27 September 2009
A foreign company (FCo), listed on NYSE, is holding 100% shares in an Indian subsidiary (ICo), a private limited company. FCo has transferred its shares in ICo to another foreign company (FCo 1), not listed on any exchange, in January 2009. All these companies are part of the same group. ICo had incurred tax losses in India until March 31, 2008 and has also incurred loss for the financial year ended March 31, 2009. Will these tax losses be allowed to be carried forward in terms of section 79 of the Act ? Also, whether section 79 is to be examined while carrying forward losses or only while setting off the losses ? Request for a very urgent response. Thanks in advance.
In my opinion lat para of Sec 79 to be checked in your case
Section 79
CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN COMPANIES.
Notwithstanding anything contained in this Chapter, 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 - (a) 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 persons 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 :
Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift.
Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.
If 51% of the shares lies with sharfolders of your old Holding Comapny as on 31.03.2009, you can carry forward the loss, otherwise not.
27 September 2009
In my case FCo 1 has transferred 100% holding to FCo2. However, FCo1 is the ultimate parent company of this group. Would section 79 be still applicable, as the shares are beneficially held by the group. Also, i thought section 79 was to be examined in the year in which the losses are to be setoff and the carry forward of losses would be governed by seciton 72.
CAclubindia
