Finance Act, 1973
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Chapter IV Anti-avoidance and penalty provisions | ||
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Change in ownership of company: disallowance of trading losses and restriction of capital allowances. |
39.—(1) Where a relevant change in the ownership of a company takes place— | |
(a) no relief shall be given under section 309 of the Income Tax Act, 1967 , in respect of a loss sustained in a trade carried on by the company in any year of assessment ending before the change in ownership, by deducting such loss from or setting it off against the amount of the profits or gains on which the company is assessed to income tax under Schedule D in respect of that trade for any year of assessment beginning after the said change in ownership; | ||
(b) the amount of the capital allowances falling to be made in charging the profits or gains of a trade carried on by the company in any year of assessment ending before the change in ownership shall not, for the purposes of section 241 (3), 244 (7), 245 (6), 248 , 252 , 254 (5), 295 or 305 (1) of the Income Tax Act, 1967 , be added to, or deemed to be, or deemed to be part of, the amount of the capital allowances falling to be made in charging the profits or gains of that trade for any year of assessment beginning after the said change in ownership; | ||
(c) no relief shall be given under section 25 of the Finance Act, 1964 , in respect of a loss sustained by the company in an accounting period beginning before the change in ownership by deducting such loss from or setting it off against profits arising to the company in an accounting period ending after the change in ownership. | ||
(2) (a) This subsection applies to any company in the ownership of which a relevant change takes place, and which sustains a loss in the year of assessment in which the change in ownership takes place. | ||
(b) In the case of a company to which this subsection applies— | ||
(i) the amount of the loss sustained by the company in the year of assessment in which the change of ownership takes place shall be apportioned on the basis specified in section 107 of the Income Tax | ||
Act, 1967, the amount apportioned to that part of the year of assessment falling before the change in ownership being referred to in this subsection as the pre-change loss and the amount apportioned to that part of the year of assessment falling after the change in ownership being referred to in this subsection as the post-change loss, | ||
(ii) the amount of any income, from which income tax has been deducted, of the company for the said year of assessment shall be apportioned by reference to the date on which that income was received by the company, the amount received in that part of the said year falling before the change in ownership being referred to in this subsection as the pre-change taxed income, and the amount of the said income received in that part of the said year falling after the change in ownership being referred to in this subsection as the post-change taxed income, | ||
(iii) the amount of any income for the said year, other than such income as is referred to in subparagraph (ii), shall be apportioned on the basis specified in section 107 of the Income Tax Act, 1967 , the amount apportioned to that part of the said year falling before the change in ownership being referred to in this subsection as the pre-change income and the amount apportioned to that part of the said year falling after the change in ownership being referred to in this subsection as the post-change income. | ||
(c) Where relief under section 307 of the Income Tax Act, 1967 , is claimed by a company to which this subsection applies in respect of the year of assessment in which the change in ownership takes place, the amount of any relief to be given under the said section 307 for that year of assessment shall not exceed the sum of the following: | ||
(i) the amount of the relief which would have been given for that year of assessment if the loss sustained by the company in that year of assessment had been only the amount of the pre-change loss and the income of the company for the said year of assessment had been only the amount of the pre-change taxed income together with the amount of the pre-change income; | ||
and | ||
(ii) the amount of the relief which would have been given if the loss sustained by the company in that year of assessment had been only the amount of the post-change loss and the income of the company for the said year of assessment had been only the amount of the post-change taxed income together with the amount of the post-change income. | ||
(d) Any pre-change loss, for which relief is not given or is not given fully under any provision of the Income Tax Acts as modified by this subsection, shall not be taken into account for the purposes of section 309 of the Income Tax Act, 1967 . | ||
(3) Where, in charging the profits or gains of a trade carried on by a company, in the ownership of which a relevant change takes place, for the year of assessment in which the change of ownership takes place, capital allowances fall to be made— | ||
(a) so much of any deduction falling to be made under section 241 of the Income Tax Act, 1967 , as is attributable to that part of the year of assessment falling before the change in ownership, and | ||
(b) so much of any capital allowances, falling to be made under any provision other than the said section 241, as are in respect of expenditure incurred before the change in ownership, | ||
shall be deemed to be an amount of capital allowances falling to be made in respect of a year of assessment ending before the change in ownership. | ||
(4) (a) Where relief in respect of a loss or an amount of capital allowances given or made to a company in the ownership of which a relevant change takes place has been restricted under this section, then, notwithstanding section 304 (6) of the Income Tax Act, 1967 , in applying the provisions of Part XVI of that Act in relation to balancing charges to the company by reference to any event after the change in ownership, any capital allowances falling to be made to the company for any year of assessment ending before the change in ownership shall be disregarded unless the profits or gains of that year of assessment or any subsequent year of assessment ending before the change in ownership were sufficient to give effect to the allowances. | ||
(b) In the application of paragraph (a) it shall be assumed that any profits or gains are applied in giving effect to any such capital allowances in preference to being set off against any loss which is not attributable to such allowances. | ||
(5) In applying subsection (1) (c) to the accounting period in which the relevant change in the ownership of a company takes place, the part ending with the change in ownership, and the part beginning thereafter, shall be treated as two separate accounting periods, and the profits or losses of the accounting period shall be apportioned to the two parts. The apportionment shall be on a time basis according to the respective lengths of those parts except that if it appears that that method would work unreasonably or unjustly such other method shall be used as appears just and reasonable. | ||
(6) (a) For the purposes of this section a relevant change in the ownership of a company shall be regarded as having taken place if— | ||
(i) within any period of three years there is both a change in the ownership of the company and a major change in the nature or conduct of a trade carried on by the company, whether such major change occurs before or after or at the same time as the change in ownership, or | ||
(ii) at any time after the scale of the activities in a trade carried on by the company has become small or negligible, and before any considerable revival of the trade, there is a change in the ownership of the company. | ||
(b) In paragraph (a) “major change in the nature or conduct of a trade” includes— | ||
(i) a major change in the type of property dealt in, or services or facilities provided, in the trade, or | ||
(ii) a major change in customers, outlets or markets of the trade, | ||
and this section shall apply even if the change is the result of a gradual process which began outside the period of three years mentioned in paragraph (a) (i). | ||
(c) The Fifth Schedule to this Act shall have effect for the purpose of supplementing this section. | ||
(7) In this section and in the Fifth Schedule to this Act— | ||
“capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under section 241 of the Income Tax Act, 1967 , or under Part XIV, XV, XVI or XVII of that Act; | ||
“company” means any body corporate. | ||
(8) This section shall not apply if the change of ownership took place before the 16th day of May, 1973, and subsection (6) (a) (i) shall not apply if the major change in the nature or conduct of the trade was completed before that date; but, in other respects, this section shall have effect by reference to circumstances and events before that date as well as by reference to later circumstances and events. |