Revival of sick units Section 59C

Revival of sick units Section 59C

Insertion of Section 59C in the Ordinance

This is an explanatory blog on Insertion of Section 59C in the Ordinance via amendments made in Income Tax Ordinance, 2001 and in case of any conflict between the Circular and the letter of the law, the latter would prevail.

The Income Tax (Amendment) Ordinance, 2022, (hereinafter “the Amendment Ordinance”) has brought about certain amendments in the Income Tax Ordinance, 2001 (hereinafter “the Ordinance”). Some significant amendments are explained as under: –

In order to initiate revival of sick industrial units, a new section 59C has been inserted in the Ordinance under which an acquiring company is allowed to adjust loss for the latest tax year and brought forward assessed business losses, excluding capital loss, of acquired company (‘sick industrial unit’) by way of acquisition of its majority share capital.

The acquiring company can adjust said losses for a period of three tax years upto tax year 2026.

Failure to revive sick industrial unit by tax year 2026 shall entail acquiring company to reverse the adjustment of loses in the preceding three tax years and offer income for tax which was set-off due to adjustment of loses of the acquiring company in Tax Year 2027.

The acquiring company is entitled to adjust above said losses in proportion to share capital acquired subject to the conditions referred in sub-section (2) of the section 59C of the Ordinance.

Any leftover loss of acquired company by the end of tax year 2026 will not be available to the acquiring company for further set-off of losses in Tax Year 2027 against its own income, however, the acquired company can carry forward its losses in accordance with section 57 of the Ordinance. The benefit under this section shall not be available to any scheme of amalgamation or merger.

The definition of a sick industrial unit, whose losses are available for adjustment under this scheme, has been provided in this section. Revival of sick industrial unit require attaining maximum production capacity that was obtained before such company went sick.

Such revival will be certified by the Engineering Development Board and the acquired company is required to file said certificate along with return of income for tax year 2026.

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