23 July 2025
Thanks for the clarification. Let's break this down carefully:
🔍 Facts Recap: The company incurred business loss of ₹10 lakhs in FY 2011–12.
As on 31.03.2012, Mr. X and Mrs. X held 50% shares each.
On 25.03.2013, Mr. X transferred 30% of his shares to Mrs. X, so the final holding became:
Mr. X → 20%
Mrs. X → 80%
Query: Can the loss of ₹10 lakhs be set off in FY 2012–13 (AY 2013–14) under Section 79?
✅ Legal Requirement under Section 79: Section 79 of the Income Tax Act, 1961 provides:
"In the case of a company (not being a company in which the public are substantially interested), no loss shall be carried forward and set off under this Chapter in respect of any previous year, unless on the last day of the previous year in which the loss was incurred and on the last day of the previous year in which the loss is to be set off, the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who held them on the last day of the year in which the loss was incurred."
🧾 Application to Your Case: The persons who held shares on 31.03.2012 (loss year) were Mr. X and Mrs. X — 50% each.
On 31.03.2013, the same persons (Mr. X and Mrs. X) still hold 100% of the shares, albeit in different proportions (Mr. X = 20%, Mrs. X = 80%).
Together, they still continue to hold more than 51% (i.e., 100%) of the shares.
So, the condition of "continuity of 51% of voting power held by the same persons" is satisfied.
✅ Therefore, Section 79 does not restrict the set-off of loss in this case.
⚖️ Supporting Interpretation: Section 79 is person-specific, not proportion-specific. What matters is whether the same persons (Mr. X and Mrs. X) continue to beneficially hold 51% or more voting power, not necessarily in the same ratio.
📌 Change in percentage between the same persons is acceptable. 📌 A new person acquiring shares that reduce continuity below 51% would attract Section 79 disallowance.
✅ Conclusion: Yes, loss of ₹10 lakhs from FY 2011–12 can be set off in FY 2012–13, as Mr. X and Mrs. X together held 100% on both relevant dates, satisfying Section 79.
Let me know if you want a draft note for assessment proceedings or case laws supporting this interpretation.
CAclubindia
