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TMI Blog2018 (4) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... a Wadhwa through their shareholding in RPL and WGH as on 31st March 2009 and 31st March 2010, i.e., the last day of the previous year in which the loss was incurred, held voting rights to the extent of 56% and 53% respectively and as on 31st March 2012 held 100% of shares carrying voting rights directly and therefore the assessee appellant is entitled to carry forward and set off of loss of A.Y. 2009-10 and 2010-11 against income of A.Y. 2012-13. - Decided in favour of assessee. - ITA No.967/M/2016 - - - Dated:- 14-2-2018 - D.T. GARASIA, JUDICIAL MEMBER AND SHRI N. K. PRADHAN, ACCOUNTANT MEMBER For The Assessee : Shri Jitendra Jain, Advocate And Shri Mahesh O. Rajora, CA For The Revenue : Shri Abhijit Patankar ORDER Per D.T. GARASIA, Judicial Member: The above titled appeal has been preferred by the assessee against the order dated 23.12.2015 of the Commissioner of Income Tax (Appeals) 21, Mumbai [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13. 2. The assessee is a private limited domestic company engaged in the business of leasing of commercial properties to earn lease rental and for capital appreciation. The book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shareholding pattern of RPL in A.Y.2009-10 Name No. of shares held As a % Vijay Wadhwa 450 45.00% Vinita Wadhwa 450 45.00% Other individual shareholders 100 10.00% Total 1000 100.00% Shareholding pattern of RPL in A.Y.2010-11 Name No. of shares held As a % Vijay Wadhwa 435 43.50% Vinita Wadhwa 435 43.50% Other individual shareholders 130 13.00% Total 1000 100.00% In A.Y.2012-13 the share held by RPL, SND and WGH in the assessee company were transferred to Shri Vijay Wadhwa and Smt. Vinita Wadhwa for consolidation and re-organisation of business. 3. During the course of assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wadhwa and Mrs. Vinita Wadhwa held 80% in WGH as on 31.03.2009. Similarly in A.Y. 2010-11, the assessee incurred loss of ₹ 7.09 crores and Shri Vijay Wadhwa and Mrs. Vinita Wadhwa were held 87% shares in RPL and similarly in 2012-13 Shri Vijay Wadhwa and Mrs. Vinita Wadhwa held 100% shares in assessee company. The assessee has filed the shareholding pattern and which was verified from the Share Registers and copy of which is enclosed at page no.44- 49 of the paper book. The assessee s case is that on 31.03.2009, 31.03.2010 and 31.03.2012 51% voting power in the assessee company is held by same persons and therefore the assessee is entitled to set off the said loss. The learned AR submitted that the object of section 79 has explained in Apex Court in the case of CIT Vs. Italindia Cotton Co. P. Ltd. reported in 147 ITR 160 is to discourage persons claiming a reduction of their tax liability on the profits earned in companies which has sustained losses in earlier years. It was not unusual for a group of persons to acquire a company, which had suffered losses in the earlier years, in the expectation that the company would earn substantial profits after such acquisition, and they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt is the only judgment as on date today. There is no jurisdictional High Court judgment against the assessee. Therefore, the matter is squarely covered by the decision of the Hon ble Karnataka High Court. The learned AR submitted that there is decision of Hon ble Delhi High Court in the case of Select Holiday Resorts (P.) Ltd. [2013] 35 taxmann.com 368 wherein the facts are different but in that case the Hon ble Delhi High Court has held that carrying forward and set off of, in case of certain companies, merger take place in that case 98% shares of assessee company were held by IIPL and 100% shares of IIPL were held by four persons of a family who had the control and management of IIPL as well as assessee company. The Assessing Officer disallowed the carry forward of losses u/s.79 and Tribunal has allowed the claim and matter went to Hon ble Delhi High Court has dismissed the appeal of the revenue. The learned AR submitted that Hon ble Delhi High Court in case of Yum Restaurants (India) P. Ltd. reported in 380 ITR 637. The facts are different, therefore it is not applicable. The learned AR submitted that there are judgment in favour of the assessee, moreover, there is Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil 100% 90% and 87% in RPL 33.33% 33.33% 80% and 72.5% in WGH 33.34% 33.34% 3. Voting power of Vijay and Vinita in the assessee company through RPL 90 x 33=30 87 x 33=29 4. Voting power of Vijay and Vinita in the assessee company through WGH 80 x33=26 72.5 x 33=24 56 53 100 8. The shareholding pattern of the assessee company since its incorporation till the A.Y.2011-12 was as under: Name Number of shares % of holding Rajdhani Properties Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wadhwa 4,900 49.00% Vinita Wadhwa 5,100 51.00% Total 10,000/- 100.00% It can be seen from the above table that earlier Mr.Vijay Wadhwa and Mrs.Vinita Wadhwa were beneficial holder to the extent of 67% only (through intermediary which has been increased to 100% now; thus, beneficial ownership of these individuals continues to be more than 51% for all years. The assessee has filed shareholding pattern of Mr. Vijay Wadhwa and Mrs. Vinita Wadhwa in RPL and WGH before the AO during assessment proceeding vide Authorised Representative's letter dt.10.10.2014 and also before the CIT(A) which is reproduced at Pages 3 - 6 of CIT(A)'s order and CIT(A) has also verified the same by calling for Share Rcgisters(Copy of Letter dt. 10.10.2014 is enclosed)[Also filed at Page No.44-49 of Paper Book]. The Case of the assessee is that Mr. Vijay Wadhwa and Mrs Vinita Wadhwa through RPL and WGH are exercising voting rights exceeding 51% in the assessee company. 10. In A.Y. 2012-13, the assessee in its computation of income claimed set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and sale of storage batteries. By agreement between ABL and assessee APSL, former agreed to transfer technical know-how and grant of non-exclusive license to manufacture and sell Pocket Plate Nicad Batteries on payment of lumpsum consideration for licence and right to use technology, to later assessee filed its return wherein NIL income was shown after setting off losses brought forward from earlier years. Case of assessee was taken up for scrutiny and assessment was completed determining income of assessee. Deduction u/s.35AB, as claimed by assessee, was disallowed and lease rentals paid were also disallowed. Assessment order also did not allow setting off of losses of previous years by invoking S.79. Case of assessee was reopened u/s.147/148 and benefit granted in such year u/s.35AB was disallowed. CIT(A) partly allowed appeal of assessee and benefit of deduction claimed u/s.35AB was granted; but assessee was not found to be entitled to set-off of brought forward losses, considering change in beneficial holding of 51% or more, as provided u/s.79. Matter under consideration was if assessee would be entitled to carry forward and set off of business loss despite assessee not owi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of IIPL were held by four persons of the family who were having the control and management of the IIPL as well as of the assessee company. Because of the merger of IIPL into the assessee company, the former came to an end as a result of which the shares of amalgamated company were allotted to the shareholders of IIPL. Thus, it is clear that there is no change in the management of the company which remained with the same family (set of persons) who was earlier exercising control. The assessee submitted a list of directors on the board of the two companies prior to merger as well as the directors on the board of merged company. It remained in the same hands. Thus, the CIT(A) is correct in holding that change in more than 51 per cent was due to merger of two companies. There was no change in control and management. Considerable cogency is found on the part of the CIT(A) s adjudication wherein he has referred the Circular No.528, dt. 16th Dec., 1988 and considered the case of the present merger as akin to death of shareholders. He also held that in the case of death of a living person the shares held by him get transferred to his legal heirs. Similarly when existence of a company is le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company could be ensured by securing the beneficial ownership of shares carrying 51 per cent or more of the voting power. 16. It is important to note that section 79(a) lays emphasis on the voting power beneficially held by same persons as on the last day of the previous year when the loss is incurred and on the last day of the previous year when the set off is claimed. The condition under section 79(a) is not holding of the shares but exercising voting power. If the intention of the legislature was to lay down the condition of shareholding then there was no need to specify voting power . This clearly indicates and which is fortified by a plain reading of section 79(a) of the Act that shareholding is not the condition but exercise of voting power is important for the purpose of section 79(a). 17. Second proviso to section 79(a) provides that this section would not apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that 51% shareholders of the amalgamating or demerged foreign company continued to be the shareholders of the amalgamated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31st March 2009 and 31st March 2010 and directly as on 31st March 2012. Therefore, the assessee is entitled to set off the loss under consideration in the assessment year 2012-13. 22. The decision of the Delhi High Court in the case of Yum India reported in [2016] 380 ITR 637 (Delhi) is distinguishable on facts. The assessee in that case did not lead any evidence to show that Yum USA is the beneficial owner of shares held by Yum Asia in Yum India which was subsequently transferred to Yum Singapore. Yum USA is not a shareholder on any of the 2 days as mandated by section 79 of the Act. In the instant case, the case of the assessee appellant is that the assessee appellant company belongs to Wadhwa group controlled by Mr. Vijay Wadhwa and Mrs. Vinita Wadhwa through RPL and WGH as on 31st March 2009 and 31st March 2010 and directly on 31st March 2012. Furthermore, the Delhi High Court has refused to frame the question of law on this issue under section 260A of the Act and hence it cannot be said that the Delhi High Court has decided the issue on interpretation of section 79 of the Act. Therefore decision of Delhi High Court in Yum India is not applicable to the facts of the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument of change in shareholding due to cross gift was also negative because of no evidence to that effect. In the instant case in appeal, Mr. Vijay Wadhwa and Mrs. Vinita Wadhwa were shareholders in RPL and WGH who in turn were shareholders in assessee appellant in the year of incurring loss and they were directly shareholders in the year when the assessee wanted to set off the loss. Therefore, the decision of Tainwala is distinguishable on facts and not applicable to the present case in appeal. 26. The decision of Barodawala reported in 4 ITD 186 (Mum) relied by the lower authority is also distinguishable on facts. In that case issue was whether shareholding of father, mother and minor son can be clubbed to calculate 20% of voting power for the purpose of section 2(22)(e) of the Act. The Tribunal held that a guardian's shareholding cannot be clubbed with father to decide whether father together in his individual capacity and in his capacity as guardian held 20% voting power. In the present appeal, Mr. Vijay Wadhwa and Mrs. Vinita Wadhwa together hold more than 51% holding in the assessee appellant company through RPL WGH which is the test to be satisfied for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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