Pathak, C. J. - (1.) This appeal by special leave is directed against the judgment of the Bombay High Court construing the provisions of S. 79 of the Income-tax Act, 1961 in favour of the assessee.
(2.) Three private limited companies, the Italindia Cotton Co. (P.) Ltd., who is the assessee before us, the India Corporation (P) Ltd. and the International Cotton (P) Ltd. were controlled by three groups of share holders, who may be described as the Chunilal Group, the Babubhai Group and the Purushottam Group. There was a change in the share holding of the three companies during the accounting year ending 31 March, 1963. The Chunilal Group acquired controlling interest in India Corporation (P) Ltd., the Babubhai group acquired controlling interest in the assessee company and the Purushottam Group acquired controlling interest in International Cotton (P) Ltd.
(3.) The assessee suffered a loss in the accounting year ending 31 March 1960, relevant to the assessment year 1960-61, in the amount of Rs. 12,172/-. This was available for a set-off in a subsequent year. But having regard to the change in the share-holding of the assessee during the accounting year ending 31 March, 1963 relevant to the assessment year 1963-64, the question arose whether the assessee was entitled to the benefit of carrying forward that loss for the purpose of computing its assessable profits for that assessment year. The Income-tax Officer held that S. 79 of the Income-tax Act, 1961 disentitled. the assessee from claiming such a set-off. He said that 51% 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 31 March, 1963. On appeal by the assessee, the appellate Assistant Commissioner of Income-tax took a different view. He 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 51% but further the change should have been effected with a view to avoiding or reducing the liability to tax. The Revenue appealed to the Income-tax Appellate Tribunal. Upon an analysis of S. 79 the Tribunal observed that the denial of the set off of a loss incurred in an earlier year was subject to two exceptions, the first being that the beneficial holding representing not less than 51% of the voting power should not change hands between the last day of the year in which the loss was incurred and the last day of the relevant previous year, and the second exception was that any change in the share holding contemplated by the parent provision should not have been effected with a view to avoiding or reducing any liability to tax. According to the Tribunal the two exceptions applied independently, 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. It appears to have been admitted before the Tribunal that the assessee was not entitled to the benefit of the first exception, and in the view which it took it rendered no definite finding on whether the assessee fell within the terms of the second exception.;