2013 (10) TMI 1568

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....t. 3. Briefly stated facts of the case are that during the course of scrutiny assessment proceedings the Assessing Officer noticed that the assessee has set off brought forward losses. The Assessing Officer further noticed that there was a change in the share holding pattern of the assessee company. The Assessing Officer was of the firm belief that the claim of the set off of brought forward losses is in contravention of the provisions of section 79 of the Act. The Assessing Officer sought explanation from the assessee as to why not the set off of brought forward loss be disallowed in the year under consideration. The assessee filed a detailed reply. The relevant part is exhibited at page 3 & 4 of the assessment order. The Assessing Offi....

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.... of the company though apparently it is within the same group but the fact remain that there was a change of the shareholding pattern. 51% or more of the equity share was not held beneficially be person who beneficially held shares of the company carrying not less than 51% of voting power on the last day of the year in which the loss was incurred. There is no concept of presuming that the company is not a separate legal entity and can be construed to be same as that of an individual or for the matter a shareholder. The company is an artificial juridical person as defined in Section 2(31) of the Act. Therefore, the assessee's contention that the shareholding pattern has not changed cannot accepted, the provision of section 79 are clearly app....

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....s. Let us first consider the share holding pattern during the year under consideration and during the year of losses. Sr. No Name of the shareholder % of shareholding in F.Y. 06-07 (A.Y. 07-08) % of shareholding in F.Y. 06-07 (A.Y. 07-08) 1 Shailesh Sangani 10% 12.6% 2 Joel Cardoso 10% 0.4% 3 Priority Marketing Pvt. Ltd. 80% 3.2%   4 Manisha Sangani 0% 48.8% 5 Alefiya Khorakiwala  0% 14% 6 Sherebanu Khorakiwala 0% 14% 7 Shabbir Khorakiwala 0%  7% Now let us consider this share holding pattern in the light of the relevant portion of section 79  "79. Notwithstanding anything contained in this Chapter, where a change ....

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....ion of law that a company is a distinct legal entity and its identity is separate from the identity of its share holders/members. Let us take an example. X Ltd holds 51% shares in Y Ltd., this does not mean that the share holders of X Ltd hold 51% shares in Y Ltd. because X Ltd, Y Ltd and the share holders are all distinct and separate persons. In the case under consideration Priority One Marketing Pvt. Ltd., which was holding 80% shares is now holding only 3.2% shares. Mrs. Manisha Sanghani, who was not holding any share, is now holding 48.8% shares. It may be that Mrs. Manisha Sanghani was controlling the shares of Priority One Marketing Pvt. Ltd., but being a separate legal entity, it cannot be construed that the shareholding pattern has....