Our holding company moved most of its shares in us to its own wholly-owned subsidiary. Do we lose our carried-forward losses under s.79?
The Karnataka High Court said no on these facts. s.79 speaks of voting power, not merely of registered shareholding. Where the parent transferred shares to a company it wholly owned, the parent and that subsidiary together still controlled 51 per cent of the voting power, so the section was not attracted.
Decided by the High Court (High Court of Karnataka at Bengaluru, Division Bench — Vineet Saran and B. Manohar, JJ.; judgment delivered by Vineet Saran J. ITA No. 766 of 2009 c/w ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009) on 2015-10-07, reported as (2015) 379 ITR 375 (Kar); (2015) 62 taxmann.com 350 (Kar); ITA No. 766/2009 with ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009 (High Court of Karnataka at Bengaluru). It bears on section 79 of the Income Tax Act 1961, in Assessment & Scrutiny, Deductions & Disallowances and How Tax Law Is Read matters.
Intra-group reorganisations routinely move a loss-making subsidiary's shares between arms of the same group, and the officer then denies the whole carry-forward. This gives you the voting-power argument. But the Delhi High Court in Yum Restaurants, which the library already carries, reached the opposite conclusion on a transfer between two subsidiaries of a common parent, so this is contested ground and you must say so.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee, AMCO Power Systems Ltd, was originally wholly owned by AMCO Batteries Limited (ABL). In assessment year 2001-02 ABL's holding stood at 55 per cent, with 45 per cent held by AMCO Properties and Investments Limited (APIL), a wholly owned subsidiary of ABL. By assessment year 2002-03 ABL held 6 per cent, APIL held 45 per cent and Tractors and Farm Equipments Limited (TAFE) held 49 per cent, and that pattern continued in 2003-04. The Assessing Officer denied the carry-forward and set-off of business loss under s.79 on the footing that shares carrying not less than 51 per cent of the voting power were no longer beneficially held by the persons who held them in the loss years. The appellate authorities allowed the claim by taking into account APIL's beneficial shareholding, and the Revenue appealed. A second question concerned a claim under s.35AB for a sum of Rs. 5 crores for transfer of technical knowhow.
On the s.79 question the appeal was answered in favour of the assessee. Because ABL wholly owned APIL and so controlled it completely, ABL's voting power could not be said to have fallen below 51 per cent merely because its own registered holding had reduced to 6 per cent; ABL and APIL together held 51 per cent of the voting power, controlled by ABL (para 17). s.79 was therefore not attracted and the carry-forward and set-off of the business loss was allowed.
The Court read s.79 as directed at voting power and at the mischief of trafficking in losses by transferring ownership of a loss company to outsiders. Where the shares move to a company that the same parent wholly owns, no such transfer of ownership occurs in substance: the parent continues to command the votes attached to the transferred shares through its complete control of the transferee. The Court therefore aggregated the parent's own holding with that of its wholly owned subsidiary in testing whether 51 per cent of the voting power was still beneficially held by the same persons.
Since the ABL was having complete control over the APIL, which is the wholly owned subsidiary of ABL, in our view, even though the shareholding of ABL may have reduced to 6% in the year in question, yet by virtue of being the holding Company, owning 100% shares of APIL, the voting power of ABL cannot be said to have been reduced to less than 51%, because together, both the companies had the voting power of 51% which was controlled by ABL.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppThe Karnataka High Court said no on these facts. s.79 speaks of voting power, not merely of registered shareholding. Where the parent transferred shares to a company it wholly owned, the parent and that subsidiary together still controlled 51 per cent of the voting power, so the section was not attracted. This was decided by the High Court (High Court of Karnataka at Bengaluru, Division Bench — Vineet Saran and B. Manohar, JJ.; judgment delivered by Vineet Saran J. ITA No. 766 of 2009 c/w ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009) and bears on section 79 of the Income Tax Act 1961. It is reported as (2015) 379 ITR 375 (Kar); (2015) 62 taxmann.com 350 (Kar); ITA No. 766/2009 with ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009 (High Court of Karnataka at Bengaluru). Intra-group reorganisations routinely move a loss-making subsidiary's shares between arms of the same group, and the officer then denies the whole carry-forward. This gives you the voting-power argument. But the Delhi High Court in Yum Restaurants, which the library already carries, reached the opposite conclusion on a transfer between two subsidiaries of a common parent, so this is contested ground and you must say so. If it applies to you, the first step is this: Draw the shareholding chart for the year in question and the years of the losses, and identify who holds the voting power at each level, not merely who is on the register.
The assessee, AMCO Power Systems Ltd, was originally wholly owned by AMCO Batteries Limited (ABL). In assessment year 2001-02 ABL's holding stood at 55 per cent, with 45 per cent held by AMCO Properties and Investments Limited (APIL), a wholly owned subsidiary of ABL. By assessment year 2002-03 ABL held 6 per cent, APIL held 45 per cent and Tractors and Farm Equipments Limited (TAFE) held 49 per cent, and that pattern continued in 2003-04. The Assessing Officer denied the carry-forward and set-off of business loss under s.79 on the footing that shares carrying not less than 51 per cent of the voting power were no longer beneficially held by the persons who held them in the loss years. The appellate authorities allowed the claim by taking into account APIL's beneficial shareholding, and the Revenue appealed. A second question concerned a claim under s.35AB for a sum of Rs. 5 crores for transfer of technical knowhow. The matter was decided on 2015-10-07 by the High Court (High Court of Karnataka at Bengaluru, Division Bench — Vineet Saran and B. Manohar, JJ.; judgment delivered by Vineet Saran J. ITA No. 766 of 2009 c/w ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009). On those facts the High Court held as follows. On the s.79 question the appeal was answered in favour of the assessee. Because ABL wholly owned APIL and so controlled it completely, ABL's voting power could not be said to have fallen below 51 per cent merely because its own registered holding had reduced to 6 per cent; ABL and APIL together held 51 per cent of the voting power, controlled by ABL (para 17). s.79 was therefore not attracted and the carry-forward and set-off of the business loss was allowed.
The Court read s.79 as directed at voting power and at the mischief of trafficking in losses by transferring ownership of a loss company to outsiders. Where the shares move to a company that the same parent wholly owns, no such transfer of ownership occurs in substance: the parent continues to command the votes attached to the transferred shares through its complete control of the transferee. The Court therefore aggregated the parent's own holding with that of its wholly owned subsidiary in testing whether 51 per cent of the voting power was still beneficially held by the same persons. In the words reproduced by the source cited on this page: "Since the ABL was having complete control over the APIL, which is the wholly owned subsidiary of ABL, in our view, even though the shareholding of ABL may have reduced to 6% in the year in question, yet by virtue of being the holding Company, owning 100% shares of APIL, the voting power of ABL cannot be said to have been reduced to less than 51%, because together, both the companies had the voting power of 51% which was controlled by ABL."
It was decided by the High Court on 2015-10-07 and is reported as (2015) 379 ITR 375 (Kar); (2015) 62 taxmann.com 350 (Kar); ITA No. 766/2009 with ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009 (High Court of Karnataka at Bengaluru). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 79, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. On the s.79 question the appeal was answered in favour of the assessee. Because ABL wholly owned APIL and so controlled it completely, ABL's voting power could not be said to have fallen below 51 per cent merely because its own registered holding had reduced to 6 per cent; ABL and APIL together held 51 per cent of the voting power, controlled by ABL (para 17). s.79 was therefore not attracted and the carry-forward and set-off of the business loss was allowed. It arises in Assessment & Scrutiny, Deductions & Disallowances and How Tax Law Is Read matters, on section 79 of the Income Tax Act 1961, and was decided by High Court of Karnataka at Bengaluru, Division Bench — Vineet Saran and B. Manohar, JJ.; judgment delivered by Vineet Saran J. ITA No. 766 of 2009 c/w ITA Nos. 769/2009, 1046/2008, 765/2009 and 767/2009. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the transferee is wholly owned by the transferor, say so expressly and put the parent's control of the transferee in evidence — that is the fact this judgment turns on. Tell the forum about the contrary view in Yum Restaurants (India) P Ltd v ITO (Delhi) and be ready to distinguish it on the shareholding structure. Do not present the point as settled. Check which version of s.79 governs your year. s.79 was substituted by the Finance Act 2019 with effect from 1 April 2020 and further relaxed for eligible start-ups. This judgment construes the earlier provision, so read the current text before applying it to a recent year.
High Courts differ on this point. The Delhi High Court in Yum Restaurants (India) P Ltd v ITO (13 January 2016), which the library already carries, held s.79 attracted where the shares of an Indian company moved between two subsidiaries of the same ultimate parent. The structures are not identical — here the transferee was wholly owned by the transferor itself — but the two decisions pull in opposite directions and a practitioner should present both. Whether either has been considered by the Supreme Court was not established. Both decisions construe s.79 as it stood before its substitution by the Finance Act 2019 with effect from 1 April 2020. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
There is no primary copy of this judgment on the free databases: a direct search of Indian Kanoon confirmed that it carries no standalone document for this decision, which appears there only as a citation inside later decisions, and nothing retrievable was found on the Karnataka High Court site. The text was read from a PDF of the Court's own order — cause title, coram, date, ITA numbers, the framed questions of law and numbered paragraphs all present — hosted on commentary sites. The way to verify it is the ITR citation, (2015) 379 ITR 375 (Kar). The shareholding table below is as set out in the judgment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the s.79 question the appeal was answered in favour of the assessee. Because ABL wholly owned APIL and so controlled it completely, ABL's voting power could not be said to have fallen below 51 per cent merely because its own registered holding had reduced to 6 per cent; ABL and APIL together held 51 per cent of the voting power, controlled by ABL (para 17). s.79 was therefore not attracted and the carry-forward and set-off of the business loss was allowed.
TaxSphere, “CIT v AMCO Power Systems Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-amco-power-systems-79-voting-power-through-subsidiary/ (validity last checked 2026-09-07)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The officer has invoked s.79 after a change in our shareholding and struck out everything brought forward, including unabsorbed depreciation. Does s.79 reach unabsorbed depreciation?
My client took over a company through an IBC resolution plan. The assessing officer has begun assessments for years before the takeover and says he will examine whether the brought forward losses survive the change in shareholding. Can he?
The assessment order for the loss year ends with a line saying the brought forward losses will not be allowed to be carried forward because our shareholding changed. Am I stuck with that when I claim the set-off later?
The resolution professional never filed the company's returns during the insolvency process. The new management filed them late and the carry forward of losses has gone. Will the Board condone the delay?
