1986 (12) TMI 63 - AT - Income Tax

Summary

Issues:
Set off of losses under section 79 of the Income-tax Act, 1961 for the assessment year 1978-79.

Detailed Analysis:

1. The assessee-company had incurred losses in the assessment year 1975-76, including business loss and unabsorbed depreciation. The balance of these losses was to be carried forward for set off against the income in the assessment year 1977-78.

2. Dispute arose regarding set off of losses in the assessment year 1977-78 due to a change in shareholding of the company. The Income Tax Officer (ITO) applied clause (a) of section 79, stating that the company was not entitled to set off losses as the shareholding exceeded 51% by a particular group. The Commissioner (Appeals) remitted the case to the ITO for further examination.

3. The Tribunal upheld the Commissioner's decision, stating that both clauses (a) and (b) of section 79 needed to be satisfied to deny the set off of losses. The ITO did not modify the assessment order for the assessment year 1977-78 due to limitation, but the loss was deemed to have been adjusted.

4. The ITO denied set off of losses for the assessment year 1978-79, claiming that conditions of both clauses (a) and (b) were met. The assessee appealed, arguing that the losses should be redetermined in the subsequent year.

5. The assessee's counsel argued that the change in shareholding was not to avoid tax liability and that there was no change in shareholding for the assessment year 1978-79, hence section 79 did not apply.

6. The departmental representative refuted the arguments, stating that the loss was not determined in the assessment year 1977-78, leading to the lapse of the right to set off losses. They also highlighted actions of the shareholder group to avoid tax liability.

7. The counsel contended that the transfer of film distribution rights was for business needs, not tax avoidance. The losses were from a previous year, and the company had started earning profits in subsequent years, indicating no intention to avoid tax liability.

8. Referring to previous court decisions, it was established that the loss not being determined in the previous year did not prevent redetermination in a subsequent year. The key issue was whether conditions of both clauses (a) and (b) of section 79 were met.

9. The Tribunal concluded that the change in shareholding was not for tax avoidance, and the conditions of clause (b) were not satisfied in the assessment year 1977-78. Therefore, the assessee was entitled to the redetermination of losses to be carried forward.

10. Consequently, the appeal was allowed, and the ITO was directed to verify the calculations and allow the set off of the balance of losses in the assessment year 1978-79.