December 2015
Loss – Carry forward and set off – Section 79 – A. Y. 2002-03 – During the relevant assessment year holding company of assessee reduced its shareholding from the 51% to 6% by transferring its 45% shares to another 100% subsidiary company – 51% of voting rights remained with the holding company – The revenue not justified in refusing to allow carry forward and set-off of business losses
By K.B. Bhujle Advocate
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CIT vs. AMCO Power Systems Ltd.; [2015] 62 taxmann. com 350 (Karn)
In the A. Y. 2002-03, 51% of the shares of the assessee were held by the holding company. In the relevant year the holding company transferred 45% shares to another 100% subsidiary company. In the relevant year, the Assessing Officer disallowed the assessee’s claim for set off of the carried forward loss relying on section 79, on the ground that the voting power of the holding company is reduced from 51% to 6%. The Tribunal held that the voting power of the holding company has remained at 51% and allowed the assessee’s claim.
On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:
“The expression ”not less than 51% of voting power…”used in Section 79 indicates that only voting power is relevant and not the shareholding pattern. Despite transfer of shares, the holding-company still holds effective control over the assessee-company. The objective of Section 79 is to prevent misuse of losses carry forward by the new owner. Therefore, losses could be carry forward and setoff even if there is change in shareholding since effective control over the assessee company is unchanged.”
