2022 (2) TMI 1325 - AT - Income Tax

Carry forward and set off of losses in the case of certain companies - set off of brought forward losses u/s 79 on the ground that there has been change in the shareholding - CIT-A after noting the shareholding pattern held that through-out the holding company was WSP Cyprus and the change in ultimate holding company form WSP UK does not affect the shareholding of WSP Cyprus in the assessee company - HELD THAT - There is no change in the shareholding of the Assessee company i.e. WSP Cyprus held 99.99 percent shares in the Assessee company - WSP Cyprus was the registered and beneficial shareholder of the Assessee company in AY 2012-13 (i.e. the year in which loss was incurred) and in AY 2013-14 AY 2014-15 (i.e. the years in which such loss was set-off); Change in ultimate holding company from WSP UK (upto 31 July 2012) to WSP Canada (from 1 August 2012) does not affect the shareholding of WSP Cyprus in the Assessee company - There is nothing on record which could indicate that ultimate holding company was the beneficial shareholder in the Assessee company having more than 51% or more voting right. Thus it is well settled proposition that registered shareholder is beneficial owner of shares unless such shares are held in the capacity of a nominee/agent/trustee of the real owner which is not the case here. Accordingly the order of the ld. CIT (A) is confirmed and the same is based on correct appreciation of facts and law. Ground No.1 in both the years is determined against the Revenue. Disallowance on account of club expenditure - AO has disallowed amount in the name of the Director considering the said expenses personal in nature - HELD THAT - CIT (A) after referring to various decisions held that expenses in relation to club fee are to be treated as business of the assessee and an allowable expenditure. We do not find any infirmity in such finding and the same is confirmed. Ground No.2 of AY 2014-15 is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of set off of brought forward losses under section 79 of the Income-tax Act, 1961 due to change in shareholding.
2. Disallowance of club expenditure in AY 2014-15.

Detailed Analysis:

Issue 1: Deletion of Disallowance of Set Off of Brought Forward Losses

Facts and Background:
The appeals were filed by the Revenue against the order of the CIT (Appeals)-9, New Delhi, concerning the assessment years 2013-14 and 2014-15. The primary issue was the deletion of disallowance of Rs.2,06,23,904/- and Rs.2,47,45,573/- on account of set off of brought forward losses under section 79 of the Income-tax Act, 1961, due to a change in shareholding.

The assessee, a private limited company, had set off brought forward losses from AY 2012-13 in the subsequent years. The Assessing Officer (AO) noted that the ultimate holding company changed from WSP Group Plc, UK to WSP Global Inc., Canada, and disallowed the brought forward losses, citing section 79 of the Act.

CIT (A) Findings:
The CIT (A) held that the immediate holding company, WSP Cyprus, continuously held 99.99% shares in the assessee company, and the change in the ultimate holding company did not affect the shareholding of WSP Cyprus in the assessee company. The CIT (A) relied on the Delhi High Court's decision in Yum Restaurants (India) (P.) Ltd. vs. ITO, which stated that section 79 applies only if there is a change in the immediate shareholding of the company.

Tribunal's Analysis:
The Tribunal affirmed the CIT (A)'s findings, stating that:
- There was no change in the immediate shareholding pattern of the assessee company.
- The ultimate holding company's change did not affect the shareholding of WSP Cyprus in the assessee company.
- The registered shareholder is considered the beneficial owner unless shares are held as a nominee/agent/trustee, which was not the case here.

The Tribunal concluded that section 79 could only be invoked if there was a change in the immediate shareholding of the company. The CIT (A)'s order was based on a correct appreciation of facts and law, and the deletion of the disallowance was upheld.

Issue 2: Disallowance of Club Expenditure in AY 2014-15

Facts and Background:
The AO disallowed Rs.6,800/- on account of club expenditure, considering it personal in nature. The CIT (A) deleted the addition, stating that the expenditure was incurred in the course of business and was allowable under section 37 of the Act.

CIT (A) Findings:
The CIT (A) noted that the expenditure was not in the nature of capital or personal expenditure and was incurred wholly and exclusively for business purposes. The CIT (A) relied on various judicial precedents where similar expenditures were allowed as business expenses.

Tribunal's Analysis:
The Tribunal found no infirmity in the CIT (A)'s findings and confirmed the deletion of the disallowance. The expenditure was deemed related to the business of the assessee and allowable under section 37 of the Act.

Conclusion:
Both appeals filed by the Revenue were dismissed, with the deletion of disallowance of set off of brought forward losses and the disallowance of club expenditure being upheld by the Tribunal. The order was pronounced on February 22, 2022.