TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 836
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....e action of AO by disallowing the loss by invoking provisions of section 79 of the Act, when change in shareholding has taken place within the same Yash Birla Group. 3 That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) and AO was not justified and grossly erred in disallowing the loss by invoking provisions of section 79 of the Act being debatable issue as mistake apparent from record and passing the order u/s 154 of the Act. 4. Without prejudice to above: Ld. CIT(A) and AO was not justified and grossly erred in disallowing set-off of carried forward unabsorbed depreciation by invoking the provisions of section 79 of the Act." 3. Ground no. 3 is taken up first, 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 Sect....
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....ant facts and there are conflicting judicial precedents on the subject (not jurisdictional High Court on this issue). So it was a debatable issue which could not have been interfered by AO u/s 154 of the Act. The Ld. AR brought to our notice the relevant facts that assessee company issued new equity shares on 6.02.2012 and M/s. BSEL became major share holder of 86.67% Rs.3,27,15,000/- shares out of the total Rs.3,77,45,000/- shares (i.e. 86.67% refer page no. 26-27 shares holding pattern) which was held by them till 31.03.2012. [It is assessee's contention that by virtue of this share holding of 86.67% by M/s. BSEL which is a listed company, M/s. BEL i.e. assessee from date of issue (i.e. on 6.02.2012) till the 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 t....
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....bmitted that in any case, the control of the assessee company was always with the Yash Birla group, so question of section 79 of the Act does not arise and cited the case laws (i) Amco Power Systems Ltd. (2015) 379 ITR 375 (Kar) (ii) Select Holiday Resorts (P.) Ltd. (2013) 217 Taxman 110 (Delhi) and (iii) Wadhwa & Associates Realtors Pvt. Ltd. (ITA. No.967/Mum/2016 dated 14.02.2018). And as per Ld. AR, in any case, (alternative argument), section 79 bars carry forward and set off of "any loss incurred in any year prior to the previous year". Consequently, section 79 of the Act are not applicable to carry forward and set off of depreciation which is governed by Section 32(2) of the act and there is no restriction 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 ....
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....s out of the total 3,77,45,000 shares (ie. 86.67%) on 06.02.2012 which was continuously held by them till 31.03.2012. According to Ld. AR, as per the provisions of Section 2(18)(b) of the Act, since Birla Shloka Edutech Ltd. [M/s. BSEL) was a listed company and was holding more than 50% of the paid-up share capital of BEL/assessee company from the date of issue (ie. 06/02/2012) till the end of the financial year (ie. 31.03.2012)]. Hence, according to assessee i.e, BEL/assessee company needs to be termed as "a company in which public are substantially interested". Hence according to Ld. AR application of section 79 of the Act is automatically ruled out because this section applies only to Companies in 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....
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....lt 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 company in which the public are not substantially interested, then sec. 79 would apply. 14. Section 2(18) of the Act defines "company in which the public are substantially interested", the relevant part of which is as under: "(b) if it is a company which is not a private company as defined in the Comp....
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..... 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 the case, we note that in the assessee company, M/s. Birla Shloka Edutech Ltd. (BSEL) became major shareholder by holding 86.67% as on 06-02-2012, which was continuously held by it till the year end i.e. 31-03-2012. Thus according to Ld. AR, since BSEL (being a listed company) holds more than 50% of the paid up share....
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.... 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) of the Act, then the same meaning will apply to Section 2(18) of the Act and which interim would be applicable to Section 79 of the 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) o....
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...., 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 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 pro....