Tax Alert on Delhi ITAT decision on carry forward loss of amalgamated company

This Tax Alert summarizes a recent decision of the Delhi Income Tax Appellate Tribunal (ITAT) in the case of Select Holiday Resorts Pvt. Ltd. (Taxpayer) on Section 79 (Section) which contains provisions restricting carry forward of past year losses under the Income Tax Laws (ITL). The ITAT ruled that the Section has no applicability to a case of amalgamation of 98% shareholder company with the Taxpayer where the amalgamated and the amalgamating companies are held by the same set of shareholders with whom control of the taxpayer continues to remain. The ITAT further held that since the amalgamating company ceased to exist post amalgamation, a change in shareholding upon amalgamation can be regarded as a change arising in a situation akin to death of a shareholder which is specifically excluded from applicability of the Section. 

 

This ruling provides useful guidance on the scope of limitation provisions contained in the Section. It emphasizes that the Section is inapplicable if the same group of persons continues to control and manage the company. This ruling is also significant to the extent that the benefit of exclusion provided for change arising on account of death of a shareholder is also extended to cases of corporate reorganization involving amalgamation.