Page 44 - Union Budget_2019

Union Budget 2019

10.3 Measures for resolution of distressed companies

The existing provisions of Section 79 provides a condition that in case of private limited companies, carry

forward and set off of losses shall be allowed only when the change in shareholding i.e. shareholding on the
last day of the year of loss and shareholding on last day of the year of set-off, doesn’t exceed 49% of voting

power.

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However, 3 proviso to Section 79 states that this condition shall not be applicable to a company where any
change in shareholding takes place in a previous year pursuant to a resolution plan approved under the
Insolvency and Bankruptcy Code, 2016 (IBC) after providing the jurisdictional Principal Commissioner or
Commissioner a reasonable opportunity of being heard. Thus, even if there is a change in ownership or

voting power, the losses incurred in previous years shall be allowed to be carry forward and set off.

With a view to extend the above mentioned benefit, it is proposed to include the companies, their subsidiary

and subsidiary of subsidiary, where the National Company Law Tribunal ("NCLT") on a petition by Central
Government under Section 241 of Companies Act 2013 has suspended board of directors and appointed

new directors and a change in shareholding has taken place in the year pursuant to a resolution plan
approved by NCLT after providing reasonable opportunity of being heard to the jurisdictional Principal
Commissioner or Commissioner.

For the purpose of clarification,

• a company shall be a subsidiary of another company, if such other company holds more than half in

the nominal value of equity share capital of the company
• “loss” shall not include depreciation;

Further, it is also proposed that the aggregate amount of unabsorbed depreciation and brought forward
loss (excluding depreciation) shall be allowed to reduce in cases of the above-mentioned distressed
companies, under Section 115JB for calculating book profit for levy of Minimum Alternate Tax ("MAT").

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the
assessment year 2020-21 and subsequent assessment years.

Companies getting into NCLT would generally be loss-making and by virtue of section 79, the losses

were not allowed to be carry forward. This benefit allows the loss to be carried forward and set off,
even if there is a change in shareholding of such companies, thereby acting as a relief to distressed
companies. The proposal further intends to provide relief to the downstream subsidiaries of such

companies.

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