TMI Blog2021 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies engaged in the same type of business and part of same group. The whole group managed by the same set of Directors and shareholders. The fact on record shows that TRIL is a holding company of assessee-company as well as THPL. Therefore, the position does not change before and after merger of THPL with TRIL. Effectively, TRIL was controlling and having beneficial ownership of 76% (directly 24% and indirectly 41%) before merger and 76% after merger. - Decided against revenue. - ITA No. 3914/MUM/2019 - - - Dated:- 18-8-2021 - Shri Saktijit Dey (Judicial Member) And Shri S. Rifaur Rahman (Accountant Member) For the Revenue : Mr. Vijay Kumar Menon, DR For the Assessee : Mr. Nitesh Joshi, AR ORDER PER S. RIFAUR RAHMAN, A.M. The present appeal is filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Mumbai [in short CIT(A) ] for the assessment year 2014-15 dated 01.03.2019 and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act) 2. Brief facts of the case are, the assessee filed its return of income on 29.11.2014 declaring total income at Rs. Nil after setting off brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough THPL. It was submitted during this assessment year, THPL was merged with TRIL w.e.f. 01.04.2013 as per Hon ble Bombay High Court order dated 21.03.2014. As a result, of merger, THPL ceased to exist and the shares held by THPL in assessee-company were transferred to TRIL. It was submitted that in order to carry forward and set off loss against the income of the previous year u/s 79 of the Act has to have not less than 51% of the voting power on the last day of the previous year the shares of the company were held by persons who initially held shares of the company not less than 51% of the voting power on the last day of the year or years in which loss was incurred. In the present case, assessee submitted that TRIL held 65% of the shares in the company as on 31.03.2013 and 100% as on 31.03.2014. Therefore, there is no change in the control and management of the assessee during either of the years. The Assessing Officer rejected the contentions of the assessee by strictly interpreting provisions of section 79 of the Act and observed that the contentions of the assessee that more than 51% of the shares were held by the TRIL in both the years and therefore, the restrictions in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses were incurred, and during the year of set off. it owns 100% of the shareholding. The case of the appellant is That there is no change in the voting power , because in the years of losses Tata Realty Infrastructure Ltd held 78.85% of the capital of TRIL Highway Projects Ltd. and. therefore, effectively held a further 41%, over and above its own direct holding of 24% effectively constituting 65% of the voting power . It is a fact that Section 79 nowhere refers to ownership or shareholding, but invokes the concept of voting power . From the said terminology, it appears that the Section does not intend to cover the case of a reorganization within the same group of companies, which is in consonance with the object behind Section 79, which is to prevent misuse by a new owner purchasing shares of a loss making company, only to avail of the benefit of the said losses. In my opinion, if you consider the words voting power and beneficially held as they appears in Section 79 of the Act, in that event Tata Realty Infrastructure Ltd did beneficially hold more than 50% of the shares the appellant in the two years in which losses were incurred i.e. Assessment Years 2012-13 and 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is legally finished, the benefit of assets held by it (including shares of other company) will pass on to its shares holders. Under the circumstances, we fully agree with the view of the Ld. Commissioner of Income Tax (Appeals) and do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same. Aggrieved by the decision of Delhi Tribunal, the Department filed an appeal before the Delhi High Court. The Delhi High Court reiterating the views of the Delhi Tribunal culled out the findings of the Tribunal on the said issue and, thereafter, stated in paragraph 3 of the judgment as under: So far as second question i.e. the applicability of Section 79 is concerned, it is evident that during the earlier period 98% of the assessee's shares were held by IIPL. The holding company was amalgamated with the assessee company However, the shareholders of that holding company i.e. IIPL continued to be shareholders of the assessee company itself. The shareholders beneficially entitled to 98% of the shares continued to be the same. In these circumstances, the prohibition from carrying forward the losses, placed by Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignoring the judgement of Hon ble Delhi High Court in the case of M/s Yum Restaurants (India) Pvt. Ltd. v. Income Tax Officer (ITA No. 349 of 2015). 5. The Ld. DR brought to our notice, the fact and findings of Ld. AO/CIT(A) in their respective orders. He submitted that there is change in shareholding pattern and the shareholding pattern at the time of incurring losses and the shareholding pattern at the time of set off is different. The invoking of section 79 is justified in this case. He supported the findings of Ld. AO and prayed that the order of Ld. CIT(A) may be set aside. 6. On the other hand, the Ld. AR brought to our notice the findings of Ld. CIT(A) and he also relied on the case laws by the Ld. CIT(A). He submitted that the beneficial owner and voting power used in section 79 indicates, in order to invoke provisions of section 79 only voting power is relevant and not shareholding pattern. He submitted that after merger proceedings, the assessee has 100% voting power compared to 24% directly and 41% indirectly. The same directors continue to be directors after the merger. Therefore, there is no change in the voting power as existed prior to merger. In this regard, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a series of intermediary companies and Yum USA is the ultimate holding of company of Yum India and Yum Singapore. Due to internal restructuring in Yum Asia, this company was split up into two companies called Yum India and Yum Singapore. The assessee claimed the benefit u/s 79 with the submission that there is no change in the shareholding or voting rights in the newly formed companies since the ultimate holding company remained same. This proposition was rejected by the ITAT and the Hon ble Delhi High Court with the observation that there was indeed a change of ownership of 100% shares from Yum Asia to Yum Singapore and Yum India, both of which were distinct entities. Although, they might be AEs of Yum USA, there is nothing on the record to show that there was any agreement or arrangement that the beneficial owner of such shares would be with the holding company, Yum USA. 8.1 In the above case, there was no arrangement or agreement between the holding company and subsidiary companies, and these companies existed in the different international jurisdictions. The new company Yum India was formed as distinct and independent company. But the case under consideration belongs to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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