2014 (5) TMI 160 - SC - Income Tax

Set off of losses u/s 72 of the Act - Amalgamation of societies Societies in existence or not Held that - The contention of the assessee that the purpose of getting carried forward losses adjusted or set off against the profits of subsequent years, there must be some provision in the Act cannot be accepted - If there is no provision, the societies which are not in existence cannot get any benefit - The losses were suffered by the societies which were in existence at the relevant time and their existence or legal personality had come to an end upon being amalgamated into another society - the societies had no right under the provisions of the Act to file a return to get their earlier losses adjusted against the income of a different legal personality. The order of the HC is upheld that as there is no provision under the Act for setting off accumulated losses of the amalgamating societies against the profits of the amalgamated society, the assessee society could not have got the benefit of carrying forward losses of the erstwhile societies which were not in existence during the relevant Assessment Year Decided against Assessee.

Issues:
1. Interpretation of provisions regarding carrying forward and setting off accumulated losses of amalgamating societies against profits of the amalgamated society.
2. Application of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965 in conjunction with Sections 72 and 72(A) of the Income Tax Act, 1961.
3. Comparison of treatment of companies and co-operative societies in tax matters.
4. Consideration of discrimination and violation of Article 14 of the Constitution of India.

Analysis:
1. The appeal concerned the interpretation of provisions allowing the carrying forward and setting off of accumulated losses of amalgamating societies against the profits of the amalgamated society. The appellant, a co-operative society formed by the amalgamation of four other societies, sought to utilize the losses of the amalgamating societies for set off against its profits under Section 72 of the Income Tax Act, 1961.

2. The appellant argued that Section 16(8) of the Rajasthan Co-operative Societies Act, 1965, which states that rights and obligations of amalgamated societies remain unaffected, should allow for the continuation of the right to carry forward losses. The appellant's counsel contended that a strict interpretation of the tax statute should include co-operative societies under the term 'company' to avail similar benefits.

3. However, the respondent authorities maintained that since the amalgamating societies ceased to exist upon amalgamation, they could not carry forward their losses for set off against the profits of the appellant society. They emphasized the specific provisions in the Income Tax Act for companies regarding amalgamation and set off, highlighting the absence of similar provisions for co-operative societies.

4. The Court held that there was no provision in the Act allowing co-operative societies to carry forward and set off losses of amalgamating societies. It differentiated between treatment of companies and co-operative societies in tax matters, citing the absence of specific provisions for the latter. The Court rejected claims of discrimination, stating that different legal entities are treated differently based on their classification.

5. Ultimately, the Court dismissed the appeal, emphasizing the need for strict interpretation of tax statutes and the absence of equity in tax matters. It concluded that the appellant society could not benefit from carrying forward losses of amalgamating societies due to the lack of statutory provisions permitting such set off, as supported by previous judgments emphasizing the need for explicit statutory provisions in tax matters.

Judgment Summary:
The Supreme Court dismissed the appeal by a co-operative society seeking to set off losses of amalgamating societies against its profits. The Court held that the absence of specific provisions in the Income Tax Act for co-operative societies prevented the appellant from availing the benefit of carrying forward losses. Emphasizing the need for strict interpretation of tax statutes and the lack of equity in tax matters, the Court upheld the decision that co-operative societies cannot benefit from set off provisions applicable to companies.

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