2014 (5) TMI 160 - SC - Income Tax

Co-operative society cannot carry forward losses from amalgamating societies as no specific provision exists in Income Tax Act

Rajasthan RSS. & Ginning Mills Fed. Ltd. Versus Dy. Commissioner of income Tax, Jaipur

The SC dismissed an appeal by an amalgamated co-operative society seeking to carry forward and set off accumulated losses of amalgamating societies ... Interpretation of provisions regarding carrying forward and setting off accumulated losses of amalgamating societies against profits of the amalgamated society - Set off of losses u/s 72 of the Act - Amalgamation of societies – Societies in existence or not – violation of Article 14 of the Constitution of India - Held that:- The main submission of the learned counsel appearing for the appellant society was that the appellant society, being an amalgamated society, must get benefit of setting off losses of the co-operative societies which had been amalgamated into the appellant society. According to him by virtue of the provisions of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965, read with Sections 72 and 72(A) of the Act, the accumulated losses of the amalgamating societies should have been permitted to be adjusted or set off against the profits of the appellant society. His main submission was that by virtue of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965 all legal proceedings initiated against or by the amalgamating co-operative societies would continue and therefore, right of the amalgamating societies with regard to getting their losses carried forward and set off against the profits of the amalgamated society would continue. We are not in agreement with the submissions made by the learned counsel appearing for the appellant for the reason that for the purpose of getting carried forward losses adjusted or set off against the profits of subsequent years, there must be some provision in the Act. If there is no provision, the societies which are not in existence cannot get any benefit. The losses were suffered by the societies which were in existence at the relevant time and their existence or legal personality had come to an end upon being amalgamated into another society. The normal principle is that a non-existent person cannot file an income tax return and therefore, cannot carry forward its losses after its existence comes to an end. All those four societies, upon their amalgamation into the appellant society, had ceased to exist and registration of those societies had been cancelled. In the circumstances, those societies had no right under the provisions of the Act to file a return to get their earlier losses adjusted against the income of a different legal personality i.e. the appellant society. So far as companies are concerned, there is a specific provision in the Act that upon amalgamation of one company with another, losses of the amalgamating companies can be carried forward and the amalgamated company can get those losses set off against its profits subject to the provisions of the Act. This is permissible by virtue of Section 72 A of the Act but there is no such provision in the case of co-operative societies. It is pertinent to note that such a provision has been made only with regard to amalgamation of companies and later on similar provisions were made with regard to banks, etc., but at the relevant time there was no such provision which would permit the amalgamating co-operative society to carry forward and adjust such losses against the profits of the amalgamated co-operative society. We are also of the view that in all the tax matters one has to interpret taxation statute strictly. Simply because one class of legal entities are given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. As stated by this Court on several occasions, there is no equity in matters of taxation. One cannot read into a section which has not been specifically provided for and therefore, we do not agree with the submissions of the learned counsel appearing for the appellant and we are not prepared to read something in the section which has not been provided for. Thus, the appeal is dismissed Issues:1. Interpretation of provisions regarding carrying forward and setting off accumulated losses of amalgamating societies against profits of the amalgamated society.2. Application of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965 in conjunction with Sections 72 and 72(A) of the Income Tax Act, 1961.3. Comparison of treatment of companies and co-operative societies in tax matters.4. Consideration of discrimination and violation of Article 14 of the Constitution of India.Analysis:1. The appeal concerned the interpretation of provisions allowing the carrying forward and setting off of accumulated losses of amalgamating societies against the profits of the amalgamated society. The appellant, a co-operative society formed by the amalgamation of four other societies, sought to utilize the losses of the amalgamating societies for set off against its profits under Section 72 of the Income Tax Act, 1961.2. The appellant argued that Section 16(8) of the Rajasthan Co-operative Societies Act, 1965, which states that rights and obligations of amalgamated societies remain unaffected, should allow for the continuation of the right to carry forward losses. The appellant's counsel contended that a strict interpretation of the tax statute should include co-operative societies under the term 'company' to avail similar benefits.3. However, the respondent authorities maintained that since the amalgamating societies ceased to exist upon amalgamation, they could not carry forward their losses for set off against the profits of the appellant society. They emphasized the specific provisions in the Income Tax Act for companies regarding amalgamation and set off, highlighting the absence of similar provisions for co-operative societies.4. The Court held that there was no provision in the Act allowing co-operative societies to carry forward and set off losses of amalgamating societies. It differentiated between treatment of companies and co-operative societies in tax matters, citing the absence of specific provisions for the latter. The Court rejected claims of discrimination, stating that different legal entities are treated differently based on their classification.5. Ultimately, the Court dismissed the appeal, emphasizing the need for strict interpretation of tax statutes and the absence of equity in tax matters. It concluded that the appellant society could not benefit from carrying forward losses of amalgamating societies due to the lack of statutory provisions permitting such set off, as supported by previous judgments emphasizing the need for explicit statutory provisions in tax matters.Judgment Summary:The Supreme Court dismissed the appeal by a co-operative society seeking to set off losses of amalgamating societies against its profits. The Court held that the absence of specific provisions in the Income Tax Act for co-operative societies prevented the appellant from availing the benefit of carrying forward losses. Emphasizing the need for strict interpretation of tax statutes and the lack of equity in tax matters, the Court upheld the decision that co-operative societies cannot benefit from set off provisions applicable to companies.