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CS Professional · Corporate Restructuring, Valuation and Insolvency · Taxation and Stamp Duty Aspects of Corporate Restructuring

A co-operative bank demerges an undertaking into a resulting co-operative bank during the tax year. The demerged bank has an accumulated loss that is directly relatable to the transferred undertaking. What is the treatment under section 118 of the Income-tax Act, 2025?

Where the accumulated loss or unabsorbed depreciation is directly relatable to the transferred undertaking, the whole amount is carried forward and set off against the income of the resulting co-operative bank. Apportionment by asset ratio applies only to non-relatable amounts.

  1. AThe loss is apportioned by the ratio of assets distributed between the two banks
  2. BThe loss stays entirely with the demerged bank
  3. CThe whole loss is carried forward and set off against the income of the resulting co-operative bankCorrect
  4. DThe loss lapses on demerger

Explanation

Under section 118(2)(a), a loss directly relatable to the transferred undertaking goes wholly to the resulting bank. Asset-ratio apportionment under clause (b) applies only where the loss is not directly relatable.

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