Extension of tax benefit will help stressed companies

The Budget has made some proposals to provide taxation relief to certain companies where there has been a change in the voting power or shareholding.

According to Section 79 of the Income Tax Act, the benefit of setting off carry-forward losses can be given only if the shareholding does not change by more than 49 per cent. But such restrictions do not apply in the case of a change in shareholding with regard to a resolution plan under the IBC.

NCLT petition

The Budget proposes extending the benefit to companies where the National Company Law Tribunal (NCLT), on a petition moved by the Centre under Section 241 of the Companies Act, 2013, has suspended the board of directors and appointed new directors. Also, companies where a resolution plan has been approved by the NCLT under Section 242 of the Companies Act will also be given the benefit.

What it implies is that in all such companies, losses can be carried forward and set off even if there is a change in the voting power or shareholding.

Also, companies under the IBC are allowed to set off losses brought forward, including unabsorbed depreciation from the book profit for the purposes of levy of MAT under Section 115JB of the Income Tax Act.

This benefit has also been extended to the categories of companies mentioned above — those where there has been a scheme of restructuring under Section 241 or under Section242, or there is an order to bring about a change in management by the NCLT.

The move appears to iron out issues in the resolution of distressed companies such as IL&FS, where the board has been superseded under Section 241/242.