1993 (8) TMI 14 - HC - Income Tax

Carry Forward And Set Off, Change In Shareholding, Depreciation And Development Rebate, Liability To Tax, Unabsorbed Depreciation

Summary

Issues:
1. Interpretation of section 79 of the Income-tax Act, 1961 regarding transfer of shareholding with intent to reduce or avoid tax liability.
2. Application of section 79 to a case involving transfer of shares between family members affecting the company's business operations.
3. Burden of proof on the assessee to establish the absence of motive to avoid tax liability in share transfer cases.
4. Tribunal's discretion in referring questions of law based on factual findings.

Analysis:

The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred questions regarding the application of section 79 to the High Court. The primary issue revolved around the interpretation of section 79, specifically whether both conditions of clause (a) and (b) need to be fulfilled for the provision to apply. The Tribunal found that the onus was on the assessee to prove the absence of motive to avoid tax liability in share transfers. The Tribunal concluded that the share transfer between family members did not have the intent to reduce or avoid tax liability, thereby not attracting section 79.

In analyzing the case, the High Court clarified that the conditions in section 79 operate as alternatives, as established in previous Supreme Court decisions. The Court emphasized that fulfilling either clause (a) or (b) removes the disqualification imposed by a change in shareholding. The Court noted that the Tribunal correctly found that the acquisition of shares was not aimed at reducing tax liability, leading to the non-application of section 79 in this instance.

Regarding the questions referred by the Revenue, the High Court declined to answer question No. 1, as it was based on a misapprehension by the Tribunal. The Court affirmed the Tribunal's factual finding that the share acquisition lacked a motive to avoid tax liability. Consequently, the Court answered question No. 2 in favor of the assessee, indicating that section 79 was not applicable due to the absence of a tax-avoidance motive in the share transfer.

In conclusion, the judgment highlights the importance of establishing the absence of a tax-avoidance motive in share transfers to determine the applicability of section 79. The decision underscores the significance of factual findings in assessing the intent behind share transactions and upholding the principles outlined in relevant legal provisions.