Commissioner of Income Tax vs Hindustan Electrical Pvt. Ltd.

T.D. Sugla, J.—In this Departmental reference relating to the assessee''s assessment for the asst. yr. 1969-70, the Income Tax Appellate Tribunal has referred to this Court the following questions of law for opinion under s. 256(1) of the IT Act, 1961 :

"1. Whether, conditions in cls. (a) and (b) of s. 79 of IT Act, 1961 are cumulative or alternative ?

If they are held to be alternative, then whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of s. 79 were not attracted to the assessee''s case and the assessee was entitled to set off the carried forward loss in the year under reference ?

When the reference was called out for hearing, none was present on behalf of the respondent-assessee. Shri Jetly, the learned counsel for the Revenue was not able to furnish evidence of service. Since, however, we find that the reference is to be answered in favour of the assessee, we decided to proceed with the reference.

So far as question No. 1 is concerned, it is covered by the Supreme Court''s decision in the case of Commissioner of Income Tax, Bombay Vs. Italindia Cotton Co. (P) Ltd., in which the Supreme Court confirmed our High Court''s Judgment in Italindia Cotton Co. P. Ltd. Vs. Commissioner of Income Tax, . The result is that cls. (a) and (b) of s. 79 of IT Act, 1961 which apply to a company, which is not a company in which the public are substantially interested, are intended to operate as alternative to one another. If the terms of either cl. (a) or cl. (b) are satisfied, the disqualification suffered by the company, by reason of a change in shareholding in the relevant previous year, is removed and the company is entitled to the benefit of the provisions relating to carry forward and set-off of losses. So far as the second question is concerned, the Tribunal has given a categorical finding that the transfer of the shares was bona fide and was not at all with a view to avoid or reduce liability to tax. We have, therefore, no difficulty in holding that cl. (b) was satisfied in this case and assessee was entitled to carry forward and set-off of losses.

Accordingly, we answer the questions thus :

The condition in cls. (a) and (b) of s. 79 are alternative and the Tribunal was right in holding that the assessee was entitled to set off the carried forward loss in the year under reference.

No order as to costs.