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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Demerged company Arjun Ltd has an accumulated business loss of Rs 60 lakh that is not directly relatable to the undertaking transferred to the resulting company. Assets of Rs 30 crore are retained by Arjun Ltd and assets of Rs 20 crore are transferred to the resulting company. How much loss can the resulting company carry forward under section 116 of the Income-tax Act, 2025?

The resulting company gets Rs 24 lakh. A loss not directly relatable to the transferred undertaking is apportioned in the ratio of assets retained to assets transferred, so the resulting company's share is 20/50 of Rs 60 lakh, which equals Rs 24 lakh, and Arjun Ltd keeps Rs 36 lakh.

  1. ARs 24 lakhCorrect
  2. BRs 36 lakh
  3. CRs 30 lakh
  4. DNil

Explanation

Under section 116(6)(b), a loss not directly relatable is apportioned in the proportion of assets retained to assets transferred. Total assets are 30 + 20 = 50 crore. The resulting company's share is 20/50 x 60 = Rs 24 lakh. Rs 36 lakh is the demerged company's share, from reversing the ratio.

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