CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
A co-operative bank amalgamated into Lokmanya Co-operative Bank (successor) in a tax year. The successor set off the predecessor's accumulated business loss of Rs 12,00,000 against its income in the tax year of amalgamation. Three years later, the successor sold more than one-fourth of the book value of fixed assets acquired through the reorganisation, within five years of the reorganisation. Under section 118 of the Income-tax Act, 2025, what is the consequence?
The full Rs 12,00,000 loss set off becomes deemed income of the successor bank, chargeable in the year in which the condition is breached. The breach is holding less than three-fourths of the acquired fixed assets' book value for five years; the tax is not apportioned.
- AThe Rs 12,00,000 set off is deemed income of the successor bank for the year in which the condition is not complied withCorrect
- BThe Rs 12,00,000 is added to income of the tax year of amalgamation by reopening that year
- CNothing, as the conditions apply only at the time of amalgamation
- DThe set off is reversed only to the extent of the proportion of assets sold
Explanation
Section 118(3)(b)(i) requires the successor to hold at least three-fourths of the book value of fixed assets acquired for five years. Selling more than one-fourth breaches this. Under section 118(5), the set off of accumulated loss made in any tax year is deemed income of the successor chargeable for the year of non-compliance, so the full Rs 12,00,000 is taxed in that year, not proportionately and not by reopening the earlier year.
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