TMI Blog2018 (3) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in undergoing such verifications process more-so the said income of ₹ 6461/- on which income-tax was shown to be deducted at source@10% u/s 194H is reflected in 26AS i. e. AIR data base of the Revenue to be pertaining to the assessee and hence we have no hesitation in confirming the appellate order of the learned CIT-A on this ground and hence the contention of the assessee stood rejected and the ground taken by the assessee in CO stood dismissed. Needless to say the AO shall grant proper and adequate opportunity of being heard to the assessee in the proceedings conducted by the AO. Carry forward and set off of brought forward losses - Held that:- Assessee will be entitled for carry forward and set off of unabsorbed depreciation for AY 2007-08 to 2012-13 and we hold that Section 79 of the 1961 Act has no applicability so far as carry forward and set off of unabsorbed depreciation is concerned. The assessee succeeds Coming to the provisions of Section 79 so far as carry forward and set off of business losses are concerned, which is applicable to a company in which change in shareholding has taken place in the previous year to a company which is not a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. Nitesh Joshi For The Revenue : Shri. Rajat Mittal ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 1491/Mum/2016 for assessment year(AY) 2012-13 and Cross Objections bearing no. 305/Mum/2017 for AY 2012-13 , are both directed against the appellate order dated 22. 12. 2015 passed by learned Commissioner of Income-tax (Appeals)-16, Mumbai (hereinafter called the CIT(A) ) for assessment year 2012-13, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 02. 03. 2015 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- (i) On the facts and in the circumstances of the case and in law, whether the learned CIT(A) was justified in allowing the carry forward of losses of ₹ 5,32,99,080/- for A. Y. 2007-08 to A. Y. 2010-11 even though there is a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondonation of delay has been duly submitted before the tribunal and prayer is made for condoning the said delay. It is prayed by learned counsel for the assessee that it is due to bona-fide reasons , the CO could not be filed in time as the assessee was seeking proper advice and counselling from its counsel and chartered accountant with respect to the appeal filed by the Revenue and the asssessee was advised by its counsel and chartered accountant in the process to file CO against the appeal filed by the Revenue. Thus it is claimed that there was a bonafide delay of 17 days in filing of the CO with the tribunal beyond the time stipulated u/s 253(4) of the 1961 Act and prayer has been made to condone the aforesaid delay. It is also the submissions of the assessee that purely legal ground is raised by the assessee in CO filed with the tribunal by way of ground no. 3 which is a ground raised for the first time before the tribunal seeking carry forward of brought forward loss relating to AY 2007-08 to 2009-10 as the provisions of Section 79 of the 1961 Act has no application to the assessee. It was submitted that the said loss was not claimed in the return of income filed with the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Collector, Land Acquisition v. Mst. Katiji 1987 taxman. com 1072(SC) is a guiding light in that directions. We order accordingly. 5. The brief facts of the case are that the assessee is engaged in the business of ground handling operations and related activities at Airport. We shall take up both the Revenue‟s appeal as well CO filed by the assessee together as the issue relating to carry forward and set off of business losses and unabsorbed depreciation per-se are common in both the Revenue‟s appeal and the CO filed by the assessee. 6. 1 The first issue raised before us is concerning difference of ₹ 6461/- in the income reported by the assessee as per its books of accounts and as reflected in AIR date base of the Revenue. The assessee had not reported this income of ₹ 6461/- in return of income filed with the Revenue while the same found mentioned in the AIR data base of the Revenue. The AO had observed from AIR data base i. e. 26AS , that the assessee had an undisclosed income-tax deducted at source (TDS) of ₹ 646. 31 which was deducted u/s 194H @10% on income of ₹ 6461/- The AO added the same to the income of the assessee vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be pertaining to the assessee and hence we have no hesitation in confirming the appellate order of the learned CIT-A on this ground and hence the contention of the assessee stood rejected and the ground taken by the assessee in CO stood dismissed. Needless to say the AO shall grant proper and adequate opportunity of being heard to the assessee in the proceedings conducted by the AO in pursuance to the direction of learned CIT(A) and shall admit evidences and explanation submitted by the assessee in its defence. The AO shall conduct necessary verification process to reach to the conclusion as to whether the said income pertain to the assessee as the assessee has so far denied to have dealt with the said party who had deducted said TDS of ₹ 646. 13 on behalf of the assessee. We order accordingly. 7. 1 The next issue is concerning carry forward and set off of brought forward losses. The assessee has claimed brought forward losses amounting to ₹ 5,32,99,080/- from A. Y 2007-08 to 2011-12 for set off. The AO observed that there was a change in the shareholding pattern in the case of the assessee in AY 2012-13 and the assessee was hit by the provision of Section 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(3), the assessee filed first appeal with learned CIT-A and submitted that the AO has wrongly denied the carried forward and set off of business loss and unabsorbed depreciation by invoking provision of Section 79 of the Act on the grounds that there is a change in shareholding pattern in A. Y 2012-13. It was submitted by the assessee that in A. Y 2012-13 there was no change in shareholding pattern and in the A. Y 2012-13 the assessee was a company in which public were substantially interested in view of the facts the assessee was subsidiary of HDFC Ltd. which was listed company and quoted on Bombay Stock Exchange and hence provision of Section 79 of the Act were not applicable to the assessee company in AY 2012-13. The assessee produced copy of annual return of HDFC Ltd. for F. Y 2010-11 and in the said report it was clearly mentioned that the assessee was a subsidiary company of HDFC Asset Management Company Ltd. . The assessee also submitted certificate from the Company Secretary explaining that the assessee is a Public Limited Company in view of provision of Section 3(1)(iv)(c) of the Companies Act 1956. The assessee also relied upon the decision of the Hon‟ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 18. 86 18. 86 62. 28 0 100 change 6 2012-13 18. 86 18. 86 62. 28 0 100 No change In view of the provisions of section 79 and the details in Table-I the following may be deduced: (a) The losses (unabsorbed depreciation and business loss) from A. Y 2007-08 to 2009-10 cannot be allowed to be carried forward from A. Y. 2010-11 onwards on account of change in shareholding pattern. (b) The loss (unabsorbed depreciation and business loss) of A. Y. 2010-11 cannot be allowed to be carried forward from A. Y. 2011-12 onwards on account of change in shareholding pattern. (c) The loss (unabsorbed depreciation and business loss) of A. Y. 2011-12 can be allowed to be carried forward to A. Y. 2012-13 as the shareholding pattern has remained the same. To summarise, the losses (unabsorbed depreciation and business loss) from A. Y. 2007-08 to 2010-11 can neither be carried forward nor can be allowed for set-off on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and hence provisions of Section 79 are not applicable to the assessee company as the same are not applicable to the company in which public are substantially interested. The learned CIT(A) held that the assessee is a company which is subsidiary of HDFC Limited , a listed company with Bombay Stock Exchange and hence the assessee is undoubtedly a public limited company in which public are substantially interested. The appeal of the assessee was allowed by learned CIT(A) and the AO was directed to allow the carry forwarded loses and depreciation to the tune of ₹ 6,41,93,826/-, vide appellate orders dated 22-12-2015 passed by learned CIT(A). Thus, in nutshell the learned CIT(A) allowed the carry forward of the assessed business losses and depreciation for the AY 2012-13 to the tune of ₹ 5,76,40,926/- as assessed business loss and depreciation to the tune of ₹ 65,52,900/- , aggregating to ₹ 6,41,93,826/-for the impugned assessment year 2012-13 . 7. 7 Aggrieved by the appellate order dated 22-12-2015 passed by learned CIT(A), the Revenue has come in an appeal before the tribunal while the assessee has filed CO with the tribunal on the same issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he losses of the earlier years are to be allowed to be set off against current year income and allowed to be carried forward to the subsequent years. 7. 9 The Ld. DR on the other hand submitted that assessee is hit by a bar created by provisions of Section 79 of the Act, and our attention was drawn to the assessment order of the A. O and appellate order of learned CIT-A to contend that there was a change in shareholding pattern in the case of the assessee company wherein the old promoters namely Mr Ajay Bohora and Mr Anil Bohora who held 100% shareholding have their shareholding come down to less than 51% in the AY 2011-12 and HDFC Limited is holding 62. 28% shares in the assessee company in AY 2011-12 and 2012-13 , while holding of HDFC Limited was 25. 64% in AY 2010-11. 7.10 The Ld. Counsel for the assessee brought our attention to statement of fact filed by the assessee before the learned CIT-A along with memo of appeal and it was submitted that until AY 2009-10 , Mr Ajay Bohora and Mr Anil Bohora held 50% each shares in the assessee company whereby 100% shareholding were with these two shareholders. It was submitted that in A. Y 2010-11 there was a change in sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 79 does not speak of unabsorbed depreciation, the scope cannot be expanded by implication by the Courts. It is contended that taxing statute is to be strictly construed. It was submitted by learned counsel for the assessee that business losses for the period A. Y 2007-08 to 2009-10 were not claimed in the return of income filed with the revenue for AY 2012-13 and it is only the losses for 2010-11 which were claimed to be brought forward and set off against income of the current year under consideration i. e. AY 2012-13. It was also submitted by learned counsel for the assessee that brought forward losses for AY 2010-11 should be allowed to be carried forward. It was submitted that Departmental Appeal is concerning only with respect to the allowability of set off of the unabsorbed losses for AY 2007-08 to 2009-10 , while the assessee filed CO to claim the allowability of unabsorbed business losses from AY 2007-08 to 2009-10. It was submitted that there was no dispute so far business losses for A. Y 2012-13 are concerned as there was no change in the shareholding during the year under consideration i. e. AY 2012-13 which was confirmed by the AO in remand report. Our attention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally held by Mr. Ajay Bohora and Mr. Anil Bohora both holding 50% shares each aggregating to 100% from previous year 2006-07 to 2008-09(AY 2007-08 to 2009-10) . In A. Y 2010-11 there was a change in shareholding wherein HDFC Ltd. purchased 25. 64% shareholding of the assessee company shares from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25. 64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37. 18% each aggregating to 74. 36% on the said allotment of shares . The said DSP Merril Lynch Limited sold its entire shareholding in assessee company to the tune of 25. 64% to HDFC Limited during the previous year 2009-10 relevant to A. Y. 2010-11. Thus the consolidated shareholding of these two shareholders namely Mr Ajay Bohora and Mr Anil Bohora got diluted from 100% to 74. 36% , while HDFC Limited held 25. 64% during AY 2010-11 . In A. Y 2011-12 , there was a fresh allotment of shares by way of issue of new shares by the assessee company in favour of HDFC Ltd. while at the same time no fresh s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the loss was incurred [* * *] : [Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift :] [Provided further that nothing contained in this section shall 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 fifty-one per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company. ] (b) [Omitted by the Finance Act, 1988, w. e. f. 1-4-1989. ] 7. 14 First of all , we shall discuss about the carried forward of unabsorbed depreciation of the earlier years . Perusal of provisions of Section 79 of the Act read in conjunction with Section 72A of the 1961 Act which incidentally falls in the same chapter VI which deals with Chapter Aggregation of Income and set off or carry forward of loss‟ wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt portion of decision of Hon‟ble Supreme Court in the case of CIT v. Shri Subhulaxmi Mills Limited(supra) is reproduced hereunder:- 3. So far as question No. 2 is concerned, the question is whether in applying section 79 of the Act, only the business loss should be taken into account and not the unabsorbed depreciation or unabsorbed development rebate. The High Court has answered the question saying that when section 79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. We agree with the High Court. Thus, keeping in view aforesaid decision of Hon‟ble Supreme Court , we hold that the assessee will be entitled for carry forward and set off of unabsorbed depreciation for AY 2007-08 to 2012-13 and we hold that Section 79 of the 1961 Act has no applicability so far as carry forward and set off of unabsorbed depreciation is concerned. The assessee succeeds so far as this ground raised by the assessee being ground no. 2 in the CO filed with the tribunal. We order accordingly. 7. 15 Now, we will take up the provisions of Section 79 of the 1961 Act so far as carry forward and set off of business losses are concerned. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interested only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after that date) as may be specified in the declaration ; or] [(ac)if it is a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society ; or] [(ad) if it is a company, wherein shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by, one or more co-operative societies ;] [(b)if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :- (A)shares in the company (not being shares entitled to a fixed rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of shares by way of gift to any relative of the shareholder making such gift :] [Provided further that nothing contained in this section shall 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 fifty-one per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.] (b) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.] The Companies Act,1956 2. Definitions.- In this Act, unless the context otherwise requires, - (10) company means a company as defined in section 3; ****** (19) holding company means a holding company within the meaning of section 4 **** (35) private company means a private company as defined in section 3; ****** (37) public company means a public company as defined in section 3; ** ** ** (46) share means share in the share capital of a company and includes stock except where a distinction between stock and shares is express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public company means a company which is not a private company. (2) Unless the context otherwise requires, the following companies shall not be included within the scope of any of the expressions defined in clauses (i) to (iv) of sub-section (1), and such companies shall be deemed, for the purposes of this Act, to have been formed and registered outside India:- (a) a company the registered officer whereof is in Burma, Aden or Pakistan and which immediately before the separation of that country from India was a company as defined in clause (i) of sub-section (1); (b) a company the registered office whereof is in the State of Jammu and Kashmir and which immediately before the 26th day of January, 1950, was company as defined in clause (i) aforesaid. Section 4. Meaning of holding company and subsidiary.- (1) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if, - (a) that other controls the compositions of its Board of directors; or (b) that other holds more than half in nominal value of its equity share capital; or (c) the first-mentioned company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that other or its subsidiary [not being held or exercisable as mentioned in clause (c)] shall be treated as not held or exercisable by that other, if the ordinary business of that other or its subsidiary, as the case may be, includes the lending of money and the shares are held or the power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business. (4) For the purposes of this Act, a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary. (5) In this section, the expression company includes any body corporate, and the expression equity share capital has the same meaning as in sub-section (2) of section 85(6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purpose of this Act also, whether the requirements of this section are fulfilled or not. 43A. PRIVATE COMPANY TO BECOME PUBLIC COMPANY IN CERTAIN CASES ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1A) Without prejudice to the provisions of sub-section (1), where the average annual turnover of a private company, whether in existence at the commencement of the Companies (Amendment) Act, 1974, or incorporated thereafter, is not, during the relevant period, less than [such amount as may be prescribed], the private company shall, irrespective of its paid-up share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this sub-section : Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven. (1B) Where not less than twenty-five per cent of the paid-up share capital of a public company, having share capital, is held by a private company, the private company shall,- (a) on and from the date on which the aforesaid percentage is first held by it after the commencement of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord `public company' in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company.] (3) Sub-section (3) of section 23 shall apply to a change of name under sub-section (2) as it applies to a change of name under section 21. (4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. (5) If a company makes default in complying with sub-section (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues. (6) (7) [Omitted by the Companies (Amendment) Act, 1988, with effect from 15-6-1988.] (8) Every private company having a share capital shall, in addition to the certificate referred to in sub-section (2) of section 161, file with the Registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, followed such commencement, or (iii) immediately following such commencement or at any time thereafter; (b) turnover of a company, means the aggregate value of the realisation made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year ; [(c) deposit has the same meaning as in section 58A.] It is undisputed that HDFC Limited which is a listed company on recognized stock exchanges in India did not held any shares in the assessee company till assessment year 2009-10 and the entire shareholding vested with Mr Anil Bohora and Mr Ajay Bohora who held 50% shares each in assessee till previous years relevant to AY 2009-10. In A.Y 2010-11 there was a change in shareholding of the assessee company wherein HDFC Ltd. purchased 25.64% shareholding of the assessee company shares from DSP Marril Lynch Ltd. The said DSP Merril Lynch Limited became shareholder to the tune of 25.64% during previous year 2009-10 relevant to AY 2010-11 by virtue of its holding of compulsorily convertible preference shares and hence shareholding of Mr Ajay Bohora and Mr Anil Bohora got diluted to 37.18% each aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r private companies, the said private company shall be deemed to be public company by virtue of Section 43A. There was an insertion of sub-section (11) to Section 43A by the Companies Amendment Act, 2000 which stipulated as under: Section 43A ****** ****** (11) Nothing contained in this section, except sub-section (2A), shall apply on and after the commencement of the Companies (Amendment) Act, 2000. Thus, as per new law as is applicable during the relevant period, the assessee company continued to be a private company when the HDFC stepped in as shareholder in AY 2010-11 with shareholding exceeding 25%. Thus, this condition as is contained in Section 2(18)(b) of the 1961 Act is not met and hence the assessee cannot be categorised as company in which public are substantially interested. One of the other conditions stipulated u/s 2(18) of the 1961 Act is w.r.t. company becoming a company in which public are substantially interested is that more than fifty percent shares carrying voting rights are beneficially held throughout the year by a company listed on recognized stock exchanges. HDFC Limited no doubt is a company which is listed on recognised stock exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould lead to disallowance of the brought forward losses of the assessee from AY 2007-08 to 2010-11 in AY 2011-12 itself and no carry forward of losses for AY 2007-08 to 2010-11 shall be allowed. In AY 2012-13, there was no change in shareholding of the assessee company as the HDFC Limited continued to hold 62.28% shareholding in the assessee company and there will be no difficulty in allowing set off or carry forward further of losses for the AY 2011-12 to the succeeding years. Similarly, there is no difficulty in carry forward of the assessed losses for the AY 2012-13 to the succeeding years is concerned. The assessee has relied upon the decision of Hon'ble Supreme Court in the case of CIT v. Italindia Cotton Company Private Limited reported in (1988) 174 ITR 160 (SC) wherein the Hon'ble Supreme Court was dealing with an un-amended provisions of Section 79 wherein it used to had clause (a) and (b) in Section 79, and clause (b) to Section 79 stood omitted by the Finance Act, 1988, w.e.f. 1-4-1989 and hence the decision cannot be of any help to the assessee as the only condition now remaining in amended Section 79 of the 1961 Act as is contained in clause (a) only, which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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