Director can’t be held as beneficial owner of shares in contrast to Sec. 79

Assessee claimed set off of brought forward business loss of Rs. 64. 11 lakh for assessment year 1998-99 against the income of the relevant year i.e. assessment year 2006-2007. The assessee company was asked to submit its shareholding pattern as on 3 1st March, 1998 and 31st March, 2006. From the shareholding pattern submitted by the assessee which has been reproduced in the assessment order, the A.O. observed that as on the year ending 1998 M/s. Concept Reality & Securities Limited held 1,22,280 equity shares, being 58.12% of the total capital.

When compared with the shareholding pattern as on 31st March, 2006, the Assessing Officer noted that the said M/s. Concept Reality & Securities Limited did not hold even a single share in the company. On being called upon to explain as to why the claim for set off of loss for assessment year 1998-99 against business income for the current year be not refused in view of the provisions of section 79, the assessee stated that change in shareholding of the company was only on account of rationalization of holdings of Shri D.Ramesh Tainwala and there was no substantial change in the ownership as a result thereof. During the course of assessment proceedings a further argument was advanced that the case of the assessee was covered within the meaning of proviso to section 79 which makes the mandate of the provision inapplicable where the shares were inter alia transferred to any relative of the shareholder by way of gift. It was stated that the shares were exchanged in the nature of cross gifts between the members of the Tainwala family. The Assessing Officer required the assessee to provide the details of shares gifted along with documentary evidence like registered gift deed, copy of balance sheet of persons giving and receiving gifts. No such detail was furnished by the assessee. Considering these facts, the Assessing Officer refused to allow set off of brought forward business loss amounting to Rs. 64. 11 lakh in relation to the assessment year 1998-99 against the income for the current year.

INCOME TAX APPELLATE TRIBUNAL , MUMBAI

ITA No.5120/Mum/2009 : Asst. Year 2006-2007

M/s.Tainwala Trading and Investments Company Limited

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