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CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses

Nagar Co-operative Bank, a co-operative bank, demerges an undertaking into Vikas Co-operative Bank (resulting bank) during the tax year. Nagar's accumulated loss is Rs 90,00,000, not directly relatable to the transferred undertaking. Assets of the undertaking are Rs 200 crore and the demerged bank retains Rs 300 crore. Section 118 conditions are satisfied. How much of the loss can the resulting bank set off against its income?

The resulting bank can set off Rs 36,00,000. Since the loss is not directly relatable to the transferred undertaking, it is apportioned in the ratio of assets distributed, 200 to 300, so the resulting bank gets two fifths of Rs 90,00,000.

  1. ANil
  2. BRs 90,00,000
  3. CRs 36,00,000Correct
  4. DRs 54,00,000

Explanation

Under section 118(2)(b), a loss not directly relatable to the transferred undertaking is apportioned in the ratio in which assets are distributed between demerged and resulting banks. Ratio = 200 : 300 = 2 : 3, so the resulting bank gets 90,00,000 x 2/5 = Rs 36,00,000. Rs 54,00,000 is wrong because it uses the demerged bank's share.

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