The Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that a private company held by a public company can be treated as a public company for the purpose of getting deduction under Section 43A of the Income Tax Act 1961.
The Assessee Company in the present case engaged in the business of ground handling operations and related activities at Airport. During the assessment proceedings, the Assessing Officer (AO) noticed that the Assessee claimed brought forward losses amounting to Rs. 5,32,99,080 and he further observed that there was a change in the shareholding pattern in the case of the assessee in the assessment year and the assessee was hit by the provision of Section 79 of the 1961 Act and the brought forward losses are to be disallowed which cannot be set off against current year profits by holding that provisions of section 79 of the Act are availed only to public companies, but the Assessee in the present case is a private company.
Before the AO counsel for the Assessee advocate Nitesh Joshi submitted that there was no change in shareholding pattern and in the assessment year the assessee was a company in which public were substantially interested in view of the facts the assessee was subsidiary of HDFC Ltd. which was listed company and quoted on Bombay Stock Exchange and hence provision of Section 79 of the Act were not applicable to the assessee company and also produced copy of annual return of HDFC as evident to support his argument.
On appeal, CIT(A) granted relief to the Assessee by allowing the appeal filed by the Assessee. Aggrieved by the order of the authority Revenue was on appeal before the Tribunal.
After considering the rival submissions and perusing the available material facts on records, the Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member Ramit Kochar observed that “during the assessment year HDFC holding more than 51% of shares of the Assessee Company without made any change in the shareholding pattern”.
The division bench further observed that “the concept of deemed public company as was contained in Section 43A of the 1956 Act which existed prior to the coming into force of the Companies(Amendment) Act, 2000 stood abolished which , inter-alia, earlier stipulated that in case where not less than twenty-five percent shares of a private company are held by body corporate being public company or private companies, the said private company shall be deemed to be public company by virtue of Section 43A . HDFC Limited no doubt is a company which is listed on recognized stock exchanges in India”.
Therefore the Assessee Company can be considered as a public company and the assessee company as the HDFC Limited continued to hold 62.28% shareholding in the assessee company and there will be no difficulty in allowing set off or carry forward further of losses, the bench said.