Capital loss requires actual disposal of the asset; mere worthlessness or book write-off is not relinquishment.

Section 12B of the Indian Income-tax Act, 1922 permits a capital loss only on an actual disposal of a capital asset by sale, exchange, transfer or relinquishment. The text explains that shares becoming worthless on a company's liquidation do not amount to relinquishment merely because their value falls to nil; the shareholder retains ownership and contributory rights until dissolution and winding up are complete. It further states that a decree debt is not relinquished by a unilateral book entry, because the creditor's rights continue until satisfaction or legal unenforceability. On that basis, neither the share loss nor the decree-debt write-off qualifies as a deductible capital loss.

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Issues: Whether the assessee's claim of loss on shares that had become worthless on liquidation, and loss on an outstanding decree debt written off in the books, constituted a deductible capital loss under section 12B of the Indian Income-tax Act, 1922 on the footing that there had been a sale, exchange, transfer or relinquishment of a capital asset.

Analysis: Section 12B applies only where there is a disposal of a capital asset by sale, exchange, transfer or relinquishment. Shares are capital assets, but mere reduction of their value to nil on the company's liquidation does not amount to relinquishment, because the shareholder continues to own the shares and retains rights as a contributory until dissolution and completion of winding up. The liquidation letter merely indicated insufficiency of assets and did not show any parting with the shares or abandonment of rights. Likewise, a decree debt is not relinquished by a unilateral entry in the creditor's books. Until the decree is satisfied or becomes unenforceable by law, the creditor's rights remain intact and executable.

Conclusion: The assessee was not entitled to treat either the share loss of Rs. 5,000 or the decree-debt loss of Rs. 53,761 as a capital loss under section 12B; both claims failed.

Ratio Decidendi: For section 12B, a capital loss is allowable only when the assessee has actually disposed of the capital asset by one of the statutory modes, and neither a mere fall in value nor a unilateral write-off constitutes relinquishment.

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