2002 (9) TMI 49 - HC - Income Tax

The issue for our consideration in this appeal is whether unabsorbed loss can be carried forward and allowed in the case of this assessee when the loss was suffered by four co-operative societies in the preceding year? - Sub-section (2) of section 78 also extends the benefit of carry forward or set off of losses in case of succession. As in the case in hand, after the merger of the four societies a new federation has come into existence. After the merger of the four societies it cannot be said that the federation has succeeded or inherited the four societies on April 1, 1993. Therefore, under sub-section (2) of section 78 also, the benefit of carry forward and set off of losses of the four societies also cannot be allowed in the hands of the assessee-federation. - In the result, we find no infirmity in the order of the Tribunal in denying the benefit of carry forward and set off of losses suffered by the four societies against the income/profit of the assessee-federation in the assessment year in hand.

Issues Involved:
1. Whether unabsorbed loss can be carried forward and allowed in the case of the assessee when the loss was suffered by four co-operative societies in the preceding year.

Detailed Analysis:

1. Background and Context:
The appeal concerns the order and judgment of the Income-tax Appellate Tribunal dated January 31, 2001. The core issue is whether the unabsorbed loss of four co-operative societies, which merged to form the appellant co-operative society, can be carried forward and set off against the income of the appellant society.

2. Merger of Co-operative Societies:
The four co-operative societies involved were:
- Rajasthan Co-operative Spinning Mills Ltd., Gulabpura
- Gangapur Cooperative Spinning Mills Ltd., Gulabpura
- Ganganagar Co-operative Spinning Mills Ltd., Hanumangarh
- Gulabpura Cotton Ginning and Pressing Sahkari Samiti Ltd., Gulabpura

The Government of Rajasthan had a major shareholding in these societies. They were merged into Rajasthan Rajya Sahkari Spinning and Ginning Mills Federation Ltd., Jaipur by an order under section 17 of the Rajasthan Co-operative Societies Act, 1965, read with rule 13 of the Rajasthan Co-operative Societies Rules, 1966.

3. Post-Merger Scenario:
Post-merger, all assets and liabilities of the four societies were incorporated into the appellant society effective April 1, 1993. The business continued under the new name, and the registrations of the merged societies were canceled.

4. Assessing Officer's Decision:
The Assessing Officer denied the claim for setting off the brought forward losses of Rs. 2,68,39,504 against the income of the appellant society, stating that the appellant society is not entitled to set off the losses of the former societies which ceased to exist after April 1, 1993.

5. Commissioner of Income-tax (Appeals) and Tribunal's Decision:
The Commissioner of Income-tax (Appeals) and the Tribunal upheld the Assessing Officer's decision. The Tribunal considered sections 72A and 78(2) and held that the appellant society is not entitled to carry forward and set off the losses of the earlier societies.

6. Arguments by the Appellant:
The appellant argued that since the business, employees, and assets continued under the new name, it should be considered a mere change in name, and the losses should be allowed to be set off. The appellant referred to various judgments to support the interpretation of section 72 to result in equity and justice.

7. Arguments by the Revenue:
The Revenue contended that section 72 allows the carry forward of losses only for the same assessee. Section 72A applies to company mergers, not co-operative societies, and section 78(2) pertains to changes in the constitution of firms or succession, which does not apply here.

8. Court's Analysis:
The court referred to several judgments to interpret the statutory provisions:

- Hindustan Aeronautics Ltd. v. CIT: The term "inheritance" in section 78(2) must mean transmission by personal law, not other modes of transfer.
- Saroj Aggarwal v. CIT: Courts should make benevolent and justice-oriented inferences.
- CIT v. Madhukant M. Mehta: Succession by inheritance allows carry forward of losses.
- CIT v. J. H. Gotla: Profit or loss from a business of a wife or minor child included in the total income of the assessee should be treated as the profit or loss from a business carried on by him.
- K.P. Varghese v. ITO: Statutory provisions should be construed to avoid absurdity and mischief.
- Tirath Singh v. Bachittar Singh: Statutory language leading to absurdity or hardship should be modified.
- Mysore Minerals Ltd. v. CIT: Provisions conferring benefits should be interpreted to secure those benefits.
- Bajaj Tempo Ltd. v. CIT: Taxing statutes should be interpreted to advance the object of the provision.

9. Conclusion:
The court concluded that the four societies and the appellant federation cannot be treated as the same assessee. The plain language of sections 72, 72A, and 78(2) does not support the carry forward and set off of losses from the merged societies to the appellant federation. The court found no infirmity in the Tribunal's order and dismissed the appeal, denying the benefit of carry forward and set off of losses suffered by the four societies against the income of the appellant federation.

Judgment:
The appeal is dismissed accordingly.

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