Saturday, February 14, 2009


the Income Tax Appellate Tribunal (ITAT) is bound to make the acquisition of MNCs' Indian subsidiaries more attractive on grounds of non-discrimination. The bench has decided to allow the carry forward of losses incurred by the Indian subsidiary of a German company, after the parent company merged with a US company. Carry forward of losses, as described under Section 79 of
the Income Tax Act, is allowed in India when a company's ownership changes, only if the acquiring company is listed in India or is a subsidiary of a listed company here. Companies use this accounting technique, which applies the current year's net operating losses to future years' profits, in order to re-
duce liability. However, the section does not deal with a situation when the subject company is a subsidiary of a foreign company that is listed abroad. This was the question posed before ITAT by Daimler Chrysler India, a subsidiary of German parent Daimler Chrysler. The German company merged with US auto major Chrysler in May 1998. Post merger, the Indian subsidiary sought to carry forward losses. Earlier, the I-T department, relying on Section 79 of I-T Act, had declined to allow
carry forward of losses, post merger. The Commissioner of Income-Tax (Appeals) upheld the department's stand on the issue. The ground for denial was based on the fact that the parent company, in this case a German entity, and was not listed in India. However, ITAT's Pune bench, decided
that the benefits of the tax treaty between the two countries should be accorded to the Indian subsidiary of the German company as well.


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