TMI Blog2004 (12) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year under consideration inasmuch as more than 51% shares had changed hands, the assessee was called upon by the Assessing Officer to explain as to why its claim for set off of brought forward losses should not be disallowed in view of the provisions of section 79. In reply, it was submitted on behalf of the assessee company that the earlier shareholders Shri C.R. Dua and Shri V.S. Mehta did not hold any beneficial interest in the said shares and therefore it was entitled to claim the set off of the brought forward losses for the earlier year. It was further explained that M/s. SIPC was given approval to set up a 100% owned holding company op 22-7-1996 by the Government of India and before getting the other required approvals including the approval of Reserve Bank of India under Foreign Exchange Regulation Act, 1973, the process of incorporating the company in India was started by applying for approval of name using the word "Shell" through Shri V.S. Mehta and Shri C.R. Dua for which no objection certificate was issued by SIPC. As a result of this, the company came to be incorporated inIndiawith these two persons as initial subscribers to the shares. The Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... death of a shareholder or transfer of shares by way of gift to any relative or shareholder making the gift. The provisions of section 79 are quite unambiguous and there is no loophole which could be exploited by the taxpayers hence I am in agreement with the observations of Assessing Officer and I hereby uphold the disallowance." Aggrieved by the aforesaid order of the learned CIT(A), the assessee is in appeal before the Tribunal. 4. The learned counsel for the assessee submitted that 20 shares were initially allotted to Shri V.S. Mehta and Shri C.R. Dua only for the purpose of formation of the company and the nominal contribution made by them could not be deemed to be a beneficial interest in the company because Government sanction on the basis of which the company was formed was for setting up of 100 per cent owned holding company with equity participation from SIPC. He submitted that since the formation of a company requires a minimum of two shareholders, the said 20 shares had been initially allotted to Shri Mehta and Shri Dua who were the independent lawyers engaged for the purpose of incorporating the company. He contended that in these circumstances, such holding by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business through such company in order to reduce their tax liability through securing set off of losses of earlier years when the shares in the company were held by the different shareholders. He submitted that in order to safeguard the interest of Revenue against such practice, the provisions of section 79 were introduced in the Statute and since no such practice or facts are involved in the present case, applying the said provisions strictly and literally would be harsh to the assessee and the same will not be in consonance with the legislative intention behind introducing the said provisions. His contention, therefore, was that the authorities below were not justified in disallowing the claim of the assessee for setting off the loss of assessment year 1997-98 against the income of the year under consideration by applying the provisions of section 79 and the claim of the assessee may be allowed setting aside their orders on this issue. 7. The learned DR., on the other hand, submitted that the provisions of section 79 are very clear and unambiguous and the language used therein being plain and simple, the said provisions need not be interpreted differently by taking recourse t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of some other shareholder and the registered holder should not be a nominee of another. In the present case, as pointed out by the learned DR, the voting power in respect of 20 shares was available to be exercised by the said shareholders in their individual capacity and there is nothing on record to suggest that the assessee company was exercising such voting power or that Shri Dua and Shri Mehta were merely nominees of SIPC. Thus, the aforesaid 20 shares representing the entire capital issued by the assessee company on the last day of the previous year relevant to assessment year 1997-98 were held beneficially by Shri Mehta and Shri Dua and the same having been transferred during the year under consideration, the case of the assessee was covered by the provisions of section 79 and the loss incurred in the previous year relevant to 1997-98 was not available to be carried forward and set off against its income for the year under consideration. 9. It is well settled that the words of the Statute are to be understood in their natural, ordinary or popular sense and phrases and sentences are construed according to the grammatical meaning, unless that leads to some absurdity or unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, however, has invited our attention to the legislative intention behind introducing the said provisions in the Statute and pointed out that such legislative intention was to curb the practice of a few persons acquiring the shares of a company which has sustained losses in the earlier years and then commence to carry on profitable business through such company in order to reduce their tax liability through securing set off of losses of earlier years when the shares in the company were held by different shareholders. He has contended that since the case of the assessee does not fall within such mischief, literal construction of the provisions of section 79 would lead to genuine hardship to the assessee and since the very legislative intention behind introduction of the said provisions is getting defeated, such literal interpretation has to be avoided. In support of this contention, he has relied on the two decisions of Hon'ble Supreme Court in the case of Jubilee Mills Ltd and C.W.S. (India) Ltd. We have carefully perused both these decisions of Hon'ble Supreme Court. 11. In the case of Jubilee Mills Ltd., the question of interpretation of particular provisions of Statute, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h supposed intentions. There is no scope for importing into the statute the words which are not there. Casus omissus cannot be supplied by the Court except in the case of absolute necessity and when the reason for it is found in the four corners of the statute itself. The function of the Court is only to expound and not to legislate. Rules of interpretation become relevant only when there is a choice between two interpretations. If the language is plain, the choice does not arise and we have to accept the only meaning that the plain language permits. 12. In the present case, the language of the relevant provisions of section 79 is plain, clear and unambiguous as discussed earlier which does not give any rise to any other interpretation than the one gathered from the language used and this being the position, we find it difficult to accept the contention of the learned counsel for the assessee that the case of the assessee being not covered by the mischief sought to be curbed by the insertion of the provisions of section 79 as reflected in the legislative intention behind introducing the said provisions, the same should be interpreted liberally and not literally for taking it out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us, the learned counsel for the assessee has not been able to point out that the said expenditure was incurred as a contractual, obligation and this being so, we find no justifiable reason to interfere with the impugned order of learned CIT(A) disallowing the claim of the assessee on this count. The same is, therefore, upheld dismissing ground No. 2 of the assessee's appeal. 16. As regards ground No. 3 relating to the addition of Rs. 5,70,700 made by the Assessing Officer being 10% of the expenditure on mobile and residential telephones provided to its employees by the assessee company for personal use, it is observed that such disallowance on ad hoc basis for personal use has been held to be unsustainable in the case of a company by various Benches of the Tribunal relying on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron Engg.Co.v. CIT [2002] 253 ITR 749. In the said judgment, their Lordships of Gujarat High Court observed that the company is a distinct person and by its very nature, it cannot have any personal use. Their Lordships, therefore, held that personal use of the directors could not be considered as personal use in the case of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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