Section 79 - carry forward of loss - change in shareholding pattern

[Sanjeev Sharma]

Section 79 of Income Tax Act : 60% shares of a Pvt. Ltd. Indian company 'Orange India' was held by another pvt. co. named B and balance was held by individuals. The shareholding patern of Company B was totally changed and its 100% shares was acquired by and transferred to Company C.The shareholding pattern of Orange India has , however, remained the same. Will the losses of Orange India will be allowed to be carried forward u/s 79 ??

[Rama Krishana]

IT appears that "orange India" is a subsidiary of "B". Orange India is not the subsidiary of the shareholders of B. Therefore, the shareholding of the B into orange India is the deciding factor not the shareholding of the other persons in B. Therefore any change in the patter of holding company would not attract the provisions of 79 restricting the carry forward and set off of losses

AI Summary

Carry forward of losses depends on continuity of shareholding in the loss-making company, not on holding-company ownership changes. Carry forward and set-off of losses require continuity of shareholding in the loss-making company itself; a change in ownership of its holding company does not, by itself, restrict carry forward of losses where the subsidiary's shareholding pattern remains unchanged. The controlling inquiry is whether persons holding shares in the loss-bearing company have changed, not whether the holding company's shareholders have altered.