TaxTMI 
TaxTMI 
2006 (1) TMI 104
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of loss of Rs. 80,000 as business loss? (2) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the appellant was not entitled to deduction of loss of Rs. 80,000 as short-term loss?" The assessment year is 1986-87, the relevant accounting period being Samvat Year 2041. The assessee, a registered firm, is engaged in the business of manufacturing spare parts of diesel engines. In the profit and loss account, a sum of Rs. 80,000 had been debited as capital loss on machinery. The facts in relation to the said entry are that the assessee entered into a contract for purchase of machinery worth Rs. 10,09,000 with M/s. Godrej Boyce Mfg. Co. P. Ltd., Bombay, vide letter da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relation to question No. 2, it was submitted that the Tribunal had committed an error in holding that there was no transfer of any capital asset giving rise to short-term capital loss. According to the learned advocate, the assessee had acquired a valuable right in the form of the contract, namely, a right to acquire the machinery and on extinguishment of the said right, short-term capital loss arose entitling the assessee to claim the same as such. Relying upon a decision of the Supreme Court in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323, it was submitted that it was not necessary that there should be a transfer of any asset for allowing such a loss; that it was sufficient if there was extinguishment of a right as distinct fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the term "therein". In other words, for the purposes of transfer of a capital asset, it would suffice if there is extinguishment of any rights in a capital asset. However, even for the purposes of extinguishment of any rights, existence of a capital asset is a must. Section 2(14) of the Act defines "capital asset" to mean property of any kind held by an assessee. For the present, it is not necessary to refer to the exclusionary clauses. The definition stipulates existence of property of every description and such property must be held by an assessee. As can be seen from the facts of the case, the assessee had entered into a contract for purchase of machinery. The contract had been executed and entered into by the parties to the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any capital asset so as to enable the assessee to claim extinguishment of any rights in such a capital asset. Whether extinguishment per se is sufficient or whether it could operate as distinct and independent of transfer of a capital asset is not the issue in the present case, and hence, the decision in the case of CIT v. Mrs. Grace Collis [2001] 248 ITR 323 (SC) relied upon by the learned advocate for the assessee, cannot carry the case of the assessee any further. Even if the contention that extinguishment by itself is sufficient to constitute transfer is accepted, none the less, it is necessary for the assessee to establish that extinguishment is of any rights in a capital asset. The facts of the case reveal that the assessee never hel....