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

Sahakari Nagar Co-operative Bank Ltd, engaged in banking for eight years, demerged an undertaking into a resulting co-operative bank during the tax year. The demerged bank has an accumulated loss of Rs 9,00,000 that is not directly relatable to the undertaking transferred. Assets of the undertaking distributed: Rs 30 crore to the resulting bank and Rs 70 crore retained by the demerged bank. All conditions of section 118 are met. How is the accumulated loss dealt with under section 118 of the Income-tax Act, 2025?

The loss is apportioned in the ratio of assets distributed, 30:70. The resulting co-operative bank gets Rs 2,70,000 and the demerged bank retains Rs 6,30,000, each carried forward and set off against its own income, provided the section 118 conditions are satisfied.

  1. AThe whole Rs 9,00,000 goes to the resulting bank as the undertaking was transferred to it
  2. BRs 2,70,000 to the resulting bank and Rs 6,30,000 retained by the demerged bank, each set off against their respective incomesCorrect
  3. CRs 6,30,000 to the resulting bank and Rs 2,70,000 retained by the demerged bank
  4. DThe loss lapses since it is not directly relatable to the undertaking

Explanation

Under section 118(2)(b), a loss not directly relatable to the undertaking is apportioned in the proportion of assets distributed between the demerged and resulting banks. The ratio is 30:70, so the resulting bank gets 30% of 9,00,000 = 2,70,000 and the demerged bank keeps 6,30,000. Reversing the ratio gives the wrong split in another option.

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