section 79

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vaishali (Querist)
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27 September 2009 A foreign company (FCo), listed on NYSE, is holding 100% shares in an Indian subsidiary (ICo), a private limited company. FCo has transferred its shares in ICo to another foreign company (FCo 1), not listed on any exchange, in January 2009. All these companies are part of the same group. ICo had incurred tax losses in India until March 31, 2008 and has also incurred loss for the financial year ended March 31, 2009. Will these tax losses be allowed to be carried forward in terms of section 79 of the Act ? Also, whether section 79 is to be examined while carrying forward losses or only while setting off the losses ? Request for a very urgent response. Thanks in advance.

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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27 September 2009 Hi Vaishali,

In my opinion lat para of Sec 79 to be checked in your case

Section 79

CARRY FORWARD AND SET OFF OF LOSSES IN THE CASE OF CERTAIN COMPANIES.

Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless - (a) On the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred :

Provided that nothing contained in this section shall apply to a case where a change in the said voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such gift.

Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.

If 51% of the shares lies with sharfolders of your old Holding Comapny as on 31.03.2009, you can carry forward the loss, otherwise not.

Se -79 to be examined before carry forward.

vaishali

vaishali (Querist)
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27 September 2009 In my case FCo 1 has transferred 100% holding to FCo2. However, FCo1 is the ultimate parent company of this group. Would section 79 be still applicable, as the shares are beneficially held by the group. Also, i thought section 79 was to be examined in the year in which the losses are to be setoff and the carry forward of losses would be governed by seciton 72.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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23 July 2025 Yes, **Section 79 of the Income-tax Act, 1961** is relevant in your case and needs to be carefully examined.

### ✅ **1. Applicability of Section 79**

Section 79 restricts the **carry forward and set-off** of losses in the case of **closely held companies** (i.e., companies not substantially held by the public), such as private limited companies. The key condition under Section 79 is:

> *Losses shall not be carried forward and set off unless at least 51% of the beneficial ownership of the shares (in terms of voting power) is held by the same persons on the last day of the year in which the loss was incurred and the last day of the previous year in which the loss is to be set off.*

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### ❌ **2. Situation in Your Case**

Let’s break down your situation:

* FCo (NYSE-listed) owned 100% shares in ICo (Indian Pvt. Ltd.)
* In Jan 2009, FCo transferred 100% of ICo’s shares to FCo1 (non-listed foreign company)
* ICo had incurred losses till 31 March 2008 and also for FY 2008–09
* Now you ask: Can ICo carry forward and set off these losses?

**Answer:**
Since **the shareholding changed from FCo to FCo1**, **Section 79 may disallow the set-off of losses**, unless the **same beneficial ownership** is maintained.

Even though both FCo and FCo1 are in the **same group**, **Indian tax law focuses on actual shareholding**, not merely **group/beneficial ownership** (except for specific exceptions).

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### ⚠️ **Exception to Section 79** (as amended)

Section 79 has an **exception**:

> If the change in shareholding is due to death, gift to a relative, or **a change among Indian subsidiaries of a foreign company**, **then section 79 may not apply** (as per proviso introduced later).

In your case, **FCo and FCo1 are both foreign companies**, so this exception **does not apply**.

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### 🧾 **Regarding Carry Forward vs Set-off**

You're correct to an extent:

* **Section 72** governs the **carry forward** and **set-off** of business losses.
* But **Section 79 is a restriction on this carry forward and set-off** in specific situations involving change in shareholding.

So yes — **Section 79 needs to be checked both at the time of carry forward and set-off**, since both stages are impacted by it.

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### ✅ **Conclusion**

* **Section 79 applies** in your case since there is a **change in shareholding** from FCo to FCo1 (even though group companies).
* The losses **incurred up to 31 March 2008 and in FY 2008–09** may **not be allowed to be carried forward** and set off **unless** you can establish **continuous beneficial shareholding** by the same entity — which is difficult under current law.
* **Ultimate group control is not enough** unless the exception clause applies (e.g., Indian subsidiaries of a foreign company).

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Let me know if you'd like a **draft opinion** or **case law references** (like *Yokogawa India Ltd* or *Amco Batteries Ltd*) that have dealt with similar scenarios.

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