Income Tax 2025

Appearance

Special provision for computing deductions in case of business reorganisation of co-operative banks. ​

65(1) ​

The deduction under section 33 or 44 or 52(1) (Table: Sl. No. 1 or 2) shall, in a case where business reorganisation of a co-operative bank has taken place during the tax year, be allowed as per provisions of this section.

65(2) ​

The amount of deduction allowable to the predecessor co-operative bank or to the successor co-operative bank or to the converted banking company under section 33 or 44 or 52(1) (Table: Sl. No. 1 or 2) shall be determined as per the formula— (i) for predecessor co-operative bank:— A × B C (ii) for successor co-operative bank or converted banking company:— A × D C where,— A = the amount of deduction allowable to the predecessor co-operative bank, if the business reorganisation had not taken place; B = the number of days comprised in the period beginning with the 1st day of the tax year and ending on the day immediately preceding the date of business reorganisation; and C = the total number of days in the tax year in which the business reorganisation has taken place. D = the number of days comprised in the period beginning with the date of business reorganisation and ending on the last day of the tax year.

65(3) ​

The provisions of section 44 or 52(1) (Table: Sl. No. 1 or 2) shall, in a case where an undertaking of the predecessor co-operative bank entitled to the deduction under the said section is transferred before the expiry of the period specified therein to a successor co-operative bank or to a converted banking company on account of business reorganisation, apply to the successor co-operative bank or to the converted banking company in the tax years subsequent to the year of business reorganisation as they would have applied to the predecessor co-operative bank, as if the business reorganisation had not taken place.

65(4) ​

In this section,––

  • (a) “amalgamation” means the merger of an amalgamating co-operative bank with an amalgamated co-operative bank, if— (i) all the assets and liabilities of the amalgamating co-operative bank or banks immediately before the merger (other than the assets transferred, by sale or distribution on winding up, to the amalgamated co-operative bank) become the assets and liabilities of the amalgamated co-operative bank; (ii) the members holding 75% or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank; and (iii) the shareholders holding 75% or more in value of the shares in the amalgamating co-operative bank (other than the shares held by the amalgamated co-operative bank or its nominee or its subsidiary, immediately before the merger) become shareholders of the amalgamated co-operative bank;
  • (b) “amalgamating co-operative bank” means— (i) a co-operative bank which merges with another co-operative bank; or (ii) every co-operative bank merging to form a new co-operative bank;
  • (c) “amalgamated co-operative bank” means— (i) a co-operative bank with which one or more amalgamating co-operative banks merge; or (ii) a co-operative bank formed as a result of merger of two or more amalgamating co-operative banks;
  • (d) “business reorganisation” means reorganisation of business involving the amalgamation or demerger of a co-operative bank or conversion of a primary co-operative bank;
  • (e) “conversion” means transition of a primary co-operative bank to a banking company under the scheme of the Reserve Bank of India as notified vide its circular number DCBR. CO. LS. PCB. Cir. No. 5/07.01.000/2018-19, dated 27th September, 2018;
  • (f) “converted banking company” means a banking company formed as a result of conversion from primary co-operative bank;
  • (g) “demerger” means the transfer by a demerged co-operative bank of one or more of its undertakings to any resulting co-operative bank, in such manner that— (i) all the assets and liabilities of the undertaking or undertakings immediately before the transfer become the assets and liabilities of the resulting co-operative bank; (ii) the assets and the liabilities are transferred to the resulting co-operative bank at values (other than change in the value of assets consequent to their revaluation) appearing in its books of account immediately before the transfer; (iii) the resulting co-operative bank issues, in consideration of the transfer, its membership to the members of the demerged cooperative bank on a proportionate basis; (iv) the shareholders holding 75% or more in value of the shares in the demerged co-operative bank (other than shares already held by the resulting bank or its nominee or its subsidiary immediately before the transfer), become shareholders of the resulting cooperative bank, otherwise than as a result of the acquisition of the assets of the demerged cooperative bank or any undertaking thereof by the resulting co-operative bank; (v) the transfer of the undertaking is on a going concern basis; and (vi) the transfer is as per the conditions specified by the Central Government, by notification, having regard to the necessity to ensure that the transfer is for genuine business purposes;
  • (h) “demerged co-operative bank” means the co-operative bank whose undertaking is transferred, pursuant to a demerger, to a resulting bank;
  • (i) “predecessor co-operative bank” means the amalgamating co-operative bank or the demerged co-operative bank, or the primary co-operative bank, which has been succeeded as a result of conversion;
  • (j) “resulting co-operative bank” means— (i) one or more co-operative banks to which the undertaking of the demerged co-operative bank is transferred in a demerger; or (ii) any co-operative bank formed as a result of demerger;
  • (k) “successor co-operative bank” means the amalgamated co-operative bank or the resulting bank.
Explanation

Section Summary: ​

This section provides special provisions for calculating tax deductions in cases of business reorganization involving cooperative banks. It ensures that deductions under specific sections (33, 44, or 52(1)) are appropriately allocated between the predecessor and successor entities during a reorganization, such as amalgamation, demerger, or conversion of a cooperative bank.

Key Changes: ​

  1. New Allocation Mechanism: Introduces a formula-based approach to allocate deductions between the predecessor and successor cooperative banks or converted banking companies during a business reorganization.
  2. Continuity of Deductions: Ensures that deductions continue to apply to the successor entity as if the reorganization had not occurred, maintaining the tax benefits for the specified period.
  3. Clarification of Terms: Defines key terms like "amalgamation," "demerger," "conversion," and "business reorganization" to provide clarity on what qualifies under these provisions.

Practical Implications: ​

  1. For Predecessor and Successor Entities:
    • The predecessor cooperative bank can claim deductions for the period up to the date of reorganization.
    • The successor cooperative bank or converted banking company can claim deductions for the period after the reorganization.
  2. Continuity of Tax Benefits: Ensures that tax benefits (e.g., deductions under Sections 33, 44, or 52(1)) are not lost due to reorganization.
  3. Compliance Burden: Entities must calculate deductions using the prescribed formula and maintain detailed records of the reorganization process.

Critical Concepts: ​

  1. Business Reorganization: Includes amalgamation, demerger, or conversion of a cooperative bank.
  2. Deduction Allocation Formula:
    • For the predecessor cooperative bank:
      [ \text{Deduction} = \frac{A \times B}{C} ] Where:
      • ( A ) = Total deduction allowable if no reorganization occurred.
      • ( B ) = Number of days from the start of the tax year to the day before reorganization.
      • ( C ) = Total number of days in the tax year.
    • For the successor cooperative bank or converted banking company:
      [ \text{Deduction} = \frac{A \times D}{C} ] Where:
      • ( D ) = Number of days from the reorganization date to the end of the tax year.
  3. Amalgamation and Demerger: Defined with specific conditions, such as transfer of assets/liabilities, voting rights, and shareholder continuity.

Compliance Steps: ​

  1. Determine Eligibility: Confirm that the reorganization qualifies as amalgamation, demerger, or conversion under the defined terms.
  2. Calculate Deductions: Use the prescribed formula to allocate deductions between the predecessor and successor entities.
  3. Maintain Records: Keep detailed documentation of the reorganization process, including dates, asset/liability transfers, and shareholder details.
  4. File Returns: Report the allocated deductions in the respective tax returns of the predecessor and successor entities.

Examples: ​

  1. Amalgamation Scenario:

    • Cooperative Bank X merges with Cooperative Bank Y on October 1, 2023.
    • Total deduction allowable under Section 33 for the year: ₹10,00,000.
    • Tax year: 365 days.
    • Days up to September 30, 2023: 273 days.
    • Days from October 1, 2023, to December 31, 2023: 92 days.
    • Deduction for Bank X (predecessor):
      [ \frac{10,00,000 \times 273}{365} = ₹7,47,945 ]
    • Deduction for Bank Y (successor):
      [ \frac{10,00,000 \times 92}{365} = ₹2,52,055 ]

  2. Conversion Scenario:

    • Primary Cooperative Bank A converts to Banking Company B on July 1, 2023.
    • Total deduction allowable under Section 44: ₹5,00,000.
    • Tax year: 365 days.
    • Days up to June 30, 2023: 181 days.
    • Days from July 1, 2023, to December 31, 2023: 184 days.
    • Deduction for Bank A (predecessor):
      [ \frac{5,00,000 \times 181}{365} = ₹2,47,945 ]
    • Deduction for Company B (successor):
      [ \frac{5,00,000 \times 184}{365} = ₹2,52,055 ]

This section ensures fair allocation of tax benefits during reorganizations, minimizing disruptions to the entities involved.