Business Reorganisation of Co-operative Banks

Introduction

In case of business reorganisation (amalgamation, demerger or conversion) of co-operative banks, deduction for depreciation, preliminary expenses, amalgamation expenses and voluntary retirement expenses are allowed proportionally to predecessor bank and successor bank/converted co.

1. About

In the case of amalgamation or demerger of co-operative banks, the following provisions apply.

1.1. Meaning of Business Reorganisation

Business Reorganisation means the reorganisation of business involving the amalgamation or demerger of a co-operative bank or conversion of a primary co-operative bank.

1.2. Meaning of Amalgamation

Amalgamation means merger of an amalgamating co-operative bank or banks with an amalgamated co-operative bank in such a manner that:

(a) 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;

(b) The members holding 75% or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank; and

(c) 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.

1.3. Meaning of Demerger

Demerger is a scheme wherein demerged co-operative bank should transfer one or more of its undertakings only to resulting co-operative bank in such manner that:

(a) 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;

(b) 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;

(c) 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;

(d) The shareholders holding 75% or more in value of the shares in the demerged co-operative 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;

(e) The transfer of the undertaking is on a going concern basis; and

(f) 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.

1.4. Conversion

Conversion means transition of a primary co-operative bank to a banking company under the scheme of the Reserve Bank of India notified vide Circular number DCBR. CO. LS. PCB. Cir.No.5/07.01.000/2018-19, dated the 27-09-2018.

1.5. Converted Banking Company

Converted Banking Company means a banking company formed as a result of conversion from primary co-operative bank.

2. Quantum of deduction

Whenever a business reorganisation of a co-operative bank takes place, deduction in respect of depreciation, preliminary expenses, amalgamation expenses and expenditure on voluntary retirement scheme during the year in which business reorganisation had taken place shall be allowed to both, predecessor bank and successor bank or converted banking company, proportionately.

2.1. Deduction to predecessor bank

Such deduction to predecessor bank shall be allowed in accordance with the following formulae:

2.2. Deduction to successor bank or converted banking co.

Such deduction to the successor bank or converted banking company shall be allowed in accordance with the following formulae:

2.3. Treatment in subsequent years

Where such business reorganisation is taken place before the expiry of the period specified for claiming deduction in respect of preliminary expenses, expenses on voluntary retirement scheme and amalgamation expenses, the said provisions in the subsequent years shall continue to apply to the successor bank or converted banking company, as if they were applicable to the predecessor bank.

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.