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Issues: Interpretation of section 79(a) of the Income-tax Act, 1961 for assessment years 1974-75 and 1976-77.
In this judgment delivered by Gokal Chand Mital J., the High Court was tasked with determining the applicability of section 79(a) of the Income-tax Act, 1961 for the assessment years 1974-75 and 1976-77. The Tribunal had referred two questions for the court's opinion regarding the interpretation of this section. The crux of the matter was whether the change in shareholding, as contemplated in section 79, should be based on a comparison of voting power between the last day of the current assessment year and the corresponding position in the year of the loss claimed for set off. The Tribunal had held that section 79 would be attracted in this case, emphasizing the need for the Income-tax Officer to consider not only the voting power test but also whether the change in shareholding was aimed at avoiding tax liability. The court agreed with the Tribunal's interpretation, stating that the provisions of section 79(a) were clearly attracted in this scenario. Regarding the assessment year 1974-75, the court highlighted that the Income-tax Officer had not applied his mind to clause (b) of section 79 before withdrawing the set off of the loss from the assessment year 1970-71. Section 79 provides an exception if the change in shareholding was not intended to avoid tax liability. As this crucial test was not applied by the Income-tax Officer, the court set aside the findings of the Appellate Assistant Commissioner and directed the Income-tax Officer to reconsider the issue. The court also directed the Income-tax Officer to assess the set off of the loss for the assessment year 1976-77 in light of the decision taken for 1974-75. The court emphasized that the loss for the assessment year 1971-72 could be carried forward and set off in both the assessment years 1974-75 and 1976-77. The Income-tax Officer was instructed to consider this while disposing of the issue for these years. In conclusion, the High Court affirmed the Tribunal's interpretation of section 79(a) and answered both questions in favor of the Revenue and against the assessee. The court found that the provisions of section 79(a) were applicable in this case, emphasizing the importance of considering the change in shareholding and its implications on tax liability in such matters.
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