LexCOMMISSIONER OF INCOME-TAX, BOMBAY versus ITALINDIA COTTON CO. (P) LTD.
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A B c D E F 0 H COMMISSIONER OF INCOME-TAX, BOMBAY v. ITALINDIA COTTON CO. (P) LTD. SEPTEMBER 5, 1988 [R.S. PATHAK, CJ. AND MUKHARJI, J.] Income Tax Act, 1961-S. 79-Carry forward and set-off of loss incurred in .any earlier year against income of the relevant previous year-Conditions provided in els. (a) milt (b) of s. 79 operate in the alternative, not cumulatively. The respondent-assessee which had suffered a loss during the assessment year 1960-61, and whose share-holding had undergone a change subsequently, claimed a set-off.against the same in its assess- ment for the year 1963-64, but the Income-tax Officer turned it down on the ground thats. 79 of the Income-tax Act, 1961 dis-entitled the' asses- see from claiming such a set off since S 1 % of the voting power held by persons on the last day of the year in which the loss was suffered was no longer held by them on March 31, 1963. On appeal, the Appellate Assistant Commissioner held that before the right to set off a loss could be denied to an assessee, not only should there be a. change in the persons holding a voting power of not less than S 1 % but further the change should have been effected with a view to avoiding or reducing the liability to tax. On appeal by the Revenue, the Appellate Tribunal observed that the denial of the set off of a loss incurred in an earlier year was subject to two exceptions: (i) that the beneficial holding repre- senting not less than S 1 % of.the voting power should not change hands between the last day of the year in which the loss was incurred ;md the last day of the relevant previous year, and (ii) that any change in the share-holding should not have been effected with a view to avoiding or reducing any liability to tax; that these two exceptions applied indepen- dently, and if either came into play, the prohibition contained in s. 79 against the setting off of a loss could not be invoked by the Revenue. However, at the instance of the assessee, the Tribunal referred the following question to the High Court for its opinion: "Whether both the conditions mentioned in clause (a) and clause (b) of s. 79 must apply filr disentitling the loss of a prior year being allowed as set off in accordance with the substantive provisions of s. 79 of the Income-tax Act, 1961?" 814 C.I.T. v. ITALINDIA COTTON CO. 815 The High Court answered the question in favour of the assessee, hold· ing that even if a change in the voting power of not less than 51 % between the two relevant dates has taken place, for the Revenue to succeed, such change should be effected with a view to avoiding or reducing any liability to tax. Dismissing the appeal, HELD: In our opinion, to avoid falling within the scope of s. 79 it is sufficient for the assessee to show that the case attracts either cl.(a) or cl.(b). If the asse'ssee succeeds in doing so, he will be entitled to the benefit of the provisions of the Income Tax Act entitling him to claim a carry forward and set off losses suffered by the company in an earlier year or years against the income of the previous year. [820C-D] Section 79 is an exception to the scheme enacted in Chapter VI for A B c the carry forward and setting off of a loss incurred in any earlier year against the- income of the relevant previous year. The provision was enacted in the Income-tax Act, 1961 for the first time in order to deny D that benefit to companies not being companies in which the public are substantially interested. On its .Plain terms s. 79 provides that in the case of such companies, if a change in share-holding has taken place in a previous year, no loss incurred in any year prior to the previous year, shall be carried forward or set off against the income of the previous year unless (a) both on the last day of the previous year and on the last E day of the year or years in which the loss was incurred the shares of the company carrying not less than 51 per cent of the voting power were beneficially held by the same persons (b) the Income-tax Officer is satisfied that the change in the share holding was no! effected with a view to avoiding or reducing any liability to tax. The question before us is whether the two conditions operate cumulatively or in the alterna- F tive. In other words, should both conditions exist together to nullify the prohibition against carry forward and set off of the loss? Upon careful consideration we are of opinion tha
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