The transfer of shares is complete as between the transferor and transferee, even though it is not registered in the company's books.

RAMANUJAM J.

The two questions that are sought to be referred to this court for its opinion by the Revenue are as follows :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the shares pertaining to the 'sick mills' have been validly transferred to Messrs. Karumuthu Ramaswamy Finance (P.) Ltd., during the accounting year relevant for the assessment year 1977-78 and, hence, the assessee is entitled to loss on such transfer ?

2. Whether the Appellate Tribunal's further finding to the effect that share being movable property can be transferred as per the articles of the company and the transferee gets the right of ownership even if the transaction is not entered in the share registers of the company is sustainable in law ?" *

The facts leading to the filing of this reference petition may briefly be stated : The assessee is an individual having income from a partnership firm, share dividends, sitting fees, etc. He sold some shares during the year which he held in the Bank of Madurai and Rajendra Textile Mills Ltd. The said amount was considered for capital gains. He also sustained some loss in selling the shares of Alagappa Textiles (Cochin) Ltd., which was a sick mill. The latter shares were sold to Messrs. Karumuthu Ramaswamy Finance (P.) Ltd. at the rate of Re. 1 per share, while the face value of the share was Rs. 100. The ITO observed that the mills whose shares are stated to have been sold were declared as sick mills, the management having been taken over by the Government from April 1, 1974, and that after nationalisation, the compensation fixed by the Government was even inadequate to pay off the secured and unsecured creditors and, hence, the value of the share was practically "nil". Besides that, he noted that the purchasing company consisted only of three shareholders, the assessee, his brother and father. Therefore, he held that the sale transaction was a sham transaction. He also held that the alleged transfer in the name Karumuthu Ramaswamy Finance (P.) Ltd. did not find a place in the share certificate register maintained by the company and that, therefore, the sale could not be considered as complete and in view of that the assessee continued to be the owner of the shares in question. In these circumstances, the ITO rejected the assessee's claim for adjustment of "capital loss" as against "capital gains".On appeal, the AAC held that the sale transactions were not sham, as found by the ITO, but yet he agreed with the ITO that in the absence of entries in the share registers of the respective companies indicating the sale of shares, the sales cannot be taken to be complete and that, therefore, the assessee is not entitled to the set off of the "capital loss".

The assessee preferred an appeal before the Tribunal contending that as between the transferor and the transferee the transaction of sale of shares is complete and from the mere fact that the company has not recognised the transfer and made entries in the share registers, it cannot be said that the transfer is incomplete. The Tribunal following the decision of the Supreme Court in Shelat v. Thakar held that the ownership of the shares stood transferred from the assessee to the purchasers, Messers. Karumuthu Ramaswamy Finance (P.) Ltd. notwithstanding the fact that the transfer of shares had not been registered in the company's books, and, therefore, the assessee was entitled to claim adjustment of the "capital loss".

Aggrieved by the decision of the Tribunal, the Revenue seeks to raise the aforesaid two questions for the opinion of this court.

The learned counsel for the Revenue contends that even though all the formalities have been completed as between the transferor and the transferee, the transfer of shares cannot be said to be complete so as to enable the purchasers to acquire title to the shares, unless the transfer is registered in the company's share registers. In support of t