Explanation
Section 79 is a critical provision in M&A and restructuring transactions involving loss-making companies. When there is a change in ownership of a closely held company (a company in which the public is not substantially interested), the loss carried forward under §72 cannot be set off in any year in which less than 51% of the voting power is continuously held by the same persons who held it at the end of the year in which the loss was incurred. This effectively means that if an acquirer buys more than 49% of a loss-making company, the tax losses are forfeited — they cannot be used by the new owners. The proviso under §79(1) for eligible start-ups (recognised under §80-IAC criteria) provides relief: the loss is allowed to be carried forward even if shareholding changes, provided that the shareholders who held shares at the time the loss was incurred continue to hold shares in the company. This is designed to accommodate ESOP dilution and investor funding rounds without penalising start-ups. For M&A deals involving loss companies, a detailed §79 analysis is mandatory before structuring the acquisition. Demergers and amalgamations may have separate provisions. Verify on the income-tax portal before filing.