Method of computing deduction in the case of business reorganisation of co-operative banks [Section 44DB] :
(i) This section provides the manner in which the deduction under the following sections are to be allowed in a case where business reorganisation of a co-operative bank has taken place during the financial year –
(1) Section 32 (Depreciation);
(2) Section 35D (Amortisation of certain preliminary expenses);
(3) Section 35DD (Amortisation of expenses in case of amalgamation or demerger);
(4) Section 35DDA (Amortisation of expenditure incurred under voluntary retirement scheme).
(ii) Business reorganisation means the reorganisation of business involving the amalgamation or demerger of a co-operative bank.
(iii) Co-operative bank shall have the meaning assigned to it in clause (cci) of section 5 of the Banking Regulation Act, 1949 i.e., a primary co-operative bank or Central Co-operative bank or a State co-operative bank.
(iv) Predecessor co-operative bank means the amalgamating co-operative bank or the demerged co-operative bank, as the case may be.
(v) Successor co-operative bank means the amalgamated co-operative bank or the resulting bank, as the case may be.
(vi) The amount of deduction allowable to the predecessor co-operative bank under the above-mentioned sections has to be determined in accordance with the following formula-
A * B/C
A = the amount of deduction allowable to the predecessor co-operative bank if the business reorganisation had not taken place;
B = the number of days comprised in the period beginning with the 1st day of the financial year and ending on the day immediately preceding the date of business reorganisation; and
C= the total number of days in the financial year in which the business reorganisation has taken place.
(vii) The amount of deduction allowable to the successor co-operative bank under the above mentioned sections has to be determined in accordance with the formula –
A * B/C
A = the amount of deduction allowable to the predecessor co-operative bank if the business reorganisation had not taken place;
B = the number of days comprised in the period beginning with the date of business reorganisation and ending on the last day of the financial year; and
C = the total number of days in the financial year in which the business reorganisation has taken place.
For example, let us take a case where the deduction allowable under section 32 to the predecessor co-operative bank is, say, Rs 1,20,000 and the business re-organisation took place on 1.11.2015. Then, the deduction allowable to the predecessor co-operative bank under section 32 would be Rs 70,164 i.e., Rs 1,20,000 x 214/366. The deduction allowable to the successor co-operative bank would be Rs 49,836 i.e., Rs 1,20,000 x 152/366.
(viii) In a case where an undertaking of the predecessor co-operative bank entitled to the deduction under sections 35D, 35DD or 35DDA is transferred before the expiry of the period specified therein to a successor co-operative bank on account of business reorganisation, the provisions of section 35D, section 35DD or section 35DDA shall apply to the successor co-operative bank in the financial years subsequent to the year of business reorganisation as they would have applied to the predecessor co-operative bank, as if the business reorganisation had not taken place.
(ix) Amalgamated co-operative bank means –
(1) a co-operative bank with which one or more amalgamating co-operative banks merge; or
(2) a co-operative bank formed as a result of merger of two or more amalgamating cooperative banks.
(x) Amalgamating co-operative bank means –
(1) a co-operative bank which merges with another co-operative bank; or
(2) every co-operative bank merging to form a new co-operative bank.
(xi) Amalgamation means the merger of an amalgamating co-operative bank or banks with an amalgamated co-operative bank, in such a manner that –
(1) all the assets and liabilities of the amalgamating co-operative bank or banks immediately before the merger (other than the assets transferred, by sale or distribution on winding up, to the amalgamated co-operative bank) become the assets and liabilities of the amalgamated co-operative bank;
(2) the members holding 75% or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank; and
(3) the shareholders holding 75% or more in value of the shares in the amalgamating co-operative bank (other than the shares held by the amalgamated co-operative bank or its nominee or its subsidiary, immediately before the merger) become shareholders of the amalgamated co-operative bank.
(xii) Demerger means the transfer by a demerged co-operative bank of one or more of its undertakings to any resulting co-operative bank, in such manner that –
(1) all the assets and liabilities of the undertaking or undertakings immediately before the transfer become the assets and liabilities of the resulting co-operative bank;
(2) the assets and the liabilities are transferred to the resulting co-operative bank at values (other than change in the value of assets consequent to their revaluation) appearing in its books of account immediately before the transfer;
(3) the resulting co-operative bank issues, in consideration of the transfer, its membership to the members of the demerged co-operative bank on a proportionate basis;
(4) the shareholders holding 75% or more in value of the shares in the demerged cooperative bank (other than shares already held by the resulting bank or its nominee or its subsidiary immediately before the transfer), become shareholders of the resulting co-operative bank, otherwise than as a result of the acquisition of the assets of the demerged co-operative bank or any undertaking thereof by the resulting co-operative bank;
(5) the transfer of the undertaking is on a going concern basis; and
(6) the transfer is in accordance with the conditions specified by the Central Government, by notification in the Official Gazette, having regard to the necessity to ensure that the transfer is for genuine business purposes.
(xiii) Demerged co-operative bank means the co-operative bank whose undertaking is transferred, pursuant to a demerger, to a resulting bank.
(xiv) Resulting co-operative bank means –
(1) one or more co-operative banks to which the undertaking of the demerged cooperative bank is transferred in a demerger; or
(2) any co-operative bank formed as a result of demerger.
Illustration
Alpha Co-operative Bank amalgamated with Beta Co-operative Bank on 1.12.2015. The depreciation for the year ended 31.3.2016 calculated as per Income-tax Rules, 1962, allowable to Alpha Co-operative Bank had the amalgamation had not taken place amounts to Rs 2,40,000. Compute the deduction on account of depreciation allowable in the hands of Alpha Co-operative Bank and Beta Co-operative Bank for A.Y. 2016-17.
Solution
(i) The amount of deduction allowable to the amalgamating co-operative bank (i.e. Alpha Co-operative bank, in this case) under section 32 has to be determined in accordance with the following formula –
A * B/C
A = the amount of deduction allowable to the predecessor co-operative bank (i.e. Alpha Co-operative bank, in this case) if the business reorganisation had not taken place. In this case, the amount of deduction is ` 2,40,000.
B = the number of days comprised in the period beginning with the 1st day of the financial year (i.e., 1.4.2015, in this case) and ending on the day immediately preceding the date of business reorganization (i.e., 30.11.2015, in this case); and
C = the total number of days in the financial year in which the business reorganisation has taken place (i.e., 366 days).
(ii) The amount of deduction allowable to the amalgamated co-operative bank (i.e. Beta Cooperative bank, in this case) under section 32 has to be determined in accordance with the formula –
A * B/C
A = the amount of deduction allowable to the predecessor co-operative bank (i.e. Alpha Co-operative bank, in this case) if the business reorganisation had not taken place. In this case, the amount of deduction is Rs 2,40,000.
B = the number of days comprised in the period beginning with the date of business reorganisation (i.e. 1.12.2015, in this case) and ending on the last day of the financial year (i.e. 31.3.2016); and
C = the total number of days in the financial year in which the business reorganisation has taken place (i.e. 366 days).
(iii) In this case, the deduction that would have been allowable under section 32 to Alpha cooperative bank had the business reorganization had not taken place is Rs 2,40,000 and the business re-organisation took place on 1.12.2015. Therefore, the deduction allowable to Alpha co-operative bank under section 32 would be Rs 1,60,000 i.e., Rs 2,40,000 x 244/366. The deduction allowable to Beta co-operative bank would be Rs 80,000 i.e., Rs 2,40,000 x 122/366.