TMI Blog1988 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the court was delivered by R. S. PATHAK C. J. I. -This appeal by special leave is directed against the judgment of the Bombay High Court construing the provisions of section 79 of the Income-tax Act, 1961, in favour of the assesses. Three private limited companies, the Italindia Cotton Co. P. Ltd., who is the assessee before us, the India Corporation P. Ltd.. and the International Cotton P. Ltd., were controlled by three groups of shareholders, who may be described as the Chunilal Group, the Babubhai Group and the Purushottam Group. There was a change in the shareholding of the three companies during the accounting year ending March 31, 1963. The Chunilal Group acquired controlling interest in India Corporation P. Ltd., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set-off of loss incurred in an earlier year was subject to two exceptions, the first being that the beneficial holding representing not less than 51% of the voting power should not change hands between the last day of the year in which the loss was incurred and the last day of the relevant previous year, and the second exception was that any change in the shareholding contemplated by the parent provision should not have been effected with a view to avoiding or reducing any liability to tax. According to the Tribunal, the two exceptions applied independently, and if either came into play, the prohibition contained in section 79 against the setting off of a loss could be invoked by the Revenue. It appears to have been admitted before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. Section 71 provides for the set-off of loss from one head against income from another head. Section 72 entitles an assessee to carry forward and set-off business loss which could not be set-off wholly during the year in which it arose. Then follow the provisions relating to the setting off of losses in certain particular cases. Section 79, with which we are concerned, provides : "Notwithstanding anything contained in this Chapter, where change in shareholding has taken place in a previous year in the case of 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avoiding or reducing any liability to tax. The question before us is whether the two conditions operate cumulatively or in the alternative. In other words, should both conditions exist together to nullify the prohibition against carry forward and setoff of the loss ? Upon careful consideration, we are of the opinion that the conditions are intended to operate as alternative to one another. If the terms of either clause (a) or clause (b) are satisfied, the disqualification suffered by a company, by reason of a change in the shareholding in the previous year, is removed, and the company is entitled to the benefit of the provisions in Chapter VI relating to the carry forward and set-off of losses. The benefit is available notwithstanding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year or years in which the loss was incurred, it could be presumed that there was no change in the control over the company and the disqualification imposed on the company because of the change in its shareholding would stand removed. But there may be a change in the shareholding and it may result in change of control of the company. Yet, every such change of shareholding need not fall within the prohibition. There can be a case where persons already owning a shareholding carrying less than 51 per cent. of the voting power in the company may enlarge their shareholding during the previous year in order that control over the company may pass to them. Attempts to acquire control over a company by controlling a majority of the shareholdin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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