Sec. 79 Not Applicable If Change in Shareholding Occurs Between Shareholders Being Holding & Subsidiary Co. | ITAT

Case Details: Hiranandani Healthcare (P.) Ltd. v. CIT (Appeal), National Faceless Appeal Centre - [2023] 157 taxmann.com 551 (Mumbai-Trib.)

Judiciary and Counsel Details

• • B.R. Baskaran, Accountant Member & Narender Kumar Choudhry, Judicial Member
  • Sukhsagar Syal & Atul Suraiya for the Appellant.
  • Smt Madhumalti Ghosh for the Respondent.

Facts of the Case

The assessee-company engaged in providing healthcare services was held by two shareholders, FHL and FHHPL. During the year, the assessee issued equity shares at premium to FHL, which resulted in change in the shareholding pattern between both the shareholders, i.e., the holding of the FHL increased to 85 per cent while the holding of FHHPL was reduced to 15 per cent. The assessee claimed set-off of brought forward losses.

Assessing Officer (AO) took the view that the change in shareholding pattern between two shareholders would be hit by provisions of section 79. Accordingly, he held that the assessee was not entitled to carry forward and set off accumulated losses and rejected the claim for set-off of brought forward losses.

On appeal, the CIT(A) upheld the order of AO. The matter was reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that a perusal of section 79 would show that the said provision bars setting off brought forward losses if the shares of the company carrying not less than 51 per cent of the voting power were not beneficially held by the very same persons in the years in which the losses were incurred and the years in which the said loss was sought to be set-off.

In the instant case, it was noticed that there are only two shareholders, viz., FHL and FHHPL. As mentioned above, both shareholders have beneficially held 51 per cent of the voting power as a group. Further, the FHHPL is a holding company of FHL.

Hence, the increase in FHL shareholding in the assessee, in any case, would not result in a change in the voting power of the shareholders. Accordingly, the provisions of section 79 will not be applicable in the facts of the instant case. Hence, the view expressed by the tax authorities that the change in individual shareholding would also attract the provision of section 79 is not justified.

Accordingly, the order passed by the Commissioner (Appeals) on this issue is to be set aside and the Assessing Officer is to be directed to allow set-off brought forward losses.