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

Ganga Co-operative Bank was amalgamated into Yamuna Co-operative Bank, and the successor set off the predecessor's accumulated loss in the tax year of amalgamation. In the fourth year after reorganisation, Yamuna sells more than one-fourth of the book value of fixed assets acquired from Ganga. What is the consequence under section 118 of the Income-tax Act, 2025?

The earlier set off of accumulated loss or unabsorbed depreciation is deemed to be the successor's income chargeable to tax in the year the condition is breached, which is the year of the sale, not the amalgamation year.

  1. AThe set off made earlier is deemed to be the successor's income chargeable to tax for the year in which the condition is not complied withCorrect
  2. BThe set off made earlier is deemed to be the successor's income of the year of amalgamation, and that year is reopened
  3. COnly the unabsorbed depreciation is reversed
  4. DNo consequence arises because the five-year period ends in the fifth year

Explanation

Section 118(3)(b)(i) requires the successor to hold at least three-fourths of the book value of fixed assets acquired for a minimum of five years. Breach in year four triggers section 118(5): the set off made is deemed income of the successor chargeable to tax for the year of non-compliance, not the year of amalgamation. It covers both loss and depreciation.

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