Section 79

Section 79 — the law in short

What the courts have decided on section 79, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Subhulaxmi Mills Ltd Supreme CourtHelps taxpayer
  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?
  No. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2).
• AMNS Gandhidham Ltd v ACIT High CourtHelps taxpayerNo later treatment found
  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?
  On these facts, no. Where the resolution professional gave the jurisdictional Principal Commissioner the opportunity of being heard that s.79(2)(c) requires and the Principal Commissioner made no submissions before or at the approval of the resolution plan, the Bombay High Court held that the Revenue could not afterwards reopen the allowability of the carried forward losses, and quashed assessment proceedings relating to a period before the plan's implementation date.
• Technovaa Plastic Industries Private Limited v Central Board of Direct Taxes High CourtHelps taxpayerNo later treatment found
  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?
  It must, on these facts. The Gujarat High Court quashed the Board's order refusing condonation under s.119(2)(b) for Assessment Years 2018-19 and 2019-20 and condoned the delay itself, holding that where the suspended management had lost all powers from the date of admission under the Insolvency and Bankruptcy Code and the resolution professional had neither had the accounts audited nor filed the returns, and the new management filed them promptly after the resolution plan was approved, refusing condonation would frustrate the very purpose of the approved resolution plan and would amount to genuine hardship.
• PCIT v Burda Druck India Pvt Ltd High CourtHelps taxpayerNo later treatment found
  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?
  No. The assessing officer of the loss year has only to notify the amount of the loss he has computed; whether that loss can be carried forward and set off is for the officer who deals with the year in which the set-off is claimed. The Delhi High Court upheld the Tribunal's direction to expunge the remark, and added that unabsorbed depreciation and capital losses do not fall within s.79 at all.
• Yum Restaurants (India) P Ltd v ITO High CourtHelps departmentNo later treatment found
  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.
• CIT v AMCO Power Systems Ltd High CourtHelps taxpayerHigh Courts differ
  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.
• ACIT v Lurgi India International Services Pvt Ltd ITATHelps taxpayerNo later treatment found
  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?
  On these facts the Tribunal decided with the taxpayer, but it supplied almost no reasoning of its own. The Delhi Bench dismissed the Revenue's appeal in a single paragraph, finding merit in the assessee's submissions and no material from the Revenue contradicting the Commissioner (Appeals). What it left standing is the Commissioner (Appeals)'s reasoning that s.79 stresses beneficial ownership, that the ultimate holding company remained the same throughout the restructuring, and that CIT v AMCO Power Systems Ltd applied. The Revenue's ground founded on Yum Restaurants failed with the appeal, but the Tribunal did not address that decision.
• Statutory position — section 79: which version of the change-in-shareholding bar applies to your year CBDT Circulars & InstructionsCuts both ways
  My closely held company changed hands and the Assessing Officer has knocked out the brought-forward loss under section 79. The section has been rewritten more than once — which text governs my assessment year?
  Four different texts of s.79 have governed the last decade, and the one that applies is the one in force for the assessment year in which the set-off is claimed. The Finance Act 2017 (Act 7 of 2017) substituted s.79 with effect from 1 April 2018 in a clause (a) and clause (b) form; the Finance (No. 2) Act 2019 (Act 23 of 2019) substituted it again with effect from 1 April 2020 into the present sub-section (1), (2) and (3) form; the Finance Act 2021 and the Finance Act 2022 added carve-outs with effect from 1 April 2022; and the Finance Act 2023 (Act 8 of 2023) substituted 'ten' for 'seven' in the start-up proviso with effect from 1 April 2023.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.