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TMI Blog2012 (8) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... unal to either examine or remand the matter for reconsideration. As appears from a reading of the Tribunal’s order and FEMA order, at the time of incorporation, the share capital was Rs. 2,000/- and the foreign investors infused Rs.49.90 lakhs during the subsequent assessment year which was treated as share application money and later appropriated as share capital after allotment of shares to the foreign investors, thus this disclosed arrangement is not forthcoming from the record , thus the matter has to be remitted to the AO for reconsideration of the entire record and returning findings with specific reference to the arrangement, if any, which existed between original shareholders of the company and the foreign investors - in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) Pte. Ltd. held 74% and the balance 26% was held by M/s G A Goss (S) Pte. Ltd. This was wholly pursuant to the approval granted by the Central Government in terms of provisions of FEMA on 22nd May, 2001. The assessee had contended that original two shareholders were holding on behalf of the aforesaid two companies since holding shares in companies and transacting business in India without necessary approvals was prohibited. It was contended that by virtue of operation of Industries (Development and Regulation) Act, 1951, no foreign company could enter and transact business in India in certain sectors. It was explained that the two individuals were nominee-shareholders and the beneficial in interest vested in the two companies named above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SHAREHOLDERS NAME A.Y. 2001-02 AS ON 31.3.01 PERCENT A.Y. 2002-03 AS ON PERCENT 31.3.02 Dr. Prem Chand John 1000 50% Mrs. Dakshayani Reddy 1000 50% S-Net Freight (Holdings) Pte. Ltd. 369260 74% G A GOSS (S) Pte. Ltd. 129740 26% TOTAL 2000 100% 4990000 100% 33. In the submissions before the ld. CIT(A) (APB 10 to 13), the issue was explained before the CIT(A), stating, inter alia, that the Foreign Exchange Management Act , provides Rules for foreign investment in India; that as per FEMA Rules, these are sectorial c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholding of the assessee company. The provisions of FEMA have not been shown to be non-mandatory. In order to carry on business in India, foreign company need must abide by the provisions of the said Act. Moreover, the two shareholders indeed acted only as the nominees to enable the smooth passage of the other shareholder in the subsequent year. Therefore, we do not find ourselves at one with the observations made by the ld. CIT(A) in this regard. The contention of the assessee is, therefore, accepted, particularly keeping in view the observations in Swadeshi Match Co. (supra), wherein it was held that holding within the meaning of Explanation II of para D of Part II of the First Schedule I of the Finance (No.2) Act, 1962 had not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of law arises. Section 79 of the Income Tax Act reads as follows: Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless (a) on the last day of the previous year the shares of the company carrying not less than fifty one per cent of the voting power were beneficially held by persons who beneficially the shares of the company carrying not less than fifty one per cent of the voting power on the last day of the year or years in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aborate contentions were made by the assessee, apparently; reliance was placed on various materials on the record. However, this Court does not discern any reasoning by either of those officials or even the ITAT to conclude that at the time of original incorporation (within the assessment year 2000-01) on 16.8.2000, the arrangement between the shareholders (Dr. Prem Chand John Mrs. Dakshayani Reddy) on the one hand and real owner i.e. foreign investor companies, was always that the former were to facilitate the process awaiting approval. While such conclusion is permissible in law, lack of any discussion in the present case by the lower authorities should have led the Tribunal to either examine or remand the matter for reconsideration. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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