By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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New Page 2
9 (2008) 117 TTJ 721 (Mum.) (TM)
Mahindra Holdings & Finance Ltd. v. ITO
ITA Nos. 5319 & 6074 (Mum.) of 2004
A.Ys. : 2000-01 and 2001-02. Dated : 23-6-2008
S. 67A of the Income-tax Act, 1961 — Share of loss of company
in an AOP could be set off against other income of the company.
For the relevant year, the assessee-company, which was a
member of an AOP, set off its share of loss from the AOP against its other
income. The claim of the assessee was rejected by the Assessing Officer on the
following grounds :
- that S. 67A is not applicable in the assessee’s case.
- the provisions of S. 67A can only be applied in those cases where a member of
an AOP or a BOI is not a company or a co-operative society or a society
registered under the Societies Registration Act.
- since the assessee is a company, its total income cannot be computed as per
provisions of S. 67A and as such, the loss booked by the assessee cannot be
allowed to be set off against the other income of the assessee.
The CIT(A) also disallowed the assessee’s claim.
Since there was a difference of opinion between the members,
the matter was referred to the Third Member u/s.255(4).
The Third Member, relying on the decision in the case of
CIT v. Salem District Urban Bank Ltd., (1940) 8 ITR 269 (Mad.), held in
favour of the assessee. The Third Member noted as under :
(a) The purpose of S. 67A is to compute the share of
income/loss in the AOP/BOI. If all the provisions are read together, the
entities specified in the parenthesis in S. 67A would qualify the AOP/BOI and
not the member of such AOP/BOI.
(b) Reference to S. 2(17) indicates that the expression
‘AOP’ includes a company or a cooperative society or a society mentioned in
parenthesis in S. 67A.
(c) The purpose of S. 67A is to determine the share of
income/loss in the profits/losses of the AOP since share is to be included in
the income of the member of AOP for rate purpose as per the provisions of S.
86. However, in the case of a company, cooperative society or society, the
income is not apportioned amongst the members constituting these entities.
Such entities may have income, but may not declare dividend and thus nothing
would be includible in the income of the members of such entities. On the
other hand, these entities may not have income, still they may declare
dividend out of their accumulated profits. Therefore, despite there being no
income in the hands of such entities, the dividend declared by them would be
assessable as income in the hands of members. Therefore, considering the
different schemes of taxation in respect of income received by members from
such entities, the Legislature has excluded these entities from the ambit of
the expression ‘AOP/BOI’.
(d) Had the Legislature not excluded the entities specified
in the parenthesis, it would have resulted in double taxation — once as per
share determined u/s.67A read with S. 86, and again when dividend income is
distributed by such entities to its members.
(e) If the contention of the Revenue is accepted, then it
will lead to absurd result not intended by the Legislature and also will be
detrimental to the interest of the Revenue itself. If it is held that the
words in the parenthesis qualify the word ‘member’ and not the AOP/BOI, then
the company or a cooperative society or a society or other entities in the
parenthesis would not be liable to pay any tax in respect of their share of
income in the AOP/BOI as per the provisions of S. 86, even though such share
of income is includible in the total income. In such cases, the companies or
societies by themselves may not carry on any business and may form various
AOPs/BOIs and may get away by paying lesser rate of tax on such AOP/BOI, since
AOP/BOI (having members whose shares are determinate or known) would be
chargeable to normal rate of tax applicable to individuals. The interpretation
put forth by the Revenue would give birth to legal device for evading the tax
by the entities specified in the parenthesis. Such absurd result could never
have been intended by the Legislature.
(f) It is a well-settled rule of interpretation that
provisions of a statute should be interpreted in a manner which augments the
object behind the legislation and not in a manner which frustrates the object.
