T.R. SOOD, A.M. In this appeal, Revenue has raised following grounds : "1. CIT(A) erred in allowing assessee s claim of write-off of debit balances of retired partners as capital loss assessable under head Capital gains and allowing to set off with capital gains arising out of sale of other assets. 2. CIT(A) failed to note that there is no transfer of capital asset and no consideration was received for such transfer. 3. CIT(A) overlooked fact that partners retired on 31st March, 1991 and 31st March, 1993, but transfer of assets and capital loss were taken for accounting period relevant to asst. yr. 1995-96. 4. CIT(A) ought to have applied ratio of decision of Andhra Pradesh High Court in case of CIT vs. G. Seshagiri Rao (1995) 129 CTR (AP) 148 : (1995) 213 ITR 305 (AP)and sustained disallowance of assessee s claim of capital loss." 2 . During assessment year, assessee had filed return declaring loss of Rs. 21,65,283. Assessee has sold certain assets on which capital gain arose, but assessee deducted 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. 34,65,048. AO was of view that debit balances written off on account of ex-partners cannot be treated as capital loss within meaning of s. 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 debtors cannot be considered as capital loss under s. 45 of IT Act since there is no capital asset transferred in this regard and also no consideration was received towards such transfer. 3 . learned CIT(A) deleted this addition by holding in view of decision of Hon ble Allahabad High Court in case of Giridhari Lal Gian Chand vs. CIT (1 97 1) 79 ITR 561 (All)where it was held that debts due from retiring partners when written off, then such loss cannot be treated as revenue loss, which means that such loss was in nature of capital loss. 4. Before us, learned Departmental Representative submitted that debit balances were written off in respect of six partners, out of whom Sri O.D. Ramaiah Pillai, Sri R. Selvan, Sri M.P. Ramaiah Pillai retired on 31st March, 1991 and other three partners, Sri R. Pitchumani, M. Murugesan and G. Kalathiappan retired on 31st March, 1993, which means that these partners have retired much before relevant accounting year and whatever assets, etc. stood transferred by them had already been got transferred in those years and now it was merely debit balance in these ex-partner s account during relevant period. When these amounts are written off, clearly it is capital loss as has been accepted even by CIT(A) following decision ofGirdharilal Gianchand(supra)andCIT vs. Tribhuvandas G. Patel (1 97 8) 115 ITR 95 (Bom).But such loss cannot be brought under ambit of capital loss under s. 45 because for thatsine qua nonwas transfer of assets, which has not taken place as no consideration was received and, therefore, no loss can be determined under s. 45. Once no loss can be determined under s. 45, same cannot be deducted from capital gain received by assessee during this year. 5 . On other hand, learned Authorised Representative submitted that writing off debit balances of retiring partners has been admitted by capital loss by lower authorities. It has been held inCIT vs. Tribhuvandas G. Patel(supra) and again inGirdharilal Gianchand vs. CIT(supra)that such transaction involves transfer and, therefore, loss was allowable. In this regard, he also relied on decision ofCIT vs. Ganesa Chettiar (1982) 133 ITR 103 (Mad).He further submitted that capital gain is to be reckoned with reference to entire business particularly when partners at time of dissolution get less than what they had contributed to business, which only means that firm itself would not have made capital gain. firm had received certain capital receipts and incurred certain capital loss and it is only net income which could have been computed. erstwhile partners were no more partners on date of dissolution and they were merely debtors of firm. He emphatically argued that once firm was also dissolved then only way to compute capital gains would be to deduct liabilities from amount realized on sale of capital gains would be to deduct liabilities from 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 retirement of partners in firm in respect of amounts payable by retiring partners, which in fact is only loss suffered by firm on account of amount foregone by firm and such loss was really loss. He also relied onCIT vs. H.R. Aslot 1 97 8 CTR (Bom) 612 : (1 97 8) 115 ITR 255 (Bom), N.A. Modi vs. CIT (1986) 52 CTR (Bom) 149 : (1986) 162 ITR 420 (Bom), CIT vs. Mohanbhai Pamabhai (1 97 3) 91 ITR 393 (Guj), Addl. CIT vs. Mohanbhai Pamabhai & Ors. (1987) 165 ITR 166 (SC)andCIT vs. A.N. Naik Associates (2004) 187 CTR (Bom) 162 : (2004) 265 ITR 346 (Bom). 6 . We have considered rival submissions carefully and have gone through relevant material on record as well as decisions relied on by parties. undisputed facts remain that there were debit balances in hands of erstwhile partners, who retired in earlier years and details of such partners are as under : Amount Date of Ex-partners name (Rs.) retirement Sri O.D. Ramaiah 6,36,220.34 31.3.93 Pillai Sri R. Selvan 6,36,220.34 31.3.93 M.P. Ramaiah Pillai 6,36,220.34 31.3.93 R. Pitchumani 2,02,946.81 31.3.91 M. Murugesan 6,36,220.34 31.3.93 G. Kalathiappan 7,17,220.34 31.3.93 7 . Assessee during year had certain capital gains and sum of Rs. 34,65,048 which was written off during year being debit balances of erstwhile partners has been claimed as capital loss against such capital gain. only question, therefore, to be determined by us is, whether such capital loss is loss which can be determined under s. 45 of Act or not ? 8. For any capital receipt which can be brought under provisions of s. 45, there has to be disposal of asset by any of modes referred to in definition of transfer under s. 2(47). Unless and until there is transfer of asset as envisaged under s. 2(47), no capital gain or loss can be computed under s. 45, which means that if there is any gain or loss on account of any receipt, but transfer of asset is not involved, then provisions of s. 45 cannot be applied. Sec. 45(1) reads as under : "45. (1) Any profits or gains arising from transfer of capital asset effected in previous year shall, ..........." 9 . Thus, it is clear from provision itself that transfer of asset is primary condition, which must be satisfied before receipt can be called as capital gain and/or capital loss under s. 45. Thesine qua nonof capital gain and/or loss is that receipt or accrual thereof must have originated in transfer of capital asset within meaning of s. 45(1) r/w s. 2(47). Hon ble Supreme Court while discussing this issue in case ofVania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC),has observed at p. 651 as under : "A reading of two sections makes it abundantly clear that profits or gains which are amenable to s. 45 must arise from transfer of capital asset which is effected in previous year. transfer may be brought about by any of modes of transfer which include sale, exchange, relinquishment of asset or extinguishment of rights therein or compulsory acquisition of asset under any law. It may be of asset itself or of any rights in it. It may further be result of voluntary act or compulsory operation. ................ " 10. In case before us, during relevant year, no transfer of asset took place because debit balances were simply belonging to erstwhile partners who had retired in 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 year 1991 and/or 1993, i.e., in year of their retirement and it cannot be said that any assets got transferred in this year. In fact all decisions relied on by learned Authorised Representative are not of any help. E.g., in case ofGirdhari Lal Gian Chand vs. CIT(supra),the issue was whether debts due from retiring partners were in nature of capital loss or not ? It was held that they were in capital nature. But issue was not whether same were deductible against capital gain and thus this decision is of no help to assessee. Similarly, in case ofCIT vs. Tribhuvandas G. Patel(supra),it was held by Hon ble Bombay High Court that amounts paid to partners on dissolution of firm were liable to capital gain tax in hands of partner. This was so because in year of retirement, transfer of assets also took place. Whereas in case before us, transfer of assets, if any, might have taken place in years 1991 and 1993. 11. In fact, Hon ble Madras High Court has very clearly laid down in case ofC.A. Natarajan vs. CIT (1 97 3) 92 ITR 347 (Mad),that every capital loss suffered by assessee could not be claimed as set off against capital gain. In that case, assessee owned 50 cumulative preference shares in company which were purchased in 1948 at cost of Rs. 5,000 against which dividend was received upto 1952-53. That company went into liquidation in 1956 and on 13th Dec., 1960, Official Liquidator informed assessee that assets were not sufficient even to pay off secured creditors and hence there was no possibility of shareholders being paid any portion of their capital investment therein. assessee claimed sum of Rs. 5,000 being investment in said company as capital loss and such claim was negatived by Department which was upheld by Hon ble High Court. It was observed at p. 349 as under : "Shares are movable properties and they are capital assets admits of no doubt. Even in case of winding up of company shareholder who would be contributory would have right to participate in residue after paying liability. question for consideration is whether in view of fact that value of shares have been reduced or became nil value because of company going into liquidation and Official Liquidator finding that assets of company were not sufficient even to pay off secured creditors, assessee could be said to have suffered capital loss.It is not every capital loss assessee could be said to have suffered capital loss.It is not every capital loss that is sustained by assessee that could be claimed as set off against capital gain. primary condition that there was sale, exchange, relinquishment or transfer of capital asset by assessee must be satisfied before he could claim loss under transaction.It is not case of assessee that there was any sale, exchange or transfer but he contended that there was relinquishment. We are unable to accept this contention. Right through, assessee held shares as such. It might be that value of shares in his hands became nil due to company going into liquidation. Relinquishment implies that person ceases to own assets. assessee owned shares during assessment year though its value might have been reduced. Capital gain or capital loss is gain realized or loss incurred and loss or gain must be in disposal of asset in any one of modes above referred to. There was no disposal in this case. There was no relinquishment or parting with right in shares. As shareholder when company went into liquidation assessee became entitled to receive any surplus that may remain after paying off liabilities. He also has got certain other rights regarding management of company and also taking part in liquidation proceedings. These rights still continue to vest in assessee. Because liquidator found that assets would not be sufficient even to pay off secured creditors assessee does not cease to be shareholder or contributory nor any of his rights as shareholder or contributory are affected, though share value might have been reduced to nil." (Emphasis, italicised in print, supplied) 12. Thus, it becomes clear that unless and until there is transfer of asset as envisaged under s. 45 r/w. s. 2(47), amount of capital gain or capital loss cannot be brought under s. 45. As in case before us there is no transfer during year in respect of writing off of debit balances of erstwhile partners, same cannot be brought under scope of s. 45 and allowed to be set off against capital gains received by assessee. It is also pertinent here to note that assessee s action of writing off of debts due from erstwhile partners cannot be claimed as revenue loss because same cannot be said to have been taken into account while computing income of assessee in earlier previous years and it is to be treated only as capital loss as decided by Hon ble Allahabad High Court in case ofGirdhari Lal Gian Chand(supra). 13. As far as other contention of learned Authorised Representative that overall capital receipts and outgoing should be compared, though looks attractive but has no legal basis. It is settled position of law that deduction can be allowed only when there is provision for same. In this respect, we would like to refer to decision of Hon ble Supreme Court in case ofCIT vs. Dr. V.P. Gopinathan (2001) 166 CTR (SC) 504 : (2001) 248 ITR 449 (SC).In that case, Hon ble Court was concerned with issue that assessee had earned interest of Rs. 1,17,444 on his fixed deposits. On security of such fixed deposits, assessee obtained loan from bank and paid interest in respect of such loan amounting to Rs. 90,410. ultimate question before Hon ble Supreme Court was whether assessee could be taxed only on difference of interest, i.e., Rs. 27,034 or whole of interest, in other words, whether deduction for interest paid on loan against FDR could be claimed or not ? It was held, "that interest that assessee received from bank on fixed deposit was income in his hands and it could stand diminished only if there was provision in law permitting such diminution. There was no such provision of law and interest on loan taken from bank did not reduce his income by way of interest on fixed deposit." Thus, it is clear that until and unless clear-cut provision is there, deduction cannot be permitted. In case before us, there is no provision for deducting capital loss, which is without transfer of any capital asset from capital gain. Therefore, this contention is also rejected. In these circumstances, we set aside order of learned CIT(A) and restore that of AO. 14. In result, appeal is allowed. *** JOINT COMMISSIONER OF INCOME TAX v. RASI SILKS