss of Rs. 19,61,617. The Assessing Officer deemed the transfer invalid due to the shares being pledged with IDBI bank, disallowing the claimed loss. The Commissioner of Income-tax (Appeals) initially allowed the loss, but the Tribunal overturned this decision. The appellant contended that shares are movable property transferable through a deed of assignment, citing relevant legal precedents. However, the respondent argued that the transfer was void under Section 536(2) of the Companies Act, as it occurred after the commencement of winding up, making any disposition of property or transfer of shares invalid unless court ordered otherwise.

Issue 2: Ascertainment of Cost of Pledged Shares
Additionally, the Tribunal found that even if the transfer were valid, the cost of the pledged shares could not be ascertained, rendering the claimed loss disallowable. Citing the Supreme Court's ruling in Sunil Siddharathbhai v. CIT, the Tribunal emphasized that if the machinery provisions of law do not encompass a specific circumstance, the transaction falls outside the charging provision. Comparing the case to A. M. P. Arunchalam, where the transferee discharged the entire liability of the pledged shares, the Tribunal concluded that in the present case, only limited/residuary rights in the shares were transferred, making the cost unascertainable under the Income-tax Act.

Conclusion:
The High Court held that the transfer of pledged shares was void under Section 536(2) of the Companies Act, making the question of capital gains or losses irrelevant. Additionally, even if the transfer were considered valid, the cost of the shares could not be determined, aligning with the Supreme Court's interpretation of the law. Consequently, the Court ruled in favor of the Revenue, dismissing the tax appeal and denying the appellant's claim for long-term capital loss.

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