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Supreme Court holds that the carry forward losses of amalgamating cooperative societies cannot be claimed by amalgamated co-operative society
13 May 2014
B
Background
Facts of the case
Recently, the Supreme Court in the case of Rajasthan
1
R.S.S. & Ginning Mills Fed. Ltd. (the taxpayer) held that
since there is no specific provision for set off of carry
forward losses of amalgamating co-operative society by
amalgamated co-operative society, amalgamated cooperative society cannot claim the carry forward losses of
amalgamating co-operative societies. The Supreme Court
observed that Section 72A of the Income-tax Act, 1961
(the Act) provides for setting off losses on amalgamation
of companies only. Also if one class of legal entities is
given some benefit which is specifically stated in the Act,
it does not mean that the legal entities not referred to in
the Act would also get the same benefit. Thus Supreme
Court held that the amalgamated co-operative society
cannot claim set-off of losses of amalgamating cooperative societies.

There were four co-operative societies in the
State of Rajasthan (transferor societies)
wherein the Government of Rajasthan had
substantial shareholding.

The Rajasthan Government had taken decision to
amalgamate all the transferor societies into the
taxpayer.

All the assets and liabilities of the transferor
societies had been taken over by the taxpayer by
virtue of the amalgamation.

The transferor societies
accumulated losses.

The taxpayer had claimed transfer of such losses
and set-off of the same against its profits.

The Assessing Officer (AO) disallowed the
taxpayer's claim for set-off of the losses.

The taxpayer’s appeals were dismissed by all the
appellate authorities up to the High Court.
________________
1
Rajasthan R.S.S. & Ginning Mills Fed. Ltd. v. DCIT [2014] 45 taxmann.com (SC)
had
substantial
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Issue before the Supreme Court

Whether the amalgamated society could claim the setoff of losses of amalgamating co-operative societies
against its profits?

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. This
is permissible by virtue of section 72A of the Act
but there is no such provision in the case of cooperative societies in the Act.

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.

For claiming carry forward and set-off of losses,
there must be some provision in the Act.

Registration of the amalgamating societies had been
cancelled upon the amalgamation and as amalgamating
societies were not in existence at the time when the
taxpayer was assessed, there was no question of
carrying forward accumulated losses of the
amalgamating societies and adjusting them against the
profits of the taxpayer.
The societies and companies belong to different
classes. Simply because both have a distinct legal
personality, it could not be said that both ought to
have been given the same treatment. Simply
because one class of legal entities is 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 per the conjoint reading of Section 72 and 72A of the
Act only ‘company’ could avail the benefit of set off of
losses transferred pursuant to amalgamation.
Thus, the amalgamated society could not claim the
set-off of losses of transferor societies against its
profits. Therefore, the appeal was dismissed.
Our comments
Taxpayer’s contentions

Thus, 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.
By virtue of the provisions of Section 16(8) of the
Rajasthan Co-operative Societies Act, rights and
obligations of the amalgamating societies would not be
affected and all the rights of the amalgamating societies
towards carrying forward of their losses would continue
and the taxpayer ought to have been permitted to set
off the losses suffered by the amalgamating societies.

The word 'company' used in Section 72(A) of the Act
should include societies in the term 'company' because
like companies, societies also have a distinct legal
personality and there is no reason for the authorities
under the Act to give different treatment to co-operative
societies.

The taxpayer had a vested right to get the accumulated
losses of the amalgamating societies adjusted against
the profits of the taxpayer as held by the Supreme
2
Court in the case of Shah Sadiq and Sons .
Tax department’s contentions



The tax statute should be interpreted very strictly as
there is no equity in tax matters and nothing can be
read which is not in the section.
The Supreme Court has re-iterated the principal of
strict interpretation and non-existence of equity in tax
law interpretation.
Supreme Court’s ruling

The Supreme Court did not agree with the argument of
the taxpayer about provisions of Section 16(8) of the
Rajasthan Co-operative Societies Act, 1965.

A non-existent person cannot file an income-tax return
and therefore, cannot carry forward its losses after its
existence ends. Transferor Societies, upon their
amalgamation into the taxpayer, had ceased to exist.
_______________
2
CIT v. Shah Sadiq and Sons [1987] 166 ITR 102 (SC)
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