Where a change in shareholding pattern in the case of a company, no loss incurred in any year prior to the PY shall be carried forward and set off

Bechtel France SAS v. DCIT (International taxation), Mumbai. [2021] ITA No. 830/Mum/2021 (Mum-ITAT)

Short overview of the case:

Facts:

The taxpayer is a company incorporated in France and engaged in the business of procurement and construction. It had set up a project office at Mumbai with site offices at other locations in India to build certain refinery and certain complex.

The Commissioner of Income-tax observed that there was a change in the immediate shareholding pattern of the taxpayer during the year under consideration (viz. FY 2013-14, corresponding to AY 2014-15), from one group company to another group company.

Accordingly, the CIT invoked its revisionary powers under section 263 of the ITA by holding that the order passed by the AO earlier, ignoring the change in shareholding was erroneous and prejudicial to the interest of the Revenue.

The CIT held that the provisions of section 79 of the ITA [relating to allowability of carry forward and set-off of losses in case of certain companies] applied to the taxpayer and thus, the taxpayer was not entitled to set-off the brought forward accumulated business losses of the earlier years against taxpayer’s income for the current year.

It may be noted that  Sec 79 provides that  Where a change in shareholding has taken place during the previous year in the case of a company, no loss incurred in any year prior to the PY shall be carried forward and set off against the income of the PY, unless on the last day of the PY, the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51% of the voting power on the last day of the year or years in which the loss was incurred.

In this case, ITAT Mumbai held as under:

The ultimate holding company of the taxpayer despite the change in the shareholding in the taxpayer company, had by virtue of being the holding company, continued to control the voting power of the taxpayer company.

Thus, the provisions of section 79 of the ITA restraining the allowability of the benefit of carry forward and set-off of business losses could not come into play.

ITAT allowed the appeal

However, taxpayers may note that there have been conflicting judgements on this issue and they may read other judgment before relying on this judgment in isolation.