Recent changes in Income tax provisions in Budget 2018-19 in relation to companies facing Insolvency Proceeding or under corporate Insolvency resolution process:

Section Old Provision New Provision
Relief from liability of Minimum Alternate Tax (MAT)
115 JB (MAT) In computing the book profit, it provides, inter alia, for a deduction in respect of the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.
So, where the loss brought forward or unabsorbed depreciation is Nil, no deduction is allowed.
New Clause:
It is proposed to amend section 115JB to provide that the aggregate amount of unabsorbed depreciation and loss brought forward (excluding unabsorbed depreciation) shall be allowed to be reduced from the book profit, if a company’s application for corporate insolvency resolution process under the IBC, 2016 has been admitted by the Adjudicating Authority.
Applicability None Assessment Year 2018-19 and subsequent assessment years.
Analysis/ queries
  1. New provision will be applicable once the application is accepted by NCLT, there is no clarity in case of settlement done by the parties and application withdrawn at later stage?
  2. There can be instances where corporate debtor will himself file the application to get benefit of this new clause which might be against the intention of the amendment.
Benefit of carry forward and set off of losses
79 (carry f/w and set off of losses) Section 79 provides that carry forward and set off of losses in a closely held company shall be allowed only if there is a continuity in the beneficial owner of the shares carrying not less than 51 percent. of the voting power, on the last day of the year or years in which the loss was incurred. Proviso inserted:
Provided also that nothing contained in this section (sec 79) shall apply to a company where a change in the shareholding takes place in a previous year pursuant to a resolution plan approved under the IBC, 2016, after affording a reasonable opportunity of being heard to the jurisdictional Principal Commissioner or Commissioner.
Applicability None Assessment Year 2018-19 and subsequent assessment years.
Analysis Resolution plan needs to be approved by COC and by Adjudicating authority to get benefit under this proviso, if any change in shareholding by any other way, then this proviso benefit will not be allowed.
Income Tax Return by Whom to be Signed / Verified
Sec 140 No provisions New clause inserted:
Clause (c ): where in respect of a company, an application for corporate insolvency resolution process has been admitted by the Adjudicating Authority under section 7 or section 9 or section 10 of the IBC 2016, the return shall be verified by the insolvency professional appointed by such Adjudicating Authority
Applicability None This amendment will take effect from 1st April, 2018 and will, accordingly apply to return filed on or after the said date.
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