TaxTMI 
TaxTMI 
2005 (6) TMI 250
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....aim of capital loss." 2. During the assessment year, assessee had filed a return declaring a loss of Rs. 21,65,283. Assessee has sold certain assets on which capital gain arose, but assessee deducted a sum of Rs. 34,65,048 claimed to be capital loss on account of writing off of debit balances of ex-partners amounting to Rs. 34,65,148. The Assessing Officer was of the view that debit balances written off on account of ex-partners cannot be treated as capital loss within the meaning of section 45, because no transfer of assets was involved, because such partners had already retired on 31st March, 1991 and 31st March, 1993. He further observed that amount not collected from the debtors cannot be considered as capital loss under section 45 of the Income-tax Act since there is no capital asset transferred in this regard and also no consideration was received towards such transfer. 3. The learned CIT(A) deleted this addition by holding in view of the decision of the Hon'ble Allahabad High Court in case of Girdhari Lal Gian Chand v. CIT [1971] 79 ITR 561 where it was held that debts due from retiring partners when written off, then such loss cannot be treated as revenue loss, which mean....
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....d be to deduct liabilities from the amount realized on sale of assets. According to him, in view of this situation, there was no need to ascertain whether there is any transfer on the retirement of partners in the firm in respect of amounts payable by the retiring partners, which in fact is only a loss suffered by the firm on account of the amount foregone by the firm and such loss was really loss. He also relied on CIT v. H.R. Aslot [1978] 115 ITR 255 (Bom.), N.A. Mody v. CIT [1986] 162 ITR 420 (Born.), CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.), Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 (SC) and CIT v. A.N. Naik Associates [2004] 265 ITR 346 (Born.). 6. We have considered the rival submissions carefully and have gone through the relevant material on record as well as decisions relied on by the parties. The undisputed facts remain that there were debit balances in the hands of erstwhile partners, who retired in the earlier years and the details of such partners are as under: Ex-partners name Amount &n....
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.... the case of Vania Silk Mills (P.) Ltd. v. CIT [1991] 191 ITR 647, has observed at p. 651 as under: "A reading of two sections makes it abundantly clear that the profits or gains which are amenable to section 45 must arise from the transfer of the capital asset which is effected in the previous year. The transfer may be brought about by any of the modes of transfer which includes sale, exchange, relinquishment of the asset or the extinguishment of the rights therein or the compulsory acquisition of the asset under any law. It may be of the asset itself or of any rights in it. It may further be the result of a voluntary act or a compulsory operation .... 10. In the case before us, during the relevant year, no transfer of asset took place because debit balances were simply belonging to the erstwhile partners who had retired in the earlier years were written off without consideration or transfer of any asset. These debit balances might have been on account of transfer, etc. of assets belonging to their share, but then such transfer ought to have taken place in the year 1991 and/or 1993, i.e., in the year of their retirement and it cannot be said that any assets got transferred in th....
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.... sustained by an assessee that could be claimed as a set off against the capital gain. The primary condition that there was a 'sale, exchange, relinquishment or transfer of a capital asset by the assessee' must be satisfied before he could claim loss under the transaction. It is not the case of the assessee that there was any sale, exchange or transfer but he contended that there was a relinquishment. We are unable to accept this contention. Right through, the assessee held the shares as such. It might be that the value of the shares in his hands became nil due to the company going into liquidation. Relinquishment implies that the person ceases to own the assets. The assessee owned the shares during the assessment year though its value might have been reduced. Capital gain or a capital loss is a gain realized or a loss incurred and the loss or gain must be in the disposal of an asset in anyone of the modes above referred to. There was no disposal in this case. There was no relinquishment or parting with the right in the shares. As a shareholder when the company went into liquidation the assessee became entitled to receive any surplus that may remain after paying off the liabilities....