Case Law Details
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
Vs.
The Asstt. Commissioner of Income-tax
Date of Pronouncement : 06.06.2012
O R D E R
Per R.S.Syal, AM :
This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 06.08.2009 , in relation to the assessment year 2006-2007.
2. The only ground is against not allowing set off of brought forward business loss of Rs. 64,11,031 relating to assessment year 1998-99 against the business income for the current year on the ground that there was change in shareholding of the company in terms of section 79 of the Act.
3. Briefly stated the facts of the case are that the 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 3 1st 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. Before the learned CIT(A) it was contended on behalf of the assessee that the Assessing Officer did not give adequate time to the assessee for presenting the necessary details depicting the non-applicability of the provisions of section 79. The learned CIT(A) called for remand report from the A.O. and after considering the assessee’s submissions, upheld the assessment order on this issue.
4. We have heard the rival submissions and perused the relevant material on record. The first contention raised on behalf of the assessee is that there was no change in the shareholding pattern of the company within the meaning of section 79 because Shri D.Ramesh Tainwala is director in M/s. Concept Reality & Securities Limited, which company initially held 58.12% share in the assessee-company as on the year ending 1998 and subsequently some part of the shares in the assessee company were transferred to the individual name of Shri D.Ramesh Tainwala. It was emphasized that even in the year ending 1998, the assessee was beneficial owner of the shares, though standing in the name of M/s. Concept Reality & Securities Limited, which position did not change as on 31.03.2006 because of Shri D.Ramesh Tainwala holding the shares in his personal name at such later date.
5. We are not impressed with this submission for the reason that the provisions of section 79 do not apply to a company in which public are substantially interested. In other words, this section applies to the companies which are closely held. The mandate of the provision is to disallow the amount of brought forward business loss against the income of a later year if there is change in the shareholding pattern of more than the prescribed percentage. This section provides that : “Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a 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….”. From the prescription of this section, it is obvious that if there is change in the shareholder pattern, 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. However it is relevant to note that it is not any nominal change in the shareholding pattern which works to the detriment of the company. This provision prohibiting set off applies only when there is change in the share holding pattern by not less than 51% of the voting power beneficially held. The learned AR has over emphasized on the argument that there be considered no change in the shareholding pattern of the company because the shares which were initially held by Shri D.Ramesh Tainwala through M/s. Concept Reality & Securities Limited were partly transferred to him in his individual name. This transfer of shares from M/s. Concept Reality & Securities Limited to Shri D.Ramesh Tainwala has been canvassed as not leading to any change in the beneficial ownership of the shares. This contention is bereft of any force. It is axiomatic that a company is a separate legal entity distinct from its shareholders. It is impermissible to argue that the assets of a company are assets of the shareholders, except in the case of its liquidation and that too, to the extent of the amount remaining after the discharge of outside liabilities. If the shareholders of the company are treated as one and the same thing as is a company, then the very concept of separate legal entity comes to naught. A person is said to be a beneficial owner of shares when they are held by someone else on his behalf, meaning thereby that the registered owner is different from the actual or the beneficial owner. Where the shares are not so held by one for and on behalf of another, the concept of beneficial ownership cannot be invoked. In the case before us, it is M/s Concept Reality & Securities Limited which held shares of the assessee-company on its own behalf. It was this company which was the beneficial as well as the registered owner of shares in the assessee company. As admittedly the shareholding of M/s Concept Realty was reduced to nil as on 31st March, 2006 as against more than 51% of the shareholding of the assessee company as on the year ending 31.3.998, in our considered opinion, the necessary condition for invoking the provisions of section 79 was rightly activated. For these reasons we uphold the impugned order on this issue.
6. It is noticed that though the assessee initially raised the theory of cross gifts between the family members of Shri Ramesh Tainwala, but no evidence was adduced as called for by the Assessing Officer in this regard. The position remained the same before the learned CIT(A) as well as us. In the absence of any supporting evidence to show the making of cross gifts, we find that this contention was raised before the A.O. simply to claim the benefit of the exception clause, which the assessee could not take to logical conclusion. The learned AR did not even argue on the question of cross gifts, what to talk of leading any evidence in support of this contention. This argument taken before the lower authorities is, therefore, dismissed as not supporting the case of the assessee.
7. The learned Counsel for the assessee took another argument on the same aspect by stating that notwithstanding its main argument about no change in the shareholding of the company as per the provisions of section 79, the A.O. was not competent to forbid the set off of the brought toward business loss for A.Y. 1998-99 against the business income for the current year because the so called change in the shareholding pattern took place in an earlier year and not the previous year relevant to the assessment year under consideration. In support of this argument, he filed some additional evidence to demonstrate that the change took place in an earlier year. On a pertinent query from the Bench, it was fairly conceded that this argument was not specifically taken before the lower authorities. He however accentuated that it, being a legal issue, can be taken up at any stage of the proceedings.
8. It is noticed that the contention now raised before us has been taken for the first time. Further since it is a legal issue, there can be no difficulty in accepting it for consideration. However, in order to appreciate the contention on this aspect, there is a dire need to go through the additional evidence which has been placed before us for the first time. Such additional evidence as well as this argument were admittedly not before the authorities below. Having regard to the facts of the instant case and without going into the acceptability or otherwise of the contention raised on behalf of the assessee on this issue, we are of the considered opinion that it will be in the fitness of things if this aspect is sent back to the AO for taking a fresh decision after considering all the relevant material, which the assessee wants to file in support of it. We order accordingly and direct the AO to decide this issue afresh as per law. It is made clear that no contention made by the ld. AR or any observation made by us in this regard while recording the contention of the assessee, should be considered as approval of what has been canvassed before us now. In other words, the issue is large open before the AO.
9. In the result, the appeal is partly allowed for statistical purposes. Order pronounced on this 06th day of June, 2012.
