JUDGMENT
M.B. Shah, J.
1. Under section 256(1) of the Income-tax Act, 1961 (“the Act” for short), the Income-tax Appellant Tribunal, Ahmedabad, has referred the following questions for our opinion :
“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the provisions of section 79 of the Income-tax Act, 1961, were not attracted in the instant case and the assessee-company is entitled to the claim of set off of carried forward business losses of the assessment years 1969-70 and 1970-71 amounting to Rs. 1,37,916 against the income computed for the assessment year under consideration to the tune of Rs. 1,83,360 ?
2. Whether the finding of the Appellate Tribunal that the provisions of section 79 of the Act were not applicable and, consequently, the assessee was entitled to a set off of carried forward business losses of the assessment years 1969-70 and 1970-71 amounting to Rs. 1,37,916 against the income computed for the assessment year in question to the tune of Rs. 1,83,360 is correct in law and sustainable from the material on record ?”
2. For appreciating the aforesaid questions, it is necessary to set out a few facts. The assessee is a private limited company engaged in the business of cutting and processing of marble slabs and in doing job work. The Income-tax Officer noted that the assessee-comapny claimed set off of carried forward business losses of the assessment years 1969-70 and 1970-71 amounting to Rs. 2,62,658 against the income computed for the assessment year under consideration to the tune of Rs. 2,08,820. On scrutiny, he noted that there had been substantial changes in the shareholdings of the assessee-company and persons who had more than 50 per cent. of the total voting power as on the last day of the previous year relevant to the assessment years 1969-70 and 1970-71 ceased to be shareholders of the assessee-company in January, 1970. He, therefore, rejected the claim of the assessee.
3. In appeal, the Commissioner of Income-tax allowed the said claim by considering the facts that
(a) the company was controlled by two groups, namely, the Shah group and the Thakker group;
(b) up to February 22, 1970, the Shah group held 1,176 shares, while the Thakker group held 825 shares;
(c) the Shah group sold their shares to the members of the Thakker group and the shares of the face value of Rs. 100 changed hands at Rs. 10 on that date;
(d) Shah Construction Co. Ltd., a company controlled by the Shah group, owed to the applicant-assessee and amount of Rs. 7,30,372 for major marble job work.
4. Considering all these facts, the Commissioner arrived at the conclusion that it has not been established that the purpose of this change in ownership was to avoid or reducing any liability to tax. He, therefore, held that prima facie there is no reason for invoking the provisions of section 79 and denying the benefit to the assessee. This view of the Commissioner of Income-tax is confirmed by the Tribunal in appeal. The Tribunal observed that the provisions of section 79 were not applicable as there was no change in shareholding in the previous year because the relevant assessment year is 1975-76 whereas the change took place in the assessment year 1970. The Tribunal further observed that in the year 1971-72, the Income-tax Officer was convinced and has allowed the claim of the assessee for set off of carried forward loss. The Tribunal further held that the question involved in the matter was covered by the decision of this court in the case of CIT v. Shri Subhlaxmi Mills Ltd. [1983] 143 ITR 863.
5. At the time of hearing of this matter, the learned advocates for the parties submitted that the questions involved in this matter are Italindia Cotton Co.P.Ltd. [1988] 174 ITR 160. The relevant observations of the Supreme Court are as under (at page 164) :
“On its plain terms, section 79 provides that in the case of such companies, if a change in shareholding has taken place in a previous year, no loss incurred in any year prior to the previous year shall be carried forward or set off against the income of the previous year unless (a) both on the last day of the previous year and on the last day of the year or years in which the loss was incurred, the shares of the company carrying not less than 51 per cent. of the voting power were beneficially held by the same persons or (b) the Income-tax Officer is satisfied that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax. The question before us is whether the two conditions operate cumulative or in the alternative. In other words, should both conditions exist together to nullify the prohibition against carry forward and set off of the loss ? Upon careful consideration we are of the opinion that the conditions are intended to operate as alternative to one another. If the terms of either clause (a) or clause (b) are satisfied, the disqualification suffered by a company, by reason of a change in the shareholding in the previous year, is removed, and the company is entitled to the benefit of the provisions in Chapter VI relating to the carry forward and set off of losses. The benefit is available notwithstanding the change in the shareholding in the previous year, if shares representing not less than 51 per cent. of the voting power remain beneficially held by the same persons on the relevant date. similarly, the benefit is available notwithstanding the change in the shareholding in the previous year if the change was not effected with a view to avoiding or reducing any liability to tax.”
6. It should be noted that in the aforesaid case, the Supreme Court has approved the decision of this court in the case of Shri Subhlaxmi Mills Ltd. [1983] 143 ITR 863 which has been relied on by the Tribunal.
7. In view of the aforesaid settled legal position, in our view, the Tribunal was right in holding that the provisions of section 79 of the Act were not attracted in the instant case because the shares of the company were transferred in 1970 while the relevant assessment year is 1975-76 and for that there was no change in the previous year. Further, for the relevant year, i.e., 1971-72, the Income-tax Officer was convinced that the change in the shareholding was not effected with a view to avoiding or reducing any liability to tax. Hence, the assessee-company was entitled to set-off of carried forward business losses of the assessment years 1969-70 and 1970-71.
8. In the result, question Nos. 1 and 2 are answered in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs.