S.K. JAIN, J.M.: question of set off of losses under s. 79 of IT Act, 1961 (for brevity Act) is involved in this appeal of assessee-company against order of CIT (A) arising of assessment order for asst. yr. 1978-79. assessee-company had incurred losses in asst. yr. 1975-76. business loss and unabsorbed depreciation in asst. yr. 1975-76 were as follows: Balance loss Rs. 2,77,119 Unabsorbed depreciation for 1975-76 Rs. 2,494 Unabsorbed depreciation for 1974-75 Rs. 7,686 Rs. 2,87,299 Following was set off against income of asst. yr. 1976-77: Business loss of 1975-76 Rs. 95,647 Unabsorbed depreciation for asst. yr. 1974-75 Rs. 7,686 Rs. 1,03,333 balance of Rs. 1,53,966 (Rs. 2,87,299 - Rs. 1,03,333) consisting of balance of business loss of Rs. 1,81,472 relating to asst. yr. 1975-76 and unabsorbed depreciation of Rs. 2,04,074 relating to asst. yr. 1975-76, was required to be carried forward for set off against income in asst. yr. 1977- 78. dispute arose as to set off of losses against income in asst. yr. 1977-78 since in that year change in share holding of company had taken place. Guishanra group had no share-holding in assessee-company till 31st Aug., 1984 that is to say till end of previous year relevant to asst. yr. 1975-76. said group acquired 515 shares in asst. yr. 1976-77 and 1977- 78 and thus total share holding of said group (1936) out of total shares of company (2004) became more than 51 per cent in asst. yr. 1977-78. ITO while framing assessment for asst. yr. 1977-78, was of view that assessee-company was not entitled to set off of losses since shares in said company carrying not less that 51 per cent of voting power were not beneficially held by one and same person and persons, both on last day of year in which loss arose and also on last day of accounting year in which brought forward loss was to be adjusted. Thus cl. (A) of s. 79 was attracted. According to him cls. (a) & (b) of s. 79 are independent of each other and, therefore, application of one of them was enough to shut out claim of assessee for setting off of losses. He, therefore, did not examine if cl. (b) was also applicable in instant case. assessee took up matter in appeal before CIT (A) who following decision of Hon'ble Bombay High Court in case of Italindia Cotton Co. P. Ltd. vs. CIT (1978) 113 ITR 58 (Bom), held that for denying claim of set off of losses conditions mentioned in both clauses should be satisfied, He accordingly remitted case to ITO for examination if cl. (b) was also attracted to case of assessee. Department went in appeal against said order of CIT (A) before Tribunal and by order dt. 2nd Feb., 1984 in ITA No. 382 (Bom) of 1981 upheld order of CIT (A). It is stated on behalf of assessee that ITO thereafter did not modify original assessment order for said asst. yr. 1977-78 in which total income was assessed at Rs. 91,791. This happened because according to ld. Counsel for assessee, assessment became barred by limitation. However, according to High Court, loss to extent of income of Rs. 91,791 was deemed to have had been adjusted in asst. yr. 1977-78. assessee therefore, claimed adjustment of balance of Rs. 97,175 (Rs. 1,73,966 Rs. 91,791) against income of asst. yr. 1977-78. said set off of Rs. 97,175 against income of instant asst. yr. 1977-78 was also denied by ITO on ground that in instant case conditions contained in both cls. (a) & (b) were satisfied. assessee unsuccessfully appealed before CIT (A) and has now come up in second appeal. contention of ld. Counsel for assessee is three-fold viz. (i) Even if there is no determination of loss by ITO in asst. yr. 1976- 77 it has to be re-determined in asst. yr. 1977-78. (ii) Change in share holding in asst. yr. 1977-78 was not affected with view to avoiding or reducing any liability to tax and as such cl. (b) was not attracted. assessee was, therefore, entitled to set off of losses in asst. yr. 1977-78 and there was no question of lapse. (iii) In asst. yr. 1978-79 there was no change in share holding and, therefore, s. 79 has no application at all. Learned departmental representative repelled all contentions of assessee. According to him, since no loss to be carried forward in subsequent year was determined in asst. yr. 1977-78 question of set of in asst. yr. 1978-79 does not arise. Further, he drew our attention to acts of Gulshanrai Schedule group subsequent to acquisition of more than 51 per cent of share holding in assessee company. Taking facts from assessment order, it is contended by ld. Departmental representative that business of many successful pictures in which Sri Gulshanrai was substantially interested were assigned to assessee by transferring rights of distribution, some of such films, where Sri Gulshanrai was directly interested as principal distributor or producer were Amaanat, Kohinoor, Noorie & Azad,. These are concrete illustrations, Ld. Departmental representative argued, of acts of Sri Gulshanrai group to avoid or to reduce tax liability. assessee was therefore, according to ld. Departmental representative, not entitled to set-off even in asst. yr. 1977-78 since conditions laid down in both cls. (a) &(b) were satisfied in asst. yr. 1977-78. Thus it is contended by him tha right of set off of losses lapsed in asst. yr. 1977-78 and, therefore, there is no question of determination or re-determination of losses in year and therefore, assessee cannot be allowed set off of losses in asst. yr. 1978-79. To this, reply of ld. Counsel for assessee is that purpose of transferring rights of distribution of some of films to assessee-company was business need of company and not for avoiding or reducing tax liability. According to him Sri Gulshanrai wanted to acquire distribution rights of films in Eastern region so that he might not be dependent at mercy of producers of Bombay circuit where he had large business. Sri Gulshanrai, therefore, acquired substantial shares in assessee company having established business in Eastern region and it was not his intention to avoid or reduce tax liability. Further, it is pointed out by him that losses were incurred b y assessee company in asst. yr. 1975-76 and company started earning good profits in subsequent assessment years and, therefore, there was no question of having intention to avoid tax liability. It has been held by Hon'ble Supreme Court in case of CIT vs. Kushal Chand Daga (1961) 42 ITR 177 (SC) that where ITD had not notified loss, assessee was entitled to have loss redetermined in subsequent year. Hon'ble Supreme Court in case of CIT vs. Manmohan Das (1966) 49 ITR 699 (SC) observed as under: "The ITO has under s. 24(3) to notify to assessee amount of loss as computed by him, if it is established in course of assessment of total income that assessee has suffered loss of profits. Sec. 24(2) confers statutory right (subject to certain conditions which are not material) upon assessee who sustains loss or profits in any year in any business, profession or vocation to carry forward loss as is not set off under sub-s. (1) to following year, and to set it off against his profits and gains, if any, from same business, profession or vocation for that year. Whether loss of profits or gains in any year may be carried forward to following year and set off against profits and gains of same business, profession or vocation under s. 24(2) has to be determined by ITO who deals with assessment of subsequent year. It is for ITO dealing with assessment in subsequent year to determine whether loss of previous year may be set off against profits of that year. decision recorded by ITO who computes loss in previous year under s. 24(3) that loss cannot be set off against income of subsequent year is not binding on assessee." Thus, fact that carry forward loss was not determined and notified by ITO in asst. yr. 1977-78 does not come in way of assessee to get it re-determined in asst. yr. 1978-79. only question which survives in our conditions was to whether conditions laid down in both cls. (a) and (b) of s. 79 were fulfilled. In that event assessee would not be entitled to set off of losses in asst. yr. 1977-78 and its right to carry forward loss in subsequent year would lapse. It is to be seen that there was no such conduct of assessee in asst. yr. 1977-78 where from it can be inferred that change in share holding was effected with view to avoid tax liability. Even if events in subsequent assessment year are take into consideration it cannot be said definitely that mere transfer of right of distribution of profit earning films amounted to act of avoiding tax liability. It is not known as to what amount of tax Sri Gulshanrai would have been required to pay in case right of distribution of said films was not assigned to assessee company. Department failed to demonstrate as to what extent transfer of right of distribution of profit earning films to assessee company affected total tax liability. It is to be seen that in subsequent year that is to say in instant assessment year right of distribution of only one film "Amannat' was transferred to assessee. Right of distribution of other film "Kohinoor" was transferred to asst. yr. 1979-80 and that of 'Noorie' in asst. yr. 1980-81 and that of 'Azad' about five years thereafter. Thus by mere fact that in subsequent years right of distribution of profit earning films was transferred to assessee company it cannot be straightway said that there was lurking intention of avoiding tax liability. We, therefore, find that it could not be established that condition of cl. (b) of s. 79 was, satisfied in asst. yr. 1977-78,. assessee was, therefore, entitled to re-determination of losses to be carried forward from asst. yrs. 1977-78 to 1978-79. ITO shall verify calculations given by us above and shall allow set off of balance of losses in asst. yr. 1978-79 which according to figures furnished to us works out at Rs. 92,175. In result, appeal is allowed. *** EASTERN CIRCUIT PVT.LTD. v. INSPECTING ASSISTANT COMMISSIONER