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Carry Forward & Set Off of Losses- Closely Held Companies

Relaxation of Conditions u/s 79- Foreign Owned Companies

Section 79 disqualify a closely held company from claiming set of past losses in the event of any change in its shareholding. Section 79, therefore, contemplates a comparison of the beneficial ownership of 51% voting power shares held by persons between the last day of the accounting year in which the loss was originally incurred and the last day of the accounting year in which such claim for set off of loss is made. In other words at least 51% of the shareholding must have exactly the same pattern and number in order to avoid application of section 79.

In the context of a company, which is a subsidiary of a foreign company, a new proviso has been added in the section to the benefit of foreign companies. Effective 1.4.2000 section 79 would not be applicable to their subsidiaries in the event of any change in shareholding of the foreign company as a result of its merger/demerger so long as 51% shareholders in such foreign company continue to be the shareholders of the merged/resulting foreign company. Unlike in clause (vic) of section 47 which specifically say that "the shareholders holding not less than three - fourths in value of the shares" the new proviso under section merely say "51% shareholders" irrespective of the value of shares held.

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