1981 (11) TMI 107 - AT - Income Tax

Tribunal confirms share transfer without registration; legal title and beneficial interest upheld

M RAMASWAMY. Versus INCOME TAX OFFICER.

M RAMASWAMY. Versus INCOME TAX OFFICER. - TTJ 016, 205, Issues:- Disallowance of long-term capital loss on the sale of shares in sick mills due to non-registration of transfer.- Determination of the completeness of sale transactions based on registration requirements.- Interpretation of legal provisions regarding transfer of shares and registration under the Companies Act.- Examination of legal precedents related to the completion of share transfers and ownership rights.- Assessment of ownership transfer and entitlement to capital loss in the absence of registration.Analysis:The appeal involved the disallowance of a long-term capital loss claimed by an individual on the sale of shares in sick mills due to non-registration of transfer. The assessee doubted the genuineness of the sale at a low price, considering the incomplete transfer due to non-registration. The AAC confirmed the allowance of the claim based on the inconclusive nature of the sale due to lack of registration, which was upheld in the first appeal.In the second appeal, the representative for the assessee argued that the liabilities of the sick mills exceeded the compensation fixed by the Act, justifying the low sale price. Emphasizing that registration only records a transfer that has already occurred, the representative cited legal authorities and presented evidence to support the completion of the transfer despite non-registration. The department, however, relied on previous tribunal orders considering registration as essential for transfer.Upon careful consideration, the Tribunal found no material discrediting the genuineness of the transactions. It noted that the sale price was justified by the financial status of the companies and previous assessments. Rejecting the significance of registration for determining sale completeness, the Tribunal analyzed relevant provisions of the Companies Act, emphasizing that registration offers evidence but does not confer title. Citing legal precedents, including a Supreme Court ruling, the Tribunal concluded that ownership transfer occurred despite non-registration, entitling the assessee to the claimed capital loss.In the final decision, the Tribunal allowed the appeal, affirming the completion of share transfer and the entitlement to the claimed capital loss. The judgment clarified that registration is not a prerequisite for ownership transfer, especially in cases of genuine sales accompanied by delivery of share documents. The legal position established by various precedents supported the assessee's claim, emphasizing the transfer of both legal title and beneficial interest even without registration.