Section 79 ITA 1961 restricts CARRY FORWARD of LOSSES of a COMPANY in case of CHANGE in BENEFICIAL OWNERSHIP:
Answer & Solution
Correct answer: A.
1. Section 79 Income Tax Act 1961: restriction on CARRY FORWARD of LOSSES in case of CHANGE in beneficial ownership.
2. APPLIES TO: CLOSELY HELD COMPANIES (companies in which public are NOT substantially interested).
3. RULE: if the BENEFICIAL OWNERSHIP of shares carrying NOT LESS THAN 51% of voting rights has CHANGED hands compared to the LAST DAY of YEAR in which loss arose, the LOSS SHALL NOT BE CARRIED FORWARD.
4. EXCEPTIONS:
5. (i) Change due to DEATH of shareholder;
6. (ii) Transfer by way of GIFT to relative;
7. (iii) Change pursuant to DEMERGER or AMALGAMATION;
8. (iv) ELIGIBLE START-UPs (Section 79(2A));
9. (v) Cases where company has become EXIT or strategic disinvestment.
10. The provision prevents 'TRAFFICKING IN LOSSES'.
11. Hence option B is correct.
_Source: CS Executive Paper 4 Tax Laws (ICSI BoS) + Income Tax Act 1961 + CGST Act 2017 — Income Tax Act 1961, Section 79_
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