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TMI Blog2022 (2) TMI 1325X X X X Extracts X X X X X X X X Extracts X X X X ..... tical set of facts, therefore, we are taking the appeal for AY 2013-14 and our finding given therein will apply mutatis mutandis for the AY 2014-15. 4. The facts in brief are that WSP CIL is a Private Limited company incorporated in India on 18 March 2004 under the Companies Act, 1956. It is a wholly owned subsidiary of WSP GRP Cyprus Holding Limited ('WSP Cyprus') and is engaged in providing support services with respect to Engineering Design Services ('EDS') to property, environment, transport and in frastructure sectors to its customers in India. Assessee company had set off brought forward losses amounting to Rs.2,06,23,906/- and Rs.2,47,45,573/- in AYs 2013-14 & 2014-15 respectively pertaining to AY 2012-13. Assessing Officer noted that in the annual report, there was related party disclosure which is reproduced as under :- Related party disclosure a) Parties where control exits :Holding Company - WSP GRP Cyprus Holding Ltd. Intermediate Holding Company - WSP Group Plc, UK (wef August 01, 2012) Ultimate Holding Company - WSP Group Plc, UK (up to July 31, 2012) WSP Global Inc (wef - August 01, 2013. 5. Further, Assessing Officer in his search of annual rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and after noting the shareholding pattern, held that through-out the holding company was WSP Cyprus and the change in ultimate holding company form WSP UK does not affect the shareholding of WSP Cyprus in the assessee company. Based on these facts and relying upon the principle laid down by Hon'ble Delhi High Court in the case of Yum Restaurants (India) (P.) Ltd. vs. ITO 66 taxmann.com 47, he observed and held as under :- "5.5 The Appellant in its submission has submitted that the shares of the Appellant were held by WSP Cyprus from 27 August 2007 and there was no change in the shareholding of the Appellant during financial year 2012-13, 2013-14 and 2014-15. The same is also evident from the financial statements furnished by the Appellant for the year ending March 2012, 2013 and 2014. The financial statements were provided in the paper-book filed by the Appellant. 5.6 Section 79 of the Act provides that, where a change in shareholding has taken place in a previous year in the case of the company not being a company in which public is substantially interested, no loss incurred in prior years shall be carried forward and set-off unless the shareholders beneficially carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a separate legal status from its shareholders and that the provisions of section 79 of the Act are clearly applicable when there is change in shareholding of more than 51 % in the year between the last day of the year of loss and the last day of the year of set off of such carried forward loss. The relevant observation of the Hon'ble tribunal is reproduced here below: " ... It is settled proposition of law that a company is a distinct legal entity and its identity is separate from the identity of its shareholders/members. Let us take an example. X Ltd holds 51% shares in Y Ltd., this does not mean that the shareholders of X Ltd hold 51% shares in Y Ltd. because X Ltd, Y Ltd and the shareholders are all distinct and separate persons .... " 5.11 Applying the ratio held by the Hon'ble ITAT in the above case, it cannot be held that merely because the shares of the Holding Company (which is WSP Cyprus in the instant case) were held by other shareholders, the said shareholders (i.e. ultimate shareholders) can be said to be the beneficial owner of shares of the Appellant. In fact there is nothing on record either in the impugned order or financial statement of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oting that if the losses are allowed to be carried forward and set off in the first year (i.e. there being no implication of section 79), then there cannot be any implication in a later year(s), arising on account of the same reason. In other words, if the losses are allowed to be carried forward and set-off in AY 2013-14 then the same should be allowed and set-off in AY 2014-15 and later years as well. Hence, the Ld. AO has erred in applying the provisions of section 79 of the Act by relying on the inadvertent remark made by the tax auditor in his report in AY 2014-15. In this regard, attention of the Hon'ble Bench is also invited to the certificate provided by the statutory auditors (refer page 179 of paperbook for AY 2014- 15), wherein it is duly provided that WSP Cyprus held 99.99% shares in the Assessee Company during financial year 2012-13 and 2013-14. Further, statutory auditor has also opined that section 79 of the Act is not applicable in the case of the Assessee Company as there is no change in immediate shareholding of the Company. (refer page 180 to 186 of paperbook for AY 2014-15) 2. As per Note 33 of the Financial Statements ('Related Party Disclosure', refer page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no implication of section 79 in AY 2013-14 in assessee company and consequently in AY 2014-15 also. We find that there was no change in the shareholding pattern of the assessee company and its immediate holding company is WSP Cyprus which continued to hold 99.9% of the shares which is evident from the following shareholding pattern :- Shareholder No. of equity shares held as on 31 March 2012 No.of equity shares held as on 31 March 2013 No.of equity shares held as on 31 March 2014 WSP GRP Cyprus Holding Limited 1,71,97,324 1,71,97,324 2,58,65,419 Percentage of shareholding 99.99% 99.99% 99.99% 10. Thus, in the year of incurrence of loss i.e. AY 2012-13 and as on the date of the previous year relevant to AY 2013-14 & 2014-15, there was no change in the shareholding pattern of the assessee company and it is the ultimate holding company. We find that the interpretation of the ld. CIT (A) is correct on facts and also on law in the ratio laid down by Hon'ble Delhi High Court in the case of Yum Restaurants (India) (P.) Ltd. which has also been followed by the ITAT Mumbai in the case of Just Lifestyle Pvt. Ltd. vs. DCIT in ITA No.2638/Mum/2012 as concluded in the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act, submitted that the said expense is not in the nature of capital expenditure or personal expenditure and the same was incurred in its course of business, hence, the same is duly allowable under section 37 of I.T. Act. 5.21 The Appellant relied on various judicial precedents wherein the similar expenditure was incurred by the assessee-company and the courts in the said cases held that the aforesaid expenditure was incurred wholly and exclusively for purpose of business and was to be allowed as business expenditure. 5.22 In various judicial precedents, the courts have held that expense incurred in relation to club fee shall be related to the business of the assessee, accordingly held as an allowable expense. Therefore, I find force in the argument of the Appellant and inclined to accept the submission. I delete the addition made by the AO in his order and allow the appeal of the Appellant on this ground." 14. The facts are that AO has disallowed amount of Rs.6,800/- in the name of the Director considering the said expenses personal in nature. Ld. CIT (A), after referring to various decisions, held that expenses in relation to club fee are to be treated as business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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