Carry forward and set off of losses incurred by closely-held companies under Assessment of Companies :

Section 79 applies only in cases where a change in share holding has taken place in the case of company in which the public are not substantially interested. Such companies will be entitled to the benefit of carry forward and set off of any earlier year‘s losses in the following previous year only if on the last day of the previous year shares carrying not less than 51% of the total voting power are beneficially held by persons who beneficially held those shares on the last day of the previous year in which such loss was incurred.

The object of the section is to counter avoidance of tax by persons taking advantage of the corporate personality of the company. The section does not, however, affect the right of the company to set off its current losses against other current income nor does it affect the carry forward of unabsorbed depreciation allowance, development rebate, or investment allowance, expenditure on scientific research, patents or copyright, and expenses on the prospecting or the extraction of any mineral or group of associated minerals subject, however, to the other provisions of the Act for the carry forward and set -off of these items.

The proviso to section 79, however provides for an exception in this regard. Accordingly, carry forward and set off of past years‘ losses shall not be denied to a closely held company where a change in the shareholding resulting in a change in voting power to the extent of 51% or more has taken place consequent upon the death of a shareholder or gift of shares made by a shareholder to any of his relatives.