2011 (10) TMI 156 - AT - Income Tax

Disallowance of brought forward losses - right to carry forward and set off losses - held that - Hon ble Karnataka High Court in the case of Hindustan Aeronautics Ltd. v. CIT (1983 -TMI - 28004 - KARNATAKA High Court) has interpreted the term inheritance appearing in section 78(2). The term inheritance must mean only a transmission of assets and liabilities of one person to another by the personal law applicable to them and not in any other mode of transfer known to law. Thus there was no inheritance involved in the case of amalgamation of two companies. The creation of new society on splitting up of the parent society cannot be treated as inheritance and therefore provisions of section 78(2) of the Act are not applicable in a case when a society is created on splitting up of parent society. The provisions of section 72A(4) are applicable to the case of a company. When there is no specific provision in case of co-operative societies the provisions of section 72A(4) cannot be interpolated in the case of co-operative societies on the principle of equity and justice. - The provisions of section 72A(4) are clear and there is no ambiguity and therefore question of applying the principle of casus omisus will not apply. Therefore we are unable to agree with the arguments of the ld. AR of the assessee that deficiencies could be filled up by applying the principle of casus omisus. Deduction u/s 80P - the assessee is engaged in the business of supply/manufacture of milk products and therefore the assessee s activities are not covered in clause (a) or clause (b) of section 80P(2) of the Act. The assessee is also not a consumers Co-op. Society. Therefore the assessee s case falls in residuary sub-clause (ii) of clause (c) of section 80P(2) of the Act. Therefore the income of the assessee society attributable to the activity of supplying milk/manufacture of milk products will be eligible for deduction of Rs. 50, 000/- from profits and gains attributable to such activities. - Decided partly in favor of assessee and partly in favor of revenue.

Issues Involved:
1. Set off of brought forward losses against the income of the relevant assessment years.
2. Disallowance of deduction under section 80P of the Income Tax Act, 1961.
3. Charging of interest under sections 244A, 234B, and 234C of the Income Tax Act, 1961.

Detailed Analysis:

1. Set off of brought forward losses against the income of the relevant assessment years:
The primary issue was whether the assessee, a co-operative society formed by the bifurcation of an old society, could set off brought forward losses from the old society against its income. The assessee argued that the losses should be carried forward and set off against the income of the new society, as it was a re-organization and not a new entity. The assessee relied on several judicial decisions to support its contention. However, the assessing officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this claim, stating that there was no provision in the Income Tax Act allowing such a set-off. The Tribunal upheld this view, noting that under section 78(2), the right to carry forward and set off losses belongs to the person who suffered the loss, and not to a different person. The Tribunal concluded that the creation of a new society on splitting up of the parent society cannot be treated as inheritance, and thus, the provisions of section 78(2) were not applicable.

2. Disallowance of deduction under section 80P of the Income Tax Act, 1961:
The AO disallowed the deduction under section 80P on the grounds that it was not claimed in the returns of income. The assessee contended that the deduction should be allowed as it was a statutory deduction available to every co-operative society. The CIT(A) rejected this contention, stating that the assessee's activities did not fall under the specified activities in sub-sections (2)(a) and (2)(b) of section 80P. However, the Tribunal found that the assessee's case falls under the residuary provisions of section 80P(2)(c) of the Act, which allows a deduction of Rs. 50,000/- for profits and gains attributable to activities other than those specified in clauses (a) or (b). The Tribunal set aside the matter to the AO to examine the claim and allow the deduction as per the provisions of section 80P(2)(c).

3. Charging of interest under sections 244A, 234B, and 234C of the Income Tax Act, 1961:
The assessee challenged the charging of interest under sections 244A, 234B, and 234C. The Tribunal upheld the AO's decision, stating that charging of interest under sections 234B and 234C is mandatory as per the decision of the Hon'ble Supreme Court in CIT v. Anjum M. H. Ghaswala. Regarding the interest on refund under section 244A, the Tribunal noted that the refund arises on processing of the return of income under section 143(1) and not on completion of assessment under section 143(3). Therefore, the assessee could not take up the issue of interest on refunds in the appeal filed against the order under section 143(3).

Conclusion:
The appeals were partly allowed for statistical purposes. The Tribunal upheld the disallowance of the set-off of brought forward losses and the charging of interest under sections 234B, 234C, and 244A. However, it directed the AO to re-examine the claim for deduction under section 80P(2)(c) and allow the deduction of Rs. 50,000/- if applicable.

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