Carry Forward & Setoff of Losses U/S 79 : Change in Voting Power, Not Just Change in Shareholding is Deciding Factor !

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Section 79 of the Income Tax Act is applicable to closely held companies ( read private companies ) . This provision lays down a law that if the shareholding of the majority shareholders gets changed to the extent of 51% or moreĀ as on the last date of a financial year, the company will be denied the benefit of carryforward and set of loss of earlier years . Now , the provision is being made applicable by Revenue Official by going through literal interpretation that if 51% change in shareholding , in that case the losses of earlier years can not be carried forward and set off. However, in recent cases, the High Courts have explained that the section 79 denies the benefit of carry forward and set off losses not on mere change of shareholding , but the change of controling stake to the extent of 51 % or more.

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