Chapter 22- Change in Control & Tax Treatment

Question 1- Page 179

As per Sec. 57 (2) (b), an entity cannot set off carried forward loss pertaining to Period before change in
Control from business/investment income of the same entity generated after the period of Change in
Control as per Sec. 20
An entitys control is deemed to be changed when 50% or more of its underlying ownership is changed in
comparison to its ownership structure three years previously. While determining the change in control,
only such changes as attributable to the beneficiaries holding 1% or more interest in the entity or the
associated person of the beneficiaries holding 1% or more interest in the entity shall only be considered.
In the given case, M/s Ganapati Industries P. Ltd. is being operated since last many years as the question
provides information of the loss of last four years with Mr. Shyam as sole shareholder of the company,
and Mr. Shyam sold 60% of the companys stake to Mr. Mohan on Ashad 31, 2069.
As Mr. Shyam is the only shareholder (with 100% ownership), all change in control, i.e. 60%, shall be
considered; which means there is change in control on Ashad 31, 2069.
This means, as aforesaid in the first paragraph, the loss cannot be carried forward for set off after the
change in control. As such, the tax officers contention is correct.