Section 118: losses and unabsorbed depreciation on co-operative bank business reorganisation

Amalgamation of co-operative banks

Where an amalgamation of co-operative banks has taken place during the tax year, the successor co-operative bank is allowed to set off the accumulated loss and unabsorbed depreciation of the predecessor co-operative bank as if the amalgamation had not taken place, and the Act's ordinary set-off and carry-forward provisions then apply.

Demerger of a co-operative bank

Where a demerger of a co-operative bank takes place during the tax year, accumulated loss or unabsorbed depreciation directly relatable to the undertaking transferred is carried forward and set off in full against the income of the resulting co-operative bank.

Loss or depreciation not directly relatable to the transferred undertaking is first apportioned between the demerged and resulting co-operative banks in the same proportion as the assets of the undertaking are distributed between them, and carried forward and set off against their respective incomes.

Conditions that must be satisfied

The section applies only if:

• The predecessor co-operative bank has been engaged in the business of banking for three or more years, and has held at least three-fourths of the book value of fixed assets continuously for two years before the business reorganisation.
• The successor co-operative bank holds at least three-fourths of the book value of fixed assets acquired through the reorganisation continuously for a minimum of five years immediately following it.
• The successor co-operative bank continues the predecessor's business for a minimum of five years from the date of reorganisation.
• The successor co-operative bank fulfils such other prescribed conditions as ensure revival of the business or that the reorganisation is for a genuine business purpose.

Further conditions and consequence of non-compliance

The Central Government may, by notification, specify further conditions (beyond the prescribed "genuine business purpose" condition) that must also be met.

If any of these conditions is not complied with, the set-off of accumulated business loss or unabsorbed depreciation already made in any tax year in the hands of the successor co-operative bank is deemed to be its income chargeable to tax for the year in which the non-compliance occurs.

Two deemed tax years around the reorganisation date

For the purposes of set-off and carry forward of loss and depreciation allowance, the period from the start of the tax year up to the day before the date of business reorganisation, and the period from the reorganisation date to the end of the tax year, are each treated as two separate tax years.

Key definitions

"Accumulated loss" means so much of the loss of the amalgamating or demerged co-operative bank (as referred to in Section 112) as the predecessor co-operative bank would have been entitled to carry forward and set off under that section, had the reorganisation not taken place.

Terms such as "amalgamated co-operative bank", "amalgamating co-operative bank", "amalgamation", "business reorganisation", "demerged co-operative bank", "demerger", "predecessor co-operative bank", "successor co-operative bank" and "resulting co-operative bank" carry the meanings assigned to them in Section 65.

"Unabsorbed depreciation" means so much of the depreciation allowance of the amalgamating or demerged co-operative bank as remains to be allowed and would have been allowed had the reorganisation not taken place.

Frequently asked questions