TaxTMI 
TaxTMI 
1988 (9) TMI 1
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.... three groups of shareholders, who may be described as the Chunilal Group, the Babubhai Group and the Purushottam Group. There was a change in the shareholding of the three companies during the accounting year ending March 31, 1963. The Chunilal Group acquired controlling interest in India Corporation P. Ltd., the Babubhai Group acquired controlling interest in the assessee-company and the Purushottam Group acquired controlling interest in International Cotton P. Ltd. The assessee suffered a loss in the accounting year ending March 31, 1960, relevant to the assessment year 1960-61, in the amount of Rs. 12,172. This was available for set-off in a subsequent year. But, having regard to the change in the shareholding of the assessee during ....
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....d with a view to avoiding or reducing any liability to tax. According to the Tribunal, the two exceptions applied independently, and if either came into play, the prohibition contained in section 79 against the setting off of a loss could be invoked by the Revenue. It appears to have been admitted before the Tribunal that the assessee was not entitled to the benefit of the first exception, and in the view which it took it rendered no definite finding on whether the assessee fell within the terms of the second exception. At the instance of the assessee, the Tribunal referred the following question to the Bombay High Court for its opinion (at p. 61 of 113 ITR) "Whether both the conditions mentioned in clause (a) and clause (b) of sectio....
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....his Chapter, where change in shareholding has taken place in a previous year in the case of company, not being a company in which the public are substantially interested, 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 (a) on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent. of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent. of the voting power on the last day of the year or years in which the loss was incurred ; or (b) the Income-tax Officer is satisfied that the change in the shareholding was not effecte....
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....) or clause (b) are satisfied, the disqualification suffered by a company, by reason of a change in the shareholding in the previous year, is removed, and the company is entitled to the benefit of the provisions in Chapter VI relating to the carry forward and set-off of losses. The benefit is available notwithstanding the change in the shareholding in the previous year, if shares representing not less than 51% of the voting power remain beneficially held by the same persons on the relevant dates. Similarly, the benefit is available notwithstanding the change in the shareholding in the previous year if the change was not effected with a view to avoiding or reducing any liability to tax. The object sought to be served by enacting section 7....
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....n be a case where persons already owning a shareholding carrying less than 51 per cent. of the voting power in the company may enlarge their shareholding during the previous year in order that control over the company may pass to them. Attempts to acquire control over a company by controlling a majority of the shareholding are not unknown. The acquisition of control over a company provides source of both direct and indirect financial benefit 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 th....