1992 (8) TMI 51 - HC - Income Tax

Summary

Issues:
Interpretation of section 79 of the Income-tax Act, 1961 regarding the applicability of provisions on change in shareholding and tax liability.

Analysis:
The case involved the interpretation of section 79 of the Income-tax Act, 1961, specifically regarding the eligibility of an assessee-company to claim set off of losses against income despite a change in shareholding. The assessee-company, a private limited company, sought to set off unabsorbed depreciation and trading loss from a previous assessment year against the income of the current year. The Income-tax Officer rejected the claim citing section 79, as the company's shareholding fell below 51% due to a change. The key contention was whether the change in shareholding was with the intention of avoiding or reducing tax liability, a requirement under section 79.

The Appellate Tribunal, relying on a previous judgment, held that section 79 was not applicable as there was no finding that the change in shareholding aimed at tax avoidance. The Tribunal emphasized that the change appeared to be bona fide and not intended to reduce tax liability. The Tribunal's decision was based on the Supreme Court's interpretation that clauses (a) and (b) of section 79 provide alternative exceptions. Clause (a) requires retaining 51% shares after a change, while clause (b) focuses on the absence of tax avoidance intent in the shareholding change.

The Tribunal's finding that the change in shareholding was bona fide was crucial in determining the applicability of section 79. The Tribunal's formulation of the question referred to the High Court was criticized for not aligning with the factual findings. The High Court affirmed the Tribunal's decision, stating that the assessee had satisfied the conditions of clause (b) of section 79, thereby entitling it to claim the set off. The High Court emphasized that section 79 does not intend to penalize companies making genuine changes in shareholding without tax avoidance motives.

In conclusion, the High Court ruled in favor of the assessee, affirming that section 79 did not disqualify the company from claiming the set off as the change in shareholding was deemed bona fide and not for tax avoidance purposes. The judgment highlighted the importance of factual findings in determining the applicability of tax provisions and the need to consider both clauses (a) and (b) of section 79 as alternative exceptions.