TMI Blog1995 (11) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... law in coming to the conclusion that the Income-tax Officer was not justified in invoking the provisions of section 147(b) of the Act ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in allowing the claim of the assessee for set-off of carried forward losses against the income of the year ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee-company was an industrial company ? " The facts as found by the Tribunal are that the assessee had claimed set off in respect of carried forward business loss and unabsorbed depreciation. In the first instance, the Income-tax Officer has completed the assessment as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment was not stated. On the merits it was held by the Income-tax Officer that the two conditions prescribed under section 79 for disallowing set off of carried forward losses and unabsorbed depreciation of earlier years in the relevant previous years are disjunctive and even if one of them is not satisfied the assessee is not entitled to set off the carry forward losses. However, nothing was stated whether the assessee is an industrial company or trading company, but tax was charged at 65 per cent. along with surcharge. The Commissioner of Income-tax (Appeals) allowed the appeal, accepted all the contentions of the assessee and the order has been affirmed by the Tribunal. So far as question No. 1 is concerned, it is not in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any enquiry into the materials which form part of the record, it amounts to mere change of opinion and cannot be the foundation for initiating proceedings under section 147(b). As the facts disclosed in the Tribunal's order as well as in the assessment order, we are of the opinion that it is a case of mere change of opinion and the Income-tax Officer had no subsequent information in his possession on the basis of which he could initiate proceedings. Moreover, as we shall presently see, while discussing question No. 2, the issue has become of academic importance. Question No. 2 raises the issue about the applicability of section 79 in respect of carry forward of business losses. The provision is applicable to a company in which the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that a change in the shareholding of a company in which public are not substantially interested, unless intended with a view to avoid or reduce the liability to tax, does not affect its right to carry forward the loss of earlier years and set off against the income of the previous year in question. The two conditions are not disjunctive but alternative, satisfaction of either of which saves the assessee from the operation of section 79. We are fortified in our view by a decision of the Supreme Court in the case of CIT v. Italindia Cotton Co. P. Ltd. [1988] 174 ITR 160, wherein the Supreme Court has observed as follows : " The question before us is whether the two conditions operate cumulatively or in the alternative. In other words, sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit as well as power over its policies and activities. On the other side, there can be a case where the change is effected with a view to avoiding or reducing some liability to tax. The change is effected not for business or commercial reasons but in order that tax liability may be avoided or reduced. In that event, the change in the shareholding will tend to bring about the result which section 79 was designed to prevent. In our opinion, to avoid falling within the scope of section 79, it is sufficient for the assessee to show that the case attracts either clause (a) or clause (b). If the assessee succeeds in doing so, he will be entitled to the benefit of the provisions of the Income-tax Act, entitling him to claim a carry forward and se ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
