Recently, Mumbai ITAT in case of Hiranandani Healthcare Pvt Ltd [(2023) 157 taxmann 551 (Mumbai-Trib) dated July 27, 2023] allowed claim of brought forward losses on change in shareholding where all shareholders belong to the same group.
Section 79 of the Income Tax Act, 1961, provides that in order to claim set-off of brought forward losses, at least 51% of the voting power of the company in the year in which the set-off loss is being claimed is beneficially held by the same persons in the year in which such loss was incurred.
In the given case, the assessee had only two shareholders, belonging to the same group of companies, where one shareholder was the holding company of the other shareholder. During the assessment year, issuance of equity shares of the assessee to one of the shareholders resulted in a change in the shareholding pattern by more than 51%, but the assessee claimed set-off of losses in the same assessment year, regardless of the change.
The Mumbai ITAT observed that both the shareholders, as a group, beneficially held 51% in of voting power in the assessee, both, in the year of incurrence of loss and the year in which such loss has been set-off. The increase in shareholding of one shareholder did not impact the change in shareholding of the group, and accordingly, the assessee can claim the set-off of loss.
Decision passed by Mumbai ITAT is in favour of assessee and considered to be positive. The topic of beneficial shareholding vs legal shareholding has been a litigative matter in the past. There have been a series of decisions on the same aspect which have been favourable to the assessee, such as the decision of the Delhi ITAT in the case of WSP Consultants India (P.) Ltd [(2022) 140 taxmann.com 65 (Delhi – Trib.)], and the decision of the Karnataka High Court in the case of AMCO Power Systems [(2015) 62 taxmann.com 350 (Karnataka)]. On the contrary, there have also been some decisions in the favour of the Revenue, such as the decision of the Mumbai ITAT in the case of Aramex India (P.) Ltd. [(2019) 112 taxmann.com 172] and the decision of the Delhi High Court in the case of Yum Restaurants [(2016) 66 taxmann.com 47].
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