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

Under the provisions on losses of co-operative banks in business reorganisation, which statement is correct for a successor co-operative bank in an amalgamation?

A successor co-operative bank can set off the predecessor's accumulated loss and unabsorbed depreciation as if the amalgamation had not occurred, provided the statutory conditions are met, including continuing the business and holding three-fourths of fixed assets' book value for five years.

  1. AIt may set off the predecessor's accumulated loss and unabsorbed depreciation as if the amalgamation had not taken place, if the prescribed conditions are satisfiedCorrect
  2. BIt may never set off the predecessor's losses
  3. CIt may set off the losses only if it holds at least three-fourths of the book value of fixed assets for one year
  4. DIt may set off only unabsorbed depreciation and not accumulated loss

Explanation

Section 118(1) allows a successor co-operative bank to set off the predecessor's accumulated loss and unabsorbed depreciation as if the amalgamation had not taken place, subject to the conditions in section 118(3). Those conditions require holding at least three-fourths of the book value of fixed assets for five years, not one year. Both loss and depreciation are covered.

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