Our shares moved from one group company to another. Do we lose our carried forward losses?
Yes. A transfer of the entire shareholding from one holding company to another changes the beneficial ownership of the shares for s.79, even though the ultimate parent stays the same, so the earlier losses cannot be carried forward and set off.
Decided by the High Court (Delhi High Court (S. Muralidhar and Vibhu Bakhru JJ)) on 2016-01-13, reported as [2016] 66 taxmann.com 47 (Delhi) / [2016] 237 Taxman 652 (Delhi) / [2016] 380 ITR 637 (Delhi) / [2016] 283 CTR 129 (Delhi); IT Appeal Nos. 349 and 388 of 2015; assessment year 2009-10. It bears on section 79, section 72 of the Income Tax Act 1961, in Deductions & Disallowances matters.
This one favours the revenue and is what the department will produce when an internal reorganisation is defended on the footing that nothing really changed. The Court refused to identify beneficial ownership with the ultimate parent, treated the transferor and transferee as distinct legal entities, and declined to lift the veil at the assessee's instance. Read it before advising on any group restructuring where the Indian entity is carrying losses.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Yum India was part of the Yum Restaurants Group, its ultimate holding company being Yum! Brands Inc. USA. Until 28 November 2008, 99.99 per cent of its shares were held by Yum Restaurants Asia Pte Ltd; from that date they were held by Yum! Asia Franchise Pte Ltd, Singapore, following a restructuring that split Yum Asia's region into China and the rest, including India. Yum USA remained the ultimate beneficial owner of the shareholding throughout. Yum India ran KFC and Pizza Hut in India through a franchise segment, an equity segment of its own stores and a service segment, and had a wholly owned subsidiary, Yum Restaurants Marketing Private Limited, which carried on advertising, marketing and promotion on a no-profit basis for Yum India, its franchisees and business associates under a Contributors' Operating Agreement. For assessment year 2009-10 Yum India returned a loss of Rs 18,26,77,909. The Transfer Pricing Officer proposed an adjustment of Rs 6,50,13,564, of which Rs 5,27,33,344 was on the AMP contribution of Rs 4,79,48,122 for the equity segment, treated as an international transaction creating marketing intangibles for the associated enterprise with a mark-up of 9.98 per cent and a comparable arm's length price of nil. The Assessing Officer also disallowed the carry forward and set off of accumulated business losses of earlier years under s.79 on the ground that the beneficial holding had changed, and made a separate disallowance under s.40A(2)(b). The Dispute Resolution Panel upheld both, netting off the transfer pricing addition against the s.40A(2)(b) disallowance. The Tribunal upheld the s.79 disallowance and, on the transfer pricing point, followed its Special Bench in LG Electronics India and sent the matter back to the Assessing Officer. Both the assessee and the Revenue appealed under s.260A.
Read the disposal carefully, because the Court decided the two limbs in different ways. On s.79 it declined to frame a question of law at all: having examined the facts and the concurrent orders, it found there had indeed been a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities, with nothing to show any agreement or arrangement making Yum USA the beneficial owner, and that the question of piercing the veil at the assessee's instance did not arise; the Tribunal had rightly concluded that s.79 barred the set off, and the Court accordingly declined to frame a question at the assessee's instance on that issue (paras 20-21). So there is no answered question of law on s.79 in this judgment - only a refusal of admission, with reasons, agreeing with the Tribunal. On the AMP expenses the appeals were admitted, a question was framed, and it was answered in the affirmative: after this Court's decision in Sony Ericsson Mobile Communication India (P.) Ltd. the Bright Line Test is no longer legally permissible for determining whether an international transaction involving AMP expenses exists, so the operating agreement between Yum India, Yum Marketing and the franchisees needs detailed examination to see whether any part of the AMP expenditure was for creating marketing intangibles for the associated enterprise; only if such a transaction is shown to exist does arm's length pricing arise. The Court set aside the Tribunal's order and the corresponding orders of the Assessing Officer, the Transfer Pricing Officer and the Dispute Resolution Panel on the AMP issue and remanded it for a fresh decision in the light of Sony Ericsson, expressly without commenting one way or the other on either side's submissions (paras 22, 26-28).
On s.79 the Court's own reasoning occupies a single paragraph. Having examined the facts and the concurrent orders of the Assessing Officer and the Tribunal, it found there was a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities; that although they might be associated enterprises of Yum USA, there was nothing to show any agreement or arrangement that the beneficial owner of the shares would be Yum USA; and that the question of piercing the veil at the instance of Yum India did not arise. It therefore held the Tribunal right and declined to frame a question (paras 20-21). The fuller analysis - that the set off otherwise available under Chapter VI is denied where more than 51 per cent of the voting power beneficially held on the last day of the loss year has changed, that the predecessor and successor companies were distinct so the beneficial ownership changed, that being subsidiaries of a common ultimate holding company does not prevent that, and that absent proof the beneficial owner was Yum USA no such presumption can be made - is the Tribunal's, recorded by the Court at para 19 as what the Tribunal had said, not the High Court's own route. On AMP the reasoning is that Sony Ericsson has removed the Bright Line Test as a means of establishing the existence of an international transaction, that the existence of such a transaction must be established before its arm's length price can be determined, and that the Revenue had placed enough material to require the operating agreement to be examined, so the matter had to go back rather than be decided either way (paras 26-28).
Although they might be AEs of Yum USA, there is nothing to show that there was any agreement or arrangement that the beneficial owner of such shares would be the holding company, Yum USA. The question of 'piercing the veil' at the instance of Yum India does not arise.
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Handle my notice → Ask a CA on WhatsAppYes. A transfer of the entire shareholding from one holding company to another changes the beneficial ownership of the shares for s.79, even though the ultimate parent stays the same, so the earlier losses cannot be carried forward and set off. This was decided by the High Court (Delhi High Court (S. Muralidhar and Vibhu Bakhru JJ)) and bears on section 79, section 72 of the Income Tax Act 1961. It is reported as [2016] 66 taxmann.com 47 (Delhi) / [2016] 237 Taxman 652 (Delhi) / [2016] 380 ITR 637 (Delhi) / [2016] 283 CTR 129 (Delhi); IT Appeal Nos. 349 and 388 of 2015; assessment year 2009-10. This one favours the revenue and is what the department will produce when an internal reorganisation is defended on the footing that nothing really changed. The Court refused to identify beneficial ownership with the ultimate parent, treated the transferor and transferee as distinct legal entities, and declined to lift the veil at the assessee's instance. Read it before advising on any group restructuring where the Indian entity is carrying losses. If it applies to you, the first step is this: Test the shareholding on the last day of the previous year against the last day of each loss year, entity by entity, before assuming the losses survive.
Yum India was part of the Yum Restaurants Group, its ultimate holding company being Yum! Brands Inc. USA. Until 28 November 2008, 99.99 per cent of its shares were held by Yum Restaurants Asia Pte Ltd; from that date they were held by Yum! Asia Franchise Pte Ltd, Singapore, following a restructuring that split Yum Asia's region into China and the rest, including India. Yum USA remained the ultimate beneficial owner of the shareholding throughout. Yum India ran KFC and Pizza Hut in India through a franchise segment, an equity segment of its own stores and a service segment, and had a wholly owned subsidiary, Yum Restaurants Marketing Private Limited, which carried on advertising, marketing and promotion on a no-profit basis for Yum India, its franchisees and business associates under a Contributors' Operating Agreement. For assessment year 2009-10 Yum India returned a loss of Rs 18,26,77,909. The Transfer Pricing Officer proposed an adjustment of Rs 6,50,13,564, of which Rs 5,27,33,344 was on the AMP contribution of Rs 4,79,48,122 for the equity segment, treated as an international transaction creating marketing intangibles for the associated enterprise with a mark-up of 9.98 per cent and a comparable arm's length price of nil. The Assessing Officer also disallowed the carry forward and set off of accumulated business losses of earlier years under s.79 on the ground that the beneficial holding had changed, and made a separate disallowance under s.40A(2)(b). The Dispute Resolution Panel upheld both, netting off the transfer pricing addition against the s.40A(2)(b) disallowance. The Tribunal upheld the s.79 disallowance and, on the transfer pricing point, followed its Special Bench in LG Electronics India and sent the matter back to the Assessing Officer. Both the assessee and the Revenue appealed under s.260A. The matter was decided on 2016-01-13 by the High Court (Delhi High Court (S. Muralidhar and Vibhu Bakhru JJ)). On those facts the High Court held as follows. Read the disposal carefully, because the Court decided the two limbs in different ways. On s.79 it declined to frame a question of law at all: having examined the facts and the concurrent orders, it found there had indeed been a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities, with nothing to show any agreement or arrangement making Yum USA the beneficial owner, and that the question of piercing the veil at the assessee's instance did not arise; the Tribunal had rightly concluded that s.79 barred the set off, and the Court accordingly declined to frame a question at the assessee's instance on that issue (paras 20-21). So there is no answered question of law on s.79 in this judgment - only a refusal of admission, with reasons, agreeing with the Tribunal. On the AMP expenses the appeals were admitted, a question was framed, and it was answered in the affirmative: after this Court's decision in Sony Ericsson Mobile Communication India (P.) Ltd. the Bright Line Test is no longer legally permissible for determining whether an international transaction involving AMP expenses exists, so the operating agreement between Yum India, Yum Marketing and the franchisees needs detailed examination to see whether any part of the AMP expenditure was for creating marketing intangibles for the associated enterprise; only if such a transaction is shown to exist does arm's length pricing arise. The Court set aside the Tribunal's order and the corresponding orders of the Assessing Officer, the Transfer Pricing Officer and the Dispute Resolution Panel on the AMP issue and remanded it for a fresh decision in the light of Sony Ericsson, expressly without commenting one way or the other on either side's submissions (paras 22, 26-28).
On s.79 the Court's own reasoning occupies a single paragraph. Having examined the facts and the concurrent orders of the Assessing Officer and the Tribunal, it found there was a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities; that although they might be associated enterprises of Yum USA, there was nothing to show any agreement or arrangement that the beneficial owner of the shares would be Yum USA; and that the question of piercing the veil at the instance of Yum India did not arise. It therefore held the Tribunal right and declined to frame a question (paras 20-21). The fuller analysis - that the set off otherwise available under Chapter VI is denied where more than 51 per cent of the voting power beneficially held on the last day of the loss year has changed, that the predecessor and successor companies were distinct so the beneficial ownership changed, that being subsidiaries of a common ultimate holding company does not prevent that, and that absent proof the beneficial owner was Yum USA no such presumption can be made - is the Tribunal's, recorded by the Court at para 19 as what the Tribunal had said, not the High Court's own route. On AMP the reasoning is that Sony Ericsson has removed the Bright Line Test as a means of establishing the existence of an international transaction, that the existence of such a transaction must be established before its arm's length price can be determined, and that the Revenue had placed enough material to require the operating agreement to be examined, so the matter had to go back rather than be decided either way (paras 26-28). In the words reproduced by the source cited on this page: "Although they might be AEs of Yum USA, there is nothing to show that there was any agreement or arrangement that the beneficial owner of such shares would be the holding company, Yum USA. The question of 'piercing the veil' at the instance of Yum India does not arise." The decision followed or applied Sony Ericsson Mobile Communication India (P.) Ltd. v. CIT [2015] 374 ITR 118 / 231 Taxman 113 / 55 taxmann.com 240 (Delhi) - followed, and the AMP issue remanded in its light (para 28); Yum Restaurants (India) (P.) Ltd. v. ITO [2015] 53 taxmann.com 438 (Delhi - Trib.) - the order under appeal, set aside on the AMP issue (para 28); LG Electronics India (P.) Ltd. v. Asstt. CIT [2013] 140 ITD 41 / 29 taxmann.com 300 (Delhi) (SB) - the Special Bench decision the Tribunal had followed, superseded by Sony Ericsson (paras 13-14).
It was decided by the High Court on 2016-01-13 and is reported as [2016] 66 taxmann.com 47 (Delhi) / [2016] 237 Taxman 652 (Delhi) / [2016] 380 ITR 637 (Delhi) / [2016] 283 CTR 129 (Delhi); IT Appeal Nos. 349 and 388 of 2015; assessment year 2009-10. 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, section 72, 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Read the disposal carefully, because the Court decided the two limbs in different ways. On s.79 it declined to frame a question of law at all: having examined the facts and the concurrent orders, it found there had indeed been a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities, with nothing to show any agreement or arrangement making Yum USA the beneficial owner, and that the question of piercing the veil at the assessee's instance did not arise; the Tribunal had rightly concluded that s.79 barred the set off, and the Court accordingly declined to frame a question at the assessee's instance on that issue (paras 20-21). So there is no answered question of law on s.79 in this judgment - only a refusal of admission, with reasons, agreeing with the Tribunal. On the AMP expenses the appeals were admitted, a question was framed, and it was answered in the affirmative: after this Court's decision in Sony Ericsson Mobile Communication India (P.) Ltd. the Bright Line Test is no longer legally permissible for determining whether an international transaction involving AMP expenses exists, so the operating agreement between Yum India, Yum Marketing and the franchisees needs detailed examination to see whether any part of the AMP expenditure was for creating marketing intangibles for the associated enterprise; only if such a transaction is shown to exist does arm's length pricing arise. The Court set aside the Tribunal's order and the corresponding orders of the Assessing Officer, the Transfer Pricing Officer and the Dispute Resolution Panel on the AMP issue and remanded it for a fresh decision in the light of Sony Ericsson, expressly without commenting one way or the other on either side's submissions (paras 22, 26-28). It arises in Deductions & Disallowances matters, on section 79, section 72 of the Income Tax Act 1961, and was decided by Delhi High Court (S. Muralidhar and Vibhu Bakhru JJ). 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 argument is that the ultimate parent was the beneficial owner throughout, put the arrangement that establishes that on record; the Court decided against the assessee because nothing of the kind was produced. Check whether the year in question is governed by the substituted provision and whether the client falls in one of the later carve-outs. Do not treat unabsorbed depreciation and business loss as standing on the same footing without checking which the notice deals with.
Searched for later treatment; none was found. That is not the same as a source affirming it. No later decision applying, following or affirming this judgment on the s.79 point was found, and the report carries no citator banner. That matters more than usual here, because on s.79 the Court declined to frame a question of law under s.260A: what the judgment contains on that issue is a reasoned refusal of admission agreeing with the Tribunal, not an answered question, so its weight as precedent is limited. Nothing overruling or doubting it was found either - absence of contrary authority is not good law. Section 79 was substituted with effect from 1 April 2020 (assessment year 2020-21) by s.22 of the Finance (No. 2) Act 2019. The substituted provision, checked against the statute, keeps the same test in sub-section (1) - a company not one in which the public are substantially interested cannot carry forward a loss unless on the last day of the previous year shares carrying not less than 51 per cent of the voting power are beneficially held by the persons who beneficially held them on the last day of the loss year - and adds a proviso relaxing it for an eligible start-up referred to in s.80-IAC. Do not confuse this decision with Yum! Restaurants (India) (P.) Ltd. v. CIT [2025] 177 taxmann.com 360 / 306 Taxman 353 (SC), 7 August 2025, which concerns accrued marketing expenditure and a contribution to a subsidiary in other years and was dismissed as withdrawn on a settlement under the Vivad se Vishwas Scheme with contentions left open. 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.
Two corrections that change what this entry is worth. First, the High Court did not decide the s.79 question: at para 21 it declined to frame a question of law at the assessee's instance on the carry forward and set off issue, having agreed at para 20 with the Tribunal's conclusion. The elaborate analysis of beneficial ownership that used to appear here is the Tribunal's, which the judgment records at para 19 as a summary of the order under appeal. What the High Court itself said is confined to para 20: there was a 100 per cent change of ownership between two distinct entities, nothing showed any agreement or arrangement making Yum USA the beneficial owner, and the veil would not be pierced at the assessee's own instance. Second, the appeals were principally about advertising, marketing and promotion expenses under Chapter X. On that the Court admitted the appeals, held the Bright Line Test no longer permissible after Sony Ericsson Mobile Communication India (P.) Ltd., and remanded the question whether an international transaction involving AMP expenses exists, and its arm's length price, to the Assessing Officer and Transfer Pricing Officer - expressly without commenting on either side's case. Section 79 was substituted from assessment year 2020-21 by the Finance (No. 2) Act 2019, keeping the 51 per cent beneficial-holding test and adding a proviso for eligible start-ups under s.80-IAC, so check the current text and its carve-outs before applying this reasoning. The Karnataka High Court's decision in CIT v. AMCO Power Systems, which is often cited on the other side of the ultimate beneficial ownership question, is not referred to anywhere in this judgment. The report carries no citator banner, so whether the assessee took the s.79 point to the Supreme Court is not established, and no later decision applying this judgment on s.79 was found. The outcome of the AMP remand to the Assessing Officer and Transfer Pricing Officer is not recorded. How the Karnataka view in CIT v. AMCO Power Systems on ultimate beneficial ownership sits with this approach is untested; that decision is not discussed in this 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.
Read the disposal carefully, because the Court decided the two limbs in different ways. On s.79 it declined to frame a question of law at all: having examined the facts and the concurrent orders, it found there had indeed been a change of ownership of 100 per cent of the shares of Yum India from Yum Asia to Yum Singapore, both distinct entities, with nothing to show any agreement or arrangement making Yum USA the beneficial owner, and that the question of piercing the veil at the assessee's instance did not arise; the Tribunal had rightly concluded that s.79 barred the set off, and the Court accordingly declined to frame a question at the assessee's instance on that issue (paras 20-21). So there is no answered question of law on s.79 in this judgment - only a refusal of admission, with reasons, agreeing with the Tribunal. On the AMP expenses the appeals were admitted, a question was framed, and it was answered in the affirmative: after this Court's decision in Sony Ericsson Mobile Communication India (P.) Ltd. the Bright Line Test is no longer legally permissible for determining whether an international transaction involving AMP expenses exists, so the operating agreement between Yum India, Yum Marketing and the franchisees needs detailed examination to see whether any part of the AMP expenditure was for creating marketing intangibles for the associated enterprise; only if such a transaction is shown to exist does arm's length pricing arise. The Court set aside the Tribunal's order and the corresponding orders of the Assessing Officer, the Transfer Pricing Officer and the Dispute Resolution Panel on the AMP issue and remanded it for a fresh decision in the light of Sony Ericsson, expressly without commenting one way or the other on either side's submissions (paras 22, 26-28).
TaxSphere, “Yum Restaurants (India) P Ltd v ITO”, https://taxnotice.vittsphere.com/caselaw/case/yum-restaurants-v-ito-79/ (validity last checked 2026-08-19)
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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?
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?
Our Indian company's shares moved from one group company to another and the ultimate parent abroad did not change. The officer says 97 per cent of the shareholding changed and denies the brought forward losses. Which way does the Tribunal go?
