Finance Act, 2021 has amended section 72A of the Income-tax Act, 1961 (the Act) to inter alia provide that in case of an amalgamation of a public sector company (PSU) which ceases to be a PSU (erstwhile public sector company), as part of strategic disinvestment, with one or more company or companies, then, subject to the conditions laid therein, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be the loss, or as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which the amalgamation was effected.
In order to facilitate the strategic disinvestment, it has been decided that Section 79 of the Income-tax Act, 1961, shall not apply to an erstwhile public sector company which has become so as a result of strategic disinvestment. Accordingly, loss incurred in any previous year prior to, and including, the previous year of strategic disinvestment shall be carried forward and set off by the erstwhile public sector company. The above relaxation shall cease to apply from the previous year in which the company, that was 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, fifty-one per cent of the voting power of the erstwhile public sector company.
The term “erstwhile public sector company” and “strategic disinvestment” shall have the meaning in Explanation to clause (d) of sub-section (1) of Section 72A of the Income-tax Act, 1961.
Necessary legislative amendments for the above decision shall be proposed in due course of time.
Important points from the above Press release:
Public Sector Company: “A government-owned enterprise, government-owned corporation, government-owned company, statutory corporation, government-owned agency and government-owned firm in India is called a Public Sector Undertaking (PSU) or a Public Sector Enterprise.”
Section 79 of the Income tax act:
Notwithstanding anything contained in this Chapter, where a change in shareholding has taken place during the 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 on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.
Amendment in Section 72A:
An erstwhile public sector company with one or more company or companies, if the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation of the said public sector company and the amalgamation is carried out within five years from the end of the previous year in which the restriction on amalgamation in the share purchase agreement ends,
Recently we have seen that the central government has been drastically reducing it’s stake in various public sector company and selling it to another company or public at large in open market as a part of strategic disinvestment. In this process of disinvestment their stake is even going below 51% and hence provision of section 79 is getting attracted wherein the new company would not be allowed to carry forward loss or depreciation.
Therefore to save the interest of new investor and to make the disinvestment more lucrative, government has made this amendment in section 79 and section 72A of the Income tax act.
To read the Press release by Ministry of Finance CLICK HERE.
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