Section 118Chapter 7

Carry forward and set off of losses and unabsorbed depreciation in business reorganisation of co-operative banks

(1)

In a case of a co-operative bank, where amalgamation takes place during the tax year, the accumulated business loss and unabsorbed depreciation, if any, of the predecessor co-operative bank, shall be allowed to be set off against the income of the assessee, being a successor co-operative bank for that tax year, as if the business reorganisation had not taken place and all other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation, shall apply accordingly.

(2)

In case of a co-operative bank where demerger takes place during the tax year, and where the accumulated loss or unabsorbed depreciation––

(a) is directly relatable to the undertaking transferred, the whole of such loss and depreciation shall be allowed to be carried forward and set off against the income of the resulting co-operative bank; and

(b) is not directly relatable to the undertaking transferred, then such loss and depreciation shall first be apportioned between the demerged co-operative bank and the resulting co-operative bank in the same proportion in which assets of the undertaking are distributed between the demerged co-operative bank and the resulting co-operative bank, and be allowed to be carried forward and set off against their respective incomes.

(3)

The accumulated loss shall be carried forward only up to eight tax years immediately succeeding the tax year in which such loss was first computed in the hands of the predecessor-in-business.

(4)

The provisions of this section shall apply, if—

(a) the predecessor co-operative bank—

(i) has been engaged in the business of banking for three or more years; and

(ii) has held at least three-fourths of the book value of fixed assets as on the date of the business reorganisation, continuously for two years before to the date of business reorganisation;

(b)

the successor co-operative bank,—

(i) holds at least three-fourths of the book value of fixed assets of the predecessor co-operative bank acquired through business reorganisation, continuously for a minimum five years immediately succeeding the date of business reorganisation; 5 (ii) continues the business of the predecessor co-operative bank for a minimum five years from the date of business reorganisation; and

(iii) fulfils such other conditions, as prescribed, to ensure the revival of the business of the predecessor co-operative bank or to ensure that the business reorganisation is for genuine business 10 purpose.

(5)

The Central Government may, by notification, specify such other conditions as it may consider necessary, other than the condition referred to in sub-section (4)(b)(iii), for the purposes of ensuring that the specified business reorganisation is for genuine business purposes. 15

(6)

In a case where any of the conditions referred to in sub-section (4) or (5) are not complied with, the set off of accumulated business loss or unabsorbed depreciation made in any tax year in the hands of the successor co-operative bank shall be deemed to be the income of the successor co-operative bank chargeable to tax for the year in which such conditions are not complied with. 20

(7)

The period commencing from the beginning of the tax year and ending on the date immediately preceding the date of business reorganisation, and the period commencing from the date of such business reorganisation and ending with the tax year, shall be deemed to be two different tax years for the purposes of set off and carry forward of loss and allowance for depreciation. 25

(8)

In this section,––

(a)

“accumulated business loss” means so much of the loss of amalgamating co-operative bank or demerged co-operative bank as referred to in section 112section 112 in the hands of predecessor co-operative bank, which such predecessor co-operative bank would have been entitled to carry forward 30 and set off under the said section, as if the business reorganisation had not taken place;

(b)

“amalgamated co-operative bank”, “amalgamating co-operative bank”, “amalgamation”, “business reorganisation”, “demerged co-operative bank”, “demerger”, “predecessor co-operative bank”, “successor 35 co-operative bank” and “resulting co-operative bank” shall have the meanings respectively assigned to them in section 65section 65;

(c)

“unabsorbed depreciation” means so much of the allowance for depreciation in the hands of amalgamating co-operative bank or demerged co-operative bank, which remains to be allowed and which would have been 40 allowed to such banks, if the business reorganisation had not taken place.