Aggregation of Income, Set Off

And Carry Forward Of Losses

IPCC Paper 4
Taxation
Chapter 6 Part 2

Carry Forward and Set Off of LossesSpecial Cases

CA. Manish Dafria

Learning Objectives
Special
Provisions Of
Carry
Forward And
Set Off Of
Accumulated
Loss And
Unabsorbed
Depreciation
Allowance

In Case Of Amalgamation
[Sec. 72A]
In Case Of Demerger [Sec. 72A]
In Case Of Reorganisation Of Business [Sec. 72A]
In Scheme Of Amalgamation Of Banking
Company In Certain Cases [Sec. 72 AA]
In Business Reorganisation Of Co-operative Banks
[Sec. 72AB]

Amalgamation : Treatment Of
Accumulated Loss And Unabsorbed
Depreciation
In case of amalgamation of certain entities,

the accumulated loss

and the unabsorbed depreciation

of the amalgamating entity shall be deemed to be the loss or depreciation of the

amalgamated entity,

for the previous year in which the amalgamation was effected,

The accumulated losses shall be treated as generated in the previous

year in which the amalgamation was effected. This means a revival
Though there is a change in assessee, even then, accumulated loss
and other
provisions
of this head
Act relating
to set-off
carry forward
lossyear
and of
of losses
and
there inter
set off
shall and
be available
inofthe
and the unabsorbed
be accordingly.
allowed to be carried
allowancedepreciation
for depreciation shall
shall apply
amalgamation and a further 8 year carry forward shall be allowed.
forward in the hands of new assessee.

Conditions
Certain conditions are required to be
fulfilled for the purpose of applicability of
Sec. 72A in case of amalgamation.

Conditions - There Must Be An

"Amalgamation"
Amalgamation has been defined in Sec. 2(1B) of the act as,
"amalgamation", in relation to companies, means the merger of one
or more companies with another company or the merger of two or
more companies to form one company in such a manner that
all the property of the
amalgamating company or
companies
immediately
before the amalgamation
becomes the property of the
amalgamated company by
virtue of the amalgamation.

all the liabilities of the

amalgamating company or
companies
immediately
before the amalgamation
become the liabilities of the
amalgamated company by
virtue of the amalgamation.

shareholders holding not less

than 75% in value of the
shares in the amalgamating
company or companies (other
than shares already held
therein immediately before
the amalgamation by, or by a
nominee for, the amalgamated
company or its subsidiary)
become shareholders of the
amalgamated company by
virtue of the amalgamation

Amalgamation of Specified Entities

A company owning an industrial
undertaking or a ship or a hotel
with another company or

The amalgamation must be of

any of the following

An amalgamation of a banking
company with a specified bank or

A public sector company engaged

in the business of operation of
aircraft with another public sector
company engaged in similar
business.

Meaning of Certain Terms

"Industrial
Undertaking"
means
any
undertaking
which is engaged
in

the manufacture or
processing of goods; or

the manufacture of
computer software; or

the
business
of
generation
or
distribution
of
electricity or any other
form of power; or

the
business
providing
telecommunication
services,

mining; or

the construction of
ships, aircrafts or rail
systems

of

Meaning of Certain Terms

the State Bank of
India or

Specified
means

bank

its
subsidiary
banks or
any other public
sector bank

Conditions
Company

For

Amalgamating

The amalgamating company

has been engaged in the
business, in which the
accumulated loss occurred
or depreciation remains
unabsorbed, for 3 or more
years;

has held continuously as on

the
date
of
the
amalgamation at least 75%
of the book value of fixed
assets held by it 2 years
prior to the date of
amalgamation

Conditions
Company

The
amalgamated
company

For

Amalgamated

has to hold continuously for a

minimum period of 5 years
from
the
date
of
amalgamation at least 75% in
the book value of fixed assets
of the amalgamating company
acquired in a scheme of
amalgamation

Conditions
Company

For

Amalgamated

has to continue the

business
of
the
The
amalgamating company
amalgamated
for a minimum period of
company
5 years from the date of
amalgamation

Conditions
Company

The
amalgamated
company

For

Amalgamated

in case of the industrial undertaking of the

amalgamating company , has to achieve at
least 50% level of production of the
installed capacity (capacity of production
existing on the date of amalgamation) of
the undertaking before the end of four
years from the date of amalgamation and
continue to maintain the said minimum
level of production till the end of five years
from the date of amalgamation.

Cancellation
In a case where the conditions specified
earlier are not complied with, ...

the set off of loss or allowance of

depreciation made in any previous year in the
hands of the amalgamated company ..
shall be deemed to be the taxable income of
the amalgamated company for the year in
which such conditions are not complied with.

Special Provisions Of Carry

Forward And Set Off Of
Accumulated Loss And
Unabsorbed Depreciation
Allowance In Case Of
Demerger [Sec. 72A]

Demerger
:
Treatment
Of
Accumulated Loss And Unabsorbed
Depreciation
In case of a demerger,
the accumulated loss

and the unabsorbed depreciation

of the demerged company related to the transferred undertaking

to bethere
carried
forward
and set off inofthe
hands
Inshall
casebeofallowed
demerger,
is only
a continuation
loss
and of
not
the resulting company.
revival of loss as is the case with amalgamation.

Quantum Of Loss For Resulting Company

Where such loss or Whole of such loss

unabsorbed
shall be allowed to
depreciation is directly
be carried forward
relatable
to
the
and set off in the
undertakings
hands
of
the
transferred to the
resulting company.
resulting company

Quantum Of Loss For Resulting Company

Where such loss or
unabsorbed
depreciation is not
directly relatable to
the
undertakings
transferred to the
resulting company

it shall be apportioned between the demerged

company and the resulting company in the
same proportion in which

the assets of the undertakings have been

retained by the demerged company and
transferred to the resulting company.

Special Provisions Of Carry

Forward And Set Off Of
Accumulated Loss And
Unabsorbed Depreciation
Allowance In Case Of
Reorganisation Of Business
[Sec. 72A]

Reorganisation Of Business
Reorganisation of business refers to the case where

a firm or

a proprietary concern

is succeeded by a company fulfilling the conditions laid down in

Section 47 (xiii) or 47 (xiv) of the act or

a company is converted into an LLP u/s. 47(xiiib).

Reorganisation Of Business : Treatment Of

Accumulated
Loss
And
Unabsorbed
Depreciation
In case of reorganisation of business,
the accumulated loss

and the unabsorbed depreciation

of the predecessor firm/proprietary concern/company

shall be deemed to be the loss or allowance for depreciation of the successor
company/LLP of the previous year in which business reorganisation was effected

In
also ofthere
a revival
as in
the of case
of
andthis
othercase
provisions
this Actisrelating
to setof
off loss
and carry
forward
loss and
allowance for depreciation shall apply accordingly.
amalgamation.

Cancellation
If any of the conditions laid down in Section
47 (xiii),47(xiiib) or 47 (xiv) are not complied
with,
the set-off of loss or allowance of
depreciation made in any previous year in the
hands of the successor entity,
shall be deemed to be the taxable income of
the entity of the year in which such
conditions are not complied with.

Important Points to Pick

Provisions of section 72A, in all the three
cases, are applicable only in respect of
losses under the head "Profits And Gains
Of Business Or Profession"
and
Unabsorbed Depreciation.
These provisions are not applicable on
other losses e.g. Speculative Business Loss,
Capital loss etc.

Provisions Relating To Carry

Forward And Set-off Of
Accumulated Loss And
Unabsorbed Depreciation
Allowance In Scheme Of
Amalgamation Of Banking
Company In Certain Cases
Sec. 72 AA.

Applicability of the Section

This section is applicable

in case of an amalgamation of a banking company with any

other banking institution

and this amalgamation is under a scheme sanctioned and

brought into force by the Central Government under sec. 45(7)
of the Banking Regulation Act, 1949.

Treatment Of Accumulated Loss And

Unabsorbed Depreciation
In the cases covered by Sec. 72AA

the accumulated loss

and the unabsorbed depreciation

of amalgamating banking company

are deemed to be the loss or allowance for depreciation of the banking

institution for the previous year in which the scheme of amalgamation was
brought into force
and other provisions of this Act relating to set-off and carry forward of loss
and allowance for depreciation apply accordingly.

Carry Forward And Set Off Of

Accumulated Loss And
Unabsorbed Depreciation
Allowance In Business
Reorganisation Of Cooperative Banks : Sec. 72AB

Treatment Of Accumulated Loss And

Unabsorbed Depreciation
In case of business reorganisation of a co-operative bank,
the accumulated loss

and the unabsorbed depreciation

of the predecessor co-operative bank

shall be allowed to set off by the successor co-operative bank as if the

business reorganisation had not taken place

and all the other provisions of this Act relating to set off and carry forward of
loss and allowance for depreciation shall apply accordingly.

Conditions
Certain conditions are required to be
fulfilled for the purpose of applicability of
this provision as discussed in next slides.

Conditions For The Predecessor Cooperative Bank

The predecessor co-operative bank

has held at least 75% of the
book value of fixed assets
has been engaged in the as on the date of the
reorganisation,
business of banking for business
continuously for 2 years
three or more years; and
prior to the date of
business reorganisation.

Conditions For The

operative Bank

Successor

Co-

The successor co-operative bank

has to hold at least 75%
of the book value of fixed
assets of the predecessor
co-operative
bank
acquired through business
reorganisation,
continuously
for
a
minimum period of 5
years
immediately
succeeding the date of
business reorganisation.

has to continue the

business
of
the
predecessor co-operative
bank for a minimum
period of 5 years from the
date
of
business
reorganisation and

has to fulfil such other

conditions as may be
prescribed to ensure the
revival of the business of
the
predecessor
cooperative bank or to
ensure that the business
reorganisation
is
for
genuine
business
purpose.

Amount of Set Off u/s. 72AB

Where such loss or
Whole of such loss
unabsorbed
shall be allowed to be
depreciation is directly
carried forward and
relatable
to
the
undertakings
set off in the hands of
transferred to the
the resulting coresulting co-operative
operative bank.
bank

Amount of Set Off u/s. 72AB

Where such loss or
unabsorbed
depreciation is not
directly relatable to
the
undertakings
transferred to the
resulting co-operative
bank

the amount which bears the same

proportion to the accumulated loss or
unabsorbed
depreciation
of
the
demerged co-operative bank

as the assets of the undertaking

transferred to the resulting cooperative bank bears to the
assets of the demerged cooperative bank.

Other Provisions
The period commencing from the 1st April of
the previous year and ending on the date
immediately preceding the date of business
reorganisation, and
the period commencing from the date of such
business reorganisation and ending with the
previous year

shall be deemed to be two different previous

years for the purposes of set off and carry
forward of loss and allowance for depreciation.

Cancellation
In a case where the conditions specified earlier are not complied
with,

the set off of accumulated loss or unabsorbed depreciation allowed

in any previous year to the successor co-operative bank

shall be deemed to be the income of the successor co-operative bank

chargeable to tax for the year in which the conditions are not
complied with.

Other Provisions
Accumulated loss means only the loss under the head Profits
and gains of business or profession (not being a loss
sustained in a speculation business) which
such amalgamating co-operative bank or the demerged cooperative bank,
would have been entitled to carry forward and set-off under
the provisions of section 72 as if the business reorganisation
had not taken place.

Thank You