1995 (12) TMI 52 - HC - Income Tax

Summary

Issues:
Interpretation of section 79(b) of the Income-tax Act regarding carry forward of losses for a public limited company after a change in shareholding.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the interpretation of section 79(b) in the context of a public limited company's entitlement to carry forward losses after a change in shareholding. The Tribunal referred the question of whether the assessee was justified in carrying forward losses despite the provisions of section 79(b. The assessee's shareholding changed hands before the assessment year 1978-79, and the Income-tax Officer did not carry forward the losses of earlier years. The Commissioner of Income-tax (Appeals) accepted the assessee's claim based on a previous decision and allowed the set-off under section 79. The Revenue appealed to the Tribunal, which upheld the Commissioner's decision. The Tribunal found that there was no evidence that the change in shareholding was to avoid tax liability, a crucial condition under section 79(b). Since there was no finding to support the claim that the shareholding change aimed to avoid tax, the Tribunal ruled in favor of the assessee, allowing the set-off of losses for the assessment year 1978-79.

The Tribunal emphasized that section 79 of the Income-tax Act outlines specific conditions for carrying forward and setting off losses for certain companies. It highlighted that the burden is on the Revenue to demonstrate that a change in shareholding was aimed at avoiding or reducing tax liability. In this case, as there was no such finding by the Assessing Officer or the appellate authority, the Tribunal concluded that there was no basis to deny the set-off of losses to the assessee. The Tribunal's decision was based on the absence of evidence supporting the claim that the change in shareholding was for tax avoidance purposes. Therefore, the Tribunal justified its decision to allow the set-off of losses for the assessment year 1978-79 in the absence of any indication that the shareholding change was made to avoid or reduce tax liability. Consequently, the Tribunal ruled against the Revenue and in favor of the assessee, permitting the carry forward of losses as claimed.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of establishing that a change in shareholding was intended to avoid or reduce tax liability when applying section 79(b) of the Income-tax Act. Since there was no evidence to support such a claim in this case, the Tribunal's decision to allow the carry forward of losses for the assessee for the relevant assessment year was deemed justified. The reference was answered against the Revenue and in favor of the assessee based on the absence of findings indicating tax avoidance motives behind the change in shareholding.