TMI Blog2022 (12) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... s noted that there are various judicial precedents on the issue of applicability of provisions of Section 79 of the Act on change in shareholding within the Group and when there is no change in ultimate holding or management. There are also various judicial precedents in which authorities tried to establish whether the company is a company in which public is substantially interested or not and thus provisions of section 79 is not applicable. In every decision, whether it is in favour or against the appellant, appellate authorities has made the decisions after satisfying itself as to the applicability and interpretation of various provisions and laws. Thus, it cannot be said that it is a mistake apparent from records, when the issue involves interpretation of relevant laws and sections. Thus, it can be safely concluded that set-off of losses when there is a change in shareholding is not a mistake apparent from record, and is debatable issue in the facts and circumstances discussed supra and it is not a case rectification. Thus, it can be safely concluded that set-off of losses when there is a change in shareholding is not a mistake apparent from record, and is debatable iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst, being a legal issue, which challenges the jurisdiction of AO to have invoked the impugned action u/s 154 of the Income Tax Act, 1961 [hereinafter ( the Act ) (Rectification of mistake apparent on record). The assessee has raised this ground against the action of the Ld. CIT(A) in confirming the action of the AO passed u/s 154 of the Act [rectification of order] by disallowing set- off of carried forward losses and unabsorbed depreciation by invoking the provision of Section 79 of the Act without considering the provisions of Section 2(18) of the Act and Section 3(iv) of the Companies Act, 1956. According to the assessee, the AO did not had the power (suo-motto) to pass order u/s 154 of the Act because it was not mistake apparent from records whereas the issue involved mixed question of fact and law, and since the AO was not vested with the power of review by the stature he AO could not have invoked jurisdiction u/s 154 of the Act which was merely for correcting the mistake apparent on the face record. 4. Brief facts are that the assessee/Birla Edutech Ltd (M/s. BEL) is part of Yash Birla Group of company. During the year, assessee/Birla Edutech Ltd (M/s. BEL) issued new e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he end of financial years (i.e. 31.03.2012) is a company in which public are substantially interested and therefore the bar placed by section 79 of the Act to claim set off and carry forward off losses and depreciation is not applicable]. Thus the claim of assessee/M/s. BEL is that since more that 50% of its shares are held by M/s. BSEL (which is a listed company) assessee became a company in which public are substantially interested and so assessee company would not fall in the ken of Section 79 of the Act, and in this back-drop the assessee claimed set off and carry forward of business losses and un-absorbed depreciation. However the AO did not agree and according to him, there was no exception provided in Section 79 of the Act on the facts of the assessee so he invoked section 154 of the Act to disallow the claim of set of loss. 5. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who dismissed the appeal of assessee on the ground that the AO in the original assessment proceedings had ignored the applicability of Section 79 of the Act and has not taken note of the relevant facts and circumstances of the case which clearly attracts section 79 of the Act. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riction on carry forward of depreciation as held by Hon ble Supreme Court in Shri Subhalaxmi Mill Ltd. 249 ITR 795 (SC). Moreover, according to Ld. AR, it can be seen that change in share holding has taken place within the group and therefore there is no change in the management as such. Therefore, AO erred in applying Section 79 of the Act. And in any case the issue of invoking Section 79 of the Act to disallow the loss and depreciation the AO could not have done while exercising jurisdiction u/s 154 of the Act because this power is only to correct mistake apparent on the face of the record. According to Ld AR, for applying Section 79 of the Act in the facts and circumstances of the case, interpretation of law of multiple provisions of the Act as well as Companies Act and case laws are required and thus it is a debatable issue. Therefore, according to Ld. AR in any case the AO did not have jurisdiction u/s 154 of the Act to disallow the carry forward loss applying section 79 of the Act. 7. Per contra, the Ld. DR supported the order of the Ld. CIT(A), and does not want us to interfere with the order of Ld. CIT(A). 8. Having heard both parties and after perusal of records, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the public are not substantially interested. Hence according to him, the assessee can rightly set off and carry forward the Business Losses and unabsorbed depreciation as BEL does not fall within the ambit of Section 79 of the Act. However, the AO as well as the Ld. CIT(A) erred in not appreciating this fact and law. 10. According to Ld. AR, the short question is as to whether the brought forward losses and unabsorbed depreciation can be disallowed in the case of the assessee by applying Section 79 of the Act in proceedings for rectification of mistake u/s 154 of the Act is to be adjudicated first. To appreciate the contention of assessee that AO could not have undertaken this exercise u/s 154 of the Act because the issue involved was mixed question of fact and law. We note that as on 05.02.2012, the shareholding pattern of the assessee was as under: - Name of the shareholder No. of shares % Yashovardhan Birla 25,000 50.000 P.V.R Murthy 4,000 8.00 N. Srikrishna 4,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ath of a shareholder as 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. 13. A bare perusal of sec. 79 divulges that if a change in the shareholding of the company takes place in a previous year, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless the conditions specified in clause (a) are satisfied. However, it is important to note that sec. 79 is applicable in the case of a company, not being a company in which the public are substantially interested . It, therefore, transpires that sec. 79 has no application in the case of a company in which the public are substantially interested. To put it in simple words, if it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of a public company, such private company shall also mean a `public company . 18. Section 79 is applicable in the case of a company, not being a company in which public are substantially interested meaning Section 79 is applicable to a private Ltd. company and not a company in which substantially interested. Further, as per section 2(18) of the Act, a company is said to be, company in which public are substantially interested if it is a company which is not a private company as defined in Companies Act, 1956, and that either of the following conditions are satisfied; (A) Shares in the company were listed in a recognized stock exchange in India as on the last day of the previous year, (B) Shares in the company carrying not less than 50% of voting power has been allotted unconditionally or acquired unconditionally by, and were throughout the relevant previous year beneficially held. 19. From perusal of the definition of Public Company as given in Section 3(iv) of the Companies Act, 1956, it is evident that where a private company which is a subsidiary of a Public Company, such private company shall also be considered to be a public company . 20. Coming to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Once a company is found to be not a private company as per the Companies Act, the same cannot be treated as a private company for the purposes of section 79 read with section 2(18) of the Act. Our view is fortified by the judgment of the Hon ble Supreme Court in Surana Steels (P) Limited VS DCIT Ors (1999) 237 ITR 777 (SC). 22. Therefore, according to Ld. AR since the assessee company s more than 50 per cent of the shares were held by a public company consequently M/s. BSEL (public company) became the holding company of the assessee-company. Therefore, it was explicit that the assessee-company, by fulfilling the requisite conditions, became a company in which the public were substantially interested as per the Companies Act. Once it was held that the assessee was a company in which the public were substantially interested, application of section 79 was automatically ruled out because this section applies only in the case of company, not being a company in which the public are substantially interested', And by virtue of doctrine of incorporation comes into play the definition of Private Company as per the companies Act has been as such incorporate into Section 2(18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich power is only for rectification of mistake which is apparent on the face of record. According to Ld. AR, the AO in the appellant's case has made assessment u/s 154 by invoking the provisions of section 79 of the Act. However, section 79 of the Act clearly excludes the company in which public are substantially interested, now in order to check the applicability of section 79, we need to see the definition of the company in which public are substantially interested, which is defined u/s 2(18) of the Act. Further section 3 of Companies Act, 1956 defines the company, Private company and public company, thus the issue in the appellant's case require interpretation of various sections, in order to see whether the provisions of section 79 is applicable on the appellant or not, and it indeed involves interpretation of various provisions of law. 25. Further, it is noted that there are various judicial precedents on the issue of applicability of provisions of Section 79 of the Act on change in shareholding within the Group and when there is no change in ultimate holding or management. Further, there are also various judicial precedents in which authorities tried to establish ..... 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