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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 ..... on air freight, ocean freight and land transport business and transport related activities. The assessee inter alia claimed set-off of losses of the assessment years 2001-02 and 2002-03 in the returns filed for the assessment year 2002-03 and 2003-04 respectively. The Assessing Officer subsequently issued notice holding that income had escaped assessment and reopened the case. The Assessing Officer held that the claim for set-off of the losses was impermissible in view of Section 79 of Income Tax Act. The relevant facts for this purpose were that as on 31st March, 2001, the shareholding of the assessee was as follows: - As on 31.3.2001, 50% shareholding was held by Dr. Prem Chand John and the balance 50% was held by Mrs. Dakshayani Reddy. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m FIPB. It was for such a purpose that a JV agreement was entered into between M/s. S-Net Freight (India)P.Ltd., and G.A. GOSS (S)Pvt. Ltd., both Singapore incorporated companies carrying on business in the field of freight and logistics, to set up a private limited company in India, as a subsidiary of M/s. S-Net Freight (India)P.Ltd. The company was incorporated through Indian nominees of the two companies, through whom the shares were held beneficially during assessment year 2001-02. In the subsequent year, the two companies themselves became shareholders, on getting the requisite approvals from FIPB. The shareholding pattern for assessment years 2001-02 and 2002-03 is given at page 17 of the Assessee‟s Paper Book („APB‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never intended to be the shareholders of the company at the outset. 34. These contentions of the assessee have nowhere been refuted by the ld. CIT(A) and he has only observed that it could not be accepted that the nominees were used only as a legal necessity. Now, once, the requirements of the provisions were FEMA the facts are to be stringently followed and it has been so done, it was the requirement of the Foreign Direct Investment Laws which made the assessee to act in the manner discussed above. The provisions of section 79 of the I.T. Act, therefore, cannot be said to envisage the transfer of shares by the subscribers of the Memorandum of Articles of Association as a change in the shareholding of the assessee company. The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in addition the mere circumstance that the assessee had to seek approvals for the foreign investors to carry on business in this case cannot be a consideration since parliament has through the second proviso to Section 79 visualized certain situation pursuant to business arrangements, for company's restructure. It was contended on behalf of the assessee that there was no error of law and the ITAT was justified in deducing that the shareholding pattern which existed prior to 31.3.2002, was in favour of the foreign investors who infused capital by contributing Rs.49.9 lakhs. It was emphasized that the Tribunal took note of the provisions of FEMA and also materials appearing on the record and that no question of law arises. Section 79 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the company-investors came within the description of those owning "not less than 51% of the voting power" beneficially through the two individual shareholders. Ld. counsel for the assessee had sought to place reliance on the application preferred to the FIPB and also the permission granted by the Central Government. Since these were essential the method adopted - having two nominees incorporated in a company and subsequently transfer the shareholding to the real owners - fall within the description of Section 79(a) and therefore, got excepted from the prohibition from carrying forward the losses. 7. This Court has considered the reasoning of the Assessing Officer as well as the CIT(Appeals). Elaborate contentions were made by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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