CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses
Nagar Co-operative Bank amalgamated into Vishwa Co-operative Bank during tax year 2026-27. The predecessor bank has an accumulated loss of Rs 9,00,000 and met the requirement of three years of banking business and holding three-fourths of fixed assets for two years. Which statement about section 118 is correct?
The successor co-operative bank may set off the predecessor's accumulated loss as if the amalgamation had not taken place, provided it holds at least three-fourths of the acquired fixed assets and continues the business for five years. A breach makes the set-off amount taxable income of that year.
- AThe successor bank can set off the accumulated loss as if the amalgamation had not taken place, subject to conditions such as holding three-fourths of the predecessor's fixed assets for five yearsCorrect
- BThe loss lapses on amalgamation, since only companies get such benefit
- CThe successor can set off the loss only if it continues the business for one year
- DIf conditions are later breached, the earlier set off is ignored and nothing is taxed
Explanation
Section 118(1) lets the successor co-operative bank set off the predecessor's accumulated loss as if amalgamation had not occurred. Section 118(3)(b) requires holding three-fourths of fixed assets and continuing the business for at least five years. On a breach, section 118(5) deems the set-off amount to be the successor's income of that year, so option D is wrong.
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