Setting Off Carried Forward Losses

Q 1) I am interested in investing in a loss making company and taking over majority shares so that I can avail of the benefit of its carried forward loss. Kindly explain the tax implications thereof.

- Kisan Khanderia

It may be noted that in view of the provisions of Section 79 of the Income Tax Act, 1961, a closely held company (that is not being a company in which the public are substantially interested) cannot set off its carried forward loss if there is a change in the majority shareholding of the company. The provisions are reproduced hereunder for your ready reference:

… where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless –

a) On the last day of the previous year (for example, say March 31, 2013), the shares of the company carrying not less than 51 per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than 51 per cent of the voting power on the last day of the year or years (for example, any previous year ending March 31, 2012 or before) in which the loss was incurred.

Provided that nothing contained in this section shall apply to a case where a change in the voting power takes place in a previous year consequent upon the death of a shareholder or on account of transfer of shares by way of gift to any relative of the shareholder making such a gift.

Provided further that nothing contained in this section shall apply to any change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger subject to the condition that 51 per cent shareholders of the amalgamating or demerged foreign company continue to be the shareholders of the amalgamated or the resulting foreign company.

Q 2) My wife and I are salaried employees in Mumbai. We have three children – a son and two daughters. Their schools fees amount to Rs 30000 each. Can we claim a deduction for the same under Section 80C?

- Rajeev Deshmane

Section 80C relates to the deduction from the Gross Total Income in respect of any sum(s) paid or deposited in the specified items under sub-section 2 of the said section in the previous year. The total amount of deduction u/Ss 80C, 80CCC and 80CCD (1) of the said Act is restricted to Rs 100000.

Clause (xvii) of sub-section 2 of Section 80C read with sub-section 4(c) of Section 80C provides that any sum(s) paid as tuition fees (excluding any payment towards development fees or donation or payment of a similar nature), whether at the time of admission or thereafter, to any university, college, school or other educational institution situated within India, or for the purpose of full-time education, of any of the person specified in sub-section (4), shall be allowed as deduction from his/her gross total income. Clause (c) of the sub-section states that in the case of an individual, the deduction will be restricted to two children of such individual.

In your case, as both the parents are working, the fee amount so paid can be shared by your wife and/or you, such that either of you do not claim deduction for more than two children under the provisions of Section 80C of the said Act.