Are there any special provisions in case of carry forward and set off of loss in case of a company in which public are not substantially interested?

Ans. As per section 79 of the Income-tax Act, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless-

On the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by person who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.

However, the above condition is not applicable in case of an eligible start up referred under section 80-IAC​ in case of such start up, loss can be carried forward and set off against the income of the previous year, if all shareholders of such company (who held shares carrying voting power on the last day of the year or years in which loss was incurred) continue to hold the shares on last day of such previous year.

Restriction of section 79 is applicable only in case of loss and is not applicable in case of adjustment of unabsorbed depreciation, unabsorbed capital expenditure on scientific research or family planning expenditure.

Further, the provisions of section 79​ are not applicable in case of change in share holding on account of death of shareholder or on account of transfer of shares by way of gift to any relative of the shareholder or change in shareholding in case of an Indian company which is a subsidiary of foreign company, when such foreign company is amalgamated/demerged with another foreign company and 51% or more shareholders of the amalgamating/demerged foreign company continues to be the shareholders of the amalgamated/resulting foreign company and where any change in shareholding in the company takes place pursuant to a resolution plan approved under the IBC.

With an objective to facilitate resolution of distressed companies, the Finance (No. 2) Act, 2019 extend the benefit of section 79 to the following companies, and their subsidiary and the subsidiary of such subsidiary, where:

(a) ​When NCLT, on a petition moved by the Central Govt., has suspended the board of directors and has appointed new directors.

(b) When change in shareholding has taken place in a previous year pursuant to a resolution plan approved by the Tribunal.​

Note:

(1) W.e.f., Assessment Year 2022-23, section 79 shall not apply in case there change in the shareholding has taken place during the previous year on account of relocation referred to in the Explanation to clauses (viiac) and (viiad) of section 47.

(2) W.e.f. Assessment Year 2022-23, section 79 shall not apply to an erstwhile Public Sector Company (PSU), subject to the condition that the ultimate holding company of such erstwhile PSU, immediately after completion of the strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the voting power of such PSU in aggregate.

However, this relaxation shall cease to apply from the previous year in which the ultimate holding company ceases to hold, directly or through its subsidiary or subsidiaries, 51% of the voting power of the erstwhile public sector company. If the relaxation ceases to apply in any previous year, the provisions of section 79 shall apply for such previous year and subsequent previous years.

The erstwhile public sector company shall have the same meaning as assigned to it in clause (ii) of the Explanation to clause (d) of section 72A(1).