By TIOL News Service

NEW DELHI, MAY 01, 2014: THE issues before the Apex Court are - Whether a non-existent 'person' can also file return of income as per the I-T Act; Whether losses can be carried forward even if the legal personality of an entity gets extinguished and Whether when societies and companies belong to different classes they must be given equal treatment under the I-T Act merely because they both have a distinct legal personaltiy. And the verdict goes against the assessee.

Facts of the case

The assessee is a co-operative society. There were four co-operative societies in the State of Rajasthan wherein the Government of Rajasthan had substantial share holding, namely - (i) Rajasthan Co-operative Spinning Mills Ltd.; (ii) Gangapur Co-operative Spinning Mills Ltd.; (iii) Ganganagar Co-operative Spinning Mills Ltd.; and (iv) Gulabpura Cotton Ginning & Pressing Sahkari Samiti Ltd. An administrative decision was taken by the Government of Rajasthan to amalgamate all the aforestated co-operative societies into the assessee co- operative society, namely Rajasthan Rajya Sahkari Spinning & Ginning Mills Federation Ltd w.e.f. 01.01.1993.

Upon amalgamation of the said societies into the appellant society, the registration of the said four co-operative societies had been cancelled and all the assets and liabilities of the said four societies had been taken over by the assessee society. The aforestated four societies were not sound financially and they had substantial accumulative losses. After the amalgamation of the four co-operative societies into the assessee society, when Income-Tax returns for the assessment years 1994-95 and 1995-96 were filed by the assessee society, which wanted to get the accumulated losses of the aforestated societies, of about Rs.2,68,39,504/-, carried forward, so that the same could be set off against its profits under the provisions of Section 72 of the Income Tax Act, 1961.

The assessing officer negatived the claim for the reason that the said societies were not in existence after their amalgamation into the assessee society. As the said four societies were not in existence, according to the assessing officer, their accumulated losses could not have been carried forward or adjusted against the profits of the assessee society. Assessment orders were passed accordingly.

The CIT(A) and the Tribunal both dismissed the assessee's appeals. The Rajasthan High Court also dismissed its appeal.

On appeal to the Apex Court the counsel for the assessee submitted that the assessing officer and the authorities below, confirming the view taken by the assessing officer, were not correct for the reason that upon amalgamation of the four co-operative societies into the assessee society, by virtue of the provisions of Section 16(8) of the Rajasthan Co- operative Societies Act, rights and obligations of the societies so amalgamated would not be affected and therefore, all the rights which the societies had with regard to carrying forward of their losses would continue, and as the said societies had been amalgamated into the assessee society, which ought to have been permitted to set off the losses suffered by the amalgamated societies.

He had further submitted that the word ‘company’ used in Section 72(A) of the Act should be given wide interpretation so as to include societies in the term ‘company’ because like companies, societies also have a distinct legal personality and there was no reason for the authorities under the Act to give different treatment to co-operative societies.

On the other hand, the counsel for the Revenue submitted that the concurrent findings of the fact, and the views expressed by all the authorities below and the High Court were absolutely correct and therefore, the impugned judgment did not require any interference. It had been submitted by him that the registration of the amalgamating societies had been cancelled upon the amalgamation and as they were not in existence at the time when the appellant society was assessed, there was no question of carrying forward accumulated losses of the amalgamating societies and adjusting them against the profits of the appellant society.

Having heard the parties the Bench held that,

++ we had heard the counsel and had also perused records pertaining to the case and had also gone through the judgments referred to by them, and upon hearing them we are of the view that the judgment delivered by the High Court is absolutely just and proper;

++ the main submission of the counsel for the assessee society was that the society, being an amalgamated society, must get benefit of setting off losses of the co-operative societies which had been amalgamated into the appellant society. According to him by virtue of the provisions of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965, read with Sections 72 and 72(A) of the Act, the accumulated losses of the amalgamating societies should have been permitted to be adjusted or set off against the profits of the appellant society. His main submission was that by virtue of Section 16(8) of the Rajasthan Co-operative Societies Act, 1965 all legal proceedings initiated against or by the amalgamating co-operative societies would continue and therefore, right of the amalgamating societies with regard to getting their losses carried forward and set off against the profits of the amalgamated society would continue;

++ we are not in agreement with the submissions made by the counsel for the assessee for the reason that for the purpose of getting carried forward losses adjusted or set off against the profits of subsequent years, there must be some provision in the Act. If there is no provision, the societies which are not in existence cannot get any benefit. The losses were suffered by the societies which were in existence at the relevant time and their existence or legal personality had come to an end upon being amalgamated into another society;

++ the normal principle is that a non-existent person cannot file an income tax return and therefore, cannot carry forward its losses after its existence comes to an end. All those four societies, upon their amalgamation into the assessee society, had ceased to exist and registration of those societies had been cancelled. In the circumstances, those societies had no right under the provisions of the Act to file a return to get their earlier losses adjusted against the income of a different legal personality i.e. the assessee society;

++ so far as companies are concerned, there is a specific provision in the Act that upon amalgamation of one company with another, losses of the amalgamating companies can be carried forward and the amalgamated company can get those losses set off against its profits subject to the provisions of the Act. This is permissible by virtue of Section 72 A of the Act but there is no such provision in the case of co-operative societies;

++ it is pertinent to note that such a provision has been made only with regard to amalgamation of companies and later on similar provisions were made with regard to banks, etc., but at the relevant time there was no such provision which would permit the amalgamating co-operative society to carry forward and adjust such losses against the profits of the amalgamated co-operative society;

++ the submission made by the counsel with regard to discrimination and violation of Article 14 of the Constitution of India would also not help the assessee, as in our opinion, there is no discrimination. The societies and companies belong to different classes and simply because both have a distinct legal personality, it cannot be said that both must be given the same treatment;

++ we agree with the view expressed by the High Court that as there is no provision under the Act for setting off accumulated losses of the amalgamating societies against the profits of the amalgamated society, the assessee society could not have got the benefit of carrying forward losses of the erstwhile societies which were not in existence during the relevant Assessment Year;

++ we are also of the view that in all the tax matters one has to interpret taxation statute strictly. Simply because one class of legal entities are given some benefit which is specifically stated in the Act does not mean that the legal entities not referred to in the Act would also get the same benefit. As stated by this Court on several occasions, there is no equity in matters of taxation. One cannot read into a section which has not been specifically provided for and therefore, we do not agree with the submissions of the counsel and we are not prepared to read something in the section which has not been provided for. The judgments referred to hereinabove support the view which we have expressed here.

(See 2014-TIOL-52-SC-IT)