2018 (8) TMI 1873 - AT - Income Tax

Allowing set off of carry forward of loss of capital gains in the case of demerger when no such provision exists in the I. T. Act, 1961 - HELD THAT - The normal principle in the case of loss is that the loss of an amalgamating company dies when the said company is amalgamated because the company itself dies or comes to an end. He explained that the context with the Tribunal pointed out that there should be a specific provision in section 74 of the Act, if capital loss of amalgamating company is to be set off in the hands of an amalgamated company, after amalgamation. This was not the case of assessee setting of its own loss but this was the case of loss of different company being claimed by assessee and Mumbai Tribunal in M/S. CLARIANT CHEMICALS (I) LTD. (FORMERLY KNOWN AS COLOUR CHEM LTD.) 2014 (11) TMI 439 - ITAT MUMBAI decided accordingly. In view of the above facts and circumstances, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the order of CIT(A). This issue of Revenue s appeal is dismissed. Carry forward and set off of brought forward of MAT credit in the case of demerger - HELD THAT - MAT credit represents the excess tax paid under MAT over the tax payable under the normal provisions of the Act by the assessee itself in the earlier years. Thus, the MAT credit is that of the assessee itself and not of the demerged company. There are no provisions under section 115JAA of the Act that on demerger, the brought forward MAT Credit of the assessee itself cannot be carry forward. Further section 115JAA (7) of the Act specifically provides, the instances under which MAT Credit will not be allowed to be carry forward and the only instances specified that there is on conversion of Private Company or unlisted private Ltd. Company into a limited liability partnership and in such circumstances, the arguments of the AO would have been relevant only if the MAT credit was claimed by the resulting company i.e. Ramrod Advisors Pvt. Ltd. But that is not the case here. Accordingly, we find no infirmity in the order of CIT(A) and this issue of the Revenue s appeal is also dismissed.

Summary

Issues:
1. Allowance of set off of carry forward of loss of capital gains in the case of demerger.
2. Allowance of carry forward and set off of brought forward MAT credit in the case of demerger.

Issue 1: Allowance of set off of carry forward of loss of capital gains in the case of demerger:
The appeal by the Revenue challenged the CIT(A)'s decision to allow the set off of carry forward of loss of capital gains in the case of demerger. The assessee company demerged a part of its business during AY 2011-12, and the AO denied the set off of long term capital loss against long term capital gain under the head tenancy rights. The CIT(A) allowed the claim of the assessee, emphasizing that the amalgamating company was entitled to set off the loss, contrary to the amalgamated company. The Tribunal upheld the CIT(A)'s decision, stating that there was no specific provision prohibiting the set off of such loss in the hands of the assessee itself. The Tribunal differentiated this case from the Clariant Chemicals (I) Ltd. case, where loss of an amalgamating company was set off post-amalgamation in the hands of the amalgamated company. The Tribunal concluded that the CIT(A) rightly allowed the claim of the assessee, dismissing the Revenue's appeal.

Issue 2: Allowance of carry forward and set off of brought forward MAT credit in the case of demerger:
The AO disallowed the carry forward and set off of MAT credit claimed by the assessee, similar to the treatment of capital loss in the case of demerger. The CIT(A) allowed the claim of the assessee, pointing out that there was no specific provision barring the carry forward of MAT credit in the case of demerger. The Tribunal agreed with the CIT(A), emphasizing that the MAT credit belonged to the assessee itself and not the demerged company. Section 115JAA did not prohibit the carry forward of MAT credit of the assessee in such cases. The Tribunal found no fault in the CIT(A)'s decision and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the decisions of the CIT(A) in both issues, allowing the set off of carry forward of loss of capital gains and the carry forward and set off of brought forward MAT credit in the case of demerger. The Revenue's appeal was ultimately dismissed by the Tribunal.