Clarification regarding carry forward of losses

There have been certain ambiguities in the minds of Taxpayers in relation to carry forward of losses in case of change in shareholding due to strategic disinvestment for which CBDT vide Press release dated 10.09.2021 has issued clarifications in order to remove the ambiguity for the carry forward of losses.

• Section 72A was amended by Finance Act, 1961 (‘the Act’) to provide that in case of amalgamation of an erstwhile public sector company** (which ceases to be a PSU as part of strategic disinvestment*) with one or more companies, the accumulated losses and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or unabsorbed depreciation of the amalgamated company.
• To facilitate the strategic disinvestment, CBDT has further clarified that section 79 of the Incometax Act, 1961, shall not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment. However, the relaxation of section 79 shall cease to apply from the previous year when the ultimate holding company of such erstwhile public sector company immediately after completion of the strategic disinvestment ceases to hold, directly or through its subsidiary or subsidiaries, 51% of the voting power of the former public sector company.

*”strategic disinvestment” means sale of shareholding by the Central Government or any State Government in a public sector company which results in reduction of its shareholding to below fifty-one per cent along with transfer of control to the buyer. **”erstwhile public sector company” means a company which was a public sector company in earlier previous years and ceases to be a public sector company by way of strategic disinvestment by the Government.

Aayush Singh, SW India