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CS Professional · Advanced Direct Tax Laws and Practice · Income Tax Implication on Specified Transactions

Under section 116 of the Income-tax Act, 2025, which of the following statements about the succession of a proprietary concern by a company is correct?

When a proprietary concern is succeeded by a company meeting the specified conditions, both its accumulated loss and unabsorbed depreciation are deemed to be those of the successor company. If those conditions are later breached, the set-off already made becomes the company's income for that year.

  1. AThe accumulated loss and unabsorbed depreciation of the proprietary concern are deemed to be those of the successor company if the specified conditions are fulfilledCorrect
  2. BLosses of the proprietary concern lapse permanently on succession
  3. COnly unabsorbed depreciation, and not business loss, passes to the successor company
  4. DThe successor company can claim the loss even if the specified conditions are breached later

Explanation

Section 116(8) deems the accumulated loss and unabsorbed depreciation of the predecessor proprietary concern to be those of the successor company, where the conditions in the referred provision are met. Both items pass, not depreciation alone. Under section 116(9), a later breach makes the set-off already made deemed income of the successor company.

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