TMI Blog1986 (6) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced the position of the shareholding as on 31-12-1975 as well as on 10-1-1976. He pointed out that during the assessment year the new shareholders holding more than 51 par cent of the voting power continued to hold share on the last day of the previous year, i.e., 31-12-1976. The assessee followed the calendar year for accounting. The ITO pointed out that the change took place not on the first day of the previous year but on 10-1-1976. He noticed that the share holders who beneficially held the shares carrying not less than 51 per cent of the coming powers at the end of the accounting year relevant to the assessment year 1978-79, were not the shareholders who beneficially held the shares carrying on more than 51 per cent of the voting power on the last day of the previous years relevant to the assessment year 1971-72 to 1978-79 being the years during which the losses had arisen for which the assessee claimed for carrying forward and set off against the profit of the assessment year 1978-79. Thus, the ITO inferred that the assessee had tried to avoid or reduce the tax liability, because the new incoming shareholder owed a small amount to the assessee before taking over the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear was the finding to the ITO in respect of the facts of the case. It is specifically argued on behalf of the revenue that the first condition in the present case as found by the ITO, was not disputed before the Commissioner [Appeals]. It is also urged that the fulfilment of the second condition cannot be said to have been satisfied as the Commissioner [Appeals] did not give any categorical finding as the Commissioner [Appeals] has state in the order that change in the shareholding appears to have been made not with a view to reduce the tax liability but as a bona fide business transaction'. It is urged, therefore, that the order of the Commissioner [Appeals] requires to be reversed. The assessee's learned counsel, on the other hand, supports the order of the commissioner [Appeals], relying on the decision of the Hon'ble Bombay High court in the case of Italindia Cotton Co (P.) Ltd., Saravandabhava Mills [P.] Ltd., and Shri Subhalaxmi Mills Ltd. It is also submitted that the ITO has not established or proved any thins to show that the change of the shareholding was effected with a view to avoiding or reducing tax liability. It is also stressed that both the conditions should be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [b] to the above section. The Tribunal found that the report of the Select committee supported the contention made by the assessee. Thus, the Hon'ble Bombay High court held that both the conditions must be satisfied simultaneously and pointed out that a similar view was expressed in the commentary of Sampat Iyengar's Law of Income tax, Sixth end, 1973, pages 1253 and 1254. 8. The assessee also relied on the decision of the Hon'ble Madras High court in the case of saravanabhava Mills [p.] Ltd. in which on the facts of that case, it was held that the conditions [a] and [b] of section 79 are cumulatively in effect and unless both the conditions are satisfied, the assessee cannot be deprived of the benefits of section 72 of the Act. in order to appreciate the point at issue, we consider that it is appropriate that we should reproduce the provisions of section 79 in the following paragraphs : "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 forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than it contains and that if a section is considered as unambiguous, it would not be inappropriate to find out the reasons which persuaded the Select Committee to recommend the inclusion of that section. 10. In the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 the Hon'ble supreme court on the facts of that case noted that the language of the sections concerned is clear and unambiguous and there is no scope for importing into the statute words which are not there as such importation would not be to construe, but to amend the statute and even if there be a cases omissus the defect can be remedied by the legislation only and not by interpretation. It was also held that once it is shown that the case of the assessee comes in the letter of the law, he must be taxed, however great hardship may appear to the judicial mind to be. 11. In the commentary of Chaturvedi and Pithisaria, Income tax law, Vol. II, Third edn, page 2015 it was commented that the word or between clause [a] and [b] shows that either of the two circumstances is enough to bring the case under the mischief of section 70 of the Act so as to bar a carry forward and set off. The Comments of B. S. Sundaram in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be looked at in isolation and it should be read as part of the entire scheme of Chapter VI, particularly in the light of section 72, before applying the provisions of section 79. 16. At page 1833 of the commentary of B. S. Sundaram's Law of Income tax in India, Eleventh edn. the history of the section was noted. It was stated that section 79 was added in the 1961 act. An anti avoidance measure and the object of the legislature in enacting section 79 is to prevent an assessee from buying a concern or a company which has been incurring loss in the past and which has substantially carried forward loss. So, if that is the object of this section i.e., to prevent the avoidance of tax or reducing the incidence of tax, we are of the opinion that the statute should be constructed so as to prevent the mischief and to advance the remedy according to the true intention of the makers of the statute. This was the view of the Hon'ble supreme court in. similar situation in the case of Sevantilal Maneklal Sheth, v. CIT [1968] 68 ITR 503, while dealing with the inducibility of income under section 16[3] [a] [iii] of the Indian income tax Act, 1922. 17. Thus, having regard to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee placed a copy of the statement which was also filed before the ITO at the assessment stage in which it has been stated that the accounting year of the assessee was calendar year and the changes in the shareholding occurred on 10-1-1976 relevant to the assessment year 1977-78 and not 1978-79 which was under appeal. it was submitted also that the change in the shareholding was made not with a view to avoid or reduce the tax liability of the shareholders but out of the business expedience. it was also explained loss that there was a slump in the tea market and the company sustained loss from year to year and the over draft taken from the bank could not be re paid and the bank concerned filed court cases and did not extend the overdraft facility to the assessee. It was also stated that the accumulated loss as on 31-12-1976 was about Rs. 91.93 lakhs and the loan amounted to Rs. 20.22 lakhs, It was also submitted that shri B. C. Guha Roy who was managing the company was also seriously ill and ultimately died in August 1976. In view of the financial difficulties it was claimed that the controlling interest in the company was transferred to Mehra Group who was a creditor of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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