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Judgment
Gokal Chand Mital, J.—The Tribunal, Amritsar, has referred the following two common questions for the assessment years 1974-75 and 1976-77 for the opinion of this Court:
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of section 79(a) of the income tax Act, 1961, are attracted in the case?
Whether the Tribunal was correct in interpreting section 79(a) of the income tax Act, 1961, to mean that the change in the shareholding which was contemplated in the section was one which was found on the comparison between the position of voting power on the last date of the previous year for which the assessment was sought to be made and corresponding position of earlier year in which the loss was incurred which was claimed to be set off?
The aforesaid points arise out of the following decision taken by the Tribunal: We have carefully considered the rival contentions. In our opinion, the view canvassed on behalf of the assessee and accepted by the AAC about the applicability of section 79 is not correct. The change in the shareholding which is contemplated in section 79 is the one which is to be found on a comparison between the position of voting power on the last day of the previous year for which the assessment is sought to be made and the corresponding position of the earlier year in which loss was incurred which is claimed to be set off. In view of this we hold that provisions of section 79 will be attracted in this case. As far as the assessment year 1974-75 is concerned, there is a further consideration that the ITO has not applied his mind to clause (b) of section 79 before withdrawing the set off of the loss of the assessment year 1970-71. Section 79 provides that even if shares carrying 51 percent of the voting power ceased to be held by the same group, the section would not apply to the company, if the ITO is satisfied that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax. Thus, it follows that if the change in the shareholding was effected not with that object but with some other object in view, the section would not apply and the company''s right to carry forward and set off of the loss would not be lost even though the result of the change in the shareholding may be negation or reduction of tax liability. This crucial test having not been applied in addition to the voting power test by the ITO, his decision cannot be upheld. We set aside the findings of the AAC and the ITO in regard to the set off of loss for the assessment year 1970-71 in the assessment year 1974-75 and direct the ITO to dispose of this question afresh. The question of set off of the loss of the assessment year 1970-71 will also be relevant for the year 1976-77 if it is found by the ITO that the loss for the assessment year 1970-71 is admissible on further enquiring about the applicability of clause (b) of section 79 and such loss is not fully absorbed against the income of the intervening years. Thus, it will be appropriate to set aside the findings of the AAO and the ITO on this point for the assessment year 1976-77 as well and we direct the ITO to dispose of the issue afresh and in the light of his decision taken for the assessment year 1974-75. So far as the loss for the assessment year 1971-72 is concerned, we have already pointed out above that, that loss could be carried forward and set off in both the assessment years 1974-75 and 1976-77. The ITO will bear in mind these observations while disposing of this issue for the assessment years 1974-75 and 1976-77. It is not clear to us whether for the assessment year 1974-75, the assessee had also claimed the set off of loss for the assessment year 1971-72 in addition to the loss for the assessment year 1970-71. However, the ITO can go into this aspect at the time of fresh disposal of this issue.
After going through the facts of the case and keeping in view the findings recorded by the Tribunal which have been quoted above, we are of the opinion that the provisions of section 79(a) of the income tax Act, 1961 are clearly attracted. We are of the view that the Tribunal placed correct interpretation on the provisions of the aforesaid section. As a result, we answer both the questions in the affirmative, that is, in favour of the revenue and against the assessee with no order as to costs.