9911796707
|
Home
Issues Involved:
1. Applicability of Section 79(a) and 79(b) of the Income-tax Act, 1961. 2. Whether the change in shareholding was effected with a view to avoiding or reducing tax liability. Issue-wise Detailed Analysis: 1. Applicability of Section 79(a) and 79(b) of the Income-tax Act, 1961: The primary issue revolves around the applicability of Section 79 of the Income-tax Act, 1961, which pertains to the set-off of previous losses in the case of a change in shareholding. The Income Tax Officer (ITO) disallowed the set-off of losses on the grounds that Section 79(a) applied to the case. The ITO noted that shares were transferred to the spouse and children of the remaining shareholders, suggesting that this was done to avoid or reduce tax liability. The Commissioner (Appeals) held that the IAC did not consider whether Section 79(b) could aid the assessee and ruled in favor of the assessee, referencing the Bombay High Court decision in Italindia Cotton Co. (P.) Ltd. v. CIT. 2. Whether the change in shareholding was effected with a view to avoiding or reducing tax liability: The Tribunal considered the revenue's argument that the assessee must prove that the share transfer was not intended to avoid or reduce tax liability. The Tribunal noted that the ITO had not only relied on Section 79(a) but also referred to Section 79(b). The Tribunal emphasized that Section 79 is an exception to the normal rule of loss set-off and that both clauses (a) and (b) must be considered together, as held by the Bombay High Court in Italindia Cotton. The High Court clarified that clauses (a) and (b) are interconnected and that a change of more than 51% in shareholding does not automatically disqualify the set-off of losses unless it is established that the change was made to avoid or reduce tax liability. The Tribunal addressed the objection raised by the assessee's counsel that the revenue should not argue on Section 79(b) since it was not explicitly mentioned in the memo of appeal. The Tribunal found this objection hyper-technical and noted that the revenue could argue that the case does not fall under Section 79(b). The Tribunal also noted that the ITO had mentioned Section 79(b) in his observations, indicating that the change was made to reduce or avoid tax liability. The Tribunal then examined whether the change in shareholding was indeed effected to avoid or reduce tax liability. It found that the ITO had concluded this based solely on the fact that shares were transferred to the spouse and children of the remaining shareholders. The Tribunal noted that the transfer of shares was part of a settlement of disputes among the brothers and was not intended to avoid or reduce tax liability. The Tribunal referred to the Gujarat High Court decision in CIT v. Sakarlal Balabhai, which held that tax avoidance must be deliberate and intended, not merely incidental. The Tribunal concluded that the change in shareholding was for the purpose of settling disputes and not to avoid or reduce tax liability. Therefore, the assessee fell under the exception mentioned in Section 79(b), and the order of the Commissioner (Appeals) was upheld. Conclusion: The appeal was dismissed, and the Tribunal upheld the Commissioner (Appeals)'s decision, allowing the set-off of previous losses as the change in shareholding was not effected with a view to avoiding or reducing tax liability.
|
