aggregation of income

8/18/2019 Aggregation of Income

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Aggregation of Income, Set OffAnd Carry Forward Of Losses

CA. Manish Dafria

IPCC Paper 4

Taxation

Chapter 6 Part 2

Carry Forward and Set Off of Losses-

Special Cases


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Amalgamation : Treatment Of

Accumulated Loss And Unabsorbed

Depreciation

and other provisions of this Act relating to set-off and carry forward of loss andallowance for depreciation shall apply accordingly.

for the previous year in which the amalgamation was effected,

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

In case of amalgamation of certain entities,

the accumulated loss and the unabsorbed depreciation

Though there is a change in assessee, even then, accumulated loss

and the unabsorbed depreciation shall be allowed to be carried

forward in the hands of new assessee.

The accumulated losses shall be treated as generated in the previous

year in which the amalgamation was effected. This means a revival

of losses and there inter head set off shall be available in the year of

amalgamation and a further 8 year carry forward shall be allowed.


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Conditions

Certain conditions are required to befulfilled for the purpose of applicability of

Sec. 72A in case of amalgamation.


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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 oneor more companies with another company or the merger of two ormore companies to form one company in such a manner that

all the property of theamalgamating company orcompanies immediatelybefore the amalgamation

becomes the property of theamalgamated company byvirtue of the amalgamation.

all the liabilities of theamalgamating company orcompanies immediatelybefore the amalgamation

become the liabilities of theamalgamated company byvirtue of the amalgamation.

shareholders holding not lessthan 75% in value of theshares in the amalgamatingcompany or companies (otherthan shares already heldtherein immediately beforethe amalgamation by, or by anominee for, the amalgamatedcompany or its subsidiary)become shareholders of theamalgamated company byvirtue of the amalgamation


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Amalgamation of Specified Entities

The amalgamation must be ofany of the following

A company owning an industrialundertaking or a ship or a hotelwith another company or

An amalgamation of a bankingcompany with a specified bank or

A public sector company engagedin the business of operation ofaircraft with another public sectorcompany engaged in similarbusiness.


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Meaning of Certain Terms

• "Industrial

Undertaking"means any

undertaking

which is engaged

in

the manufacture orprocessing of goods; or

the manufacture ofcomputer software; or

the business ofgeneration ordistribution ofelectricity or any otherform of power; or

the business ofprovidingtelecommunicationservices,

mining; orthe construction ofships, aircrafts or railsystems


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Meaning of Certain Terms

Specified bankmeans

the State Bank ofIndia or

its subsidiarybanks or

any other publicsector bank


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Conditions For Amalgamating

Company

The amalgamating company

has been engaged in thebusiness, in which theaccumulated loss occurredor depreciation remains

unabsorbed, for 3 or moreyears;

has held continuously as onthe date of theamalgamation at least 75%of the book value of fixed

assets held by it 2 yearsprior to the date ofamalgamation


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Conditions For Amalgamated

Company

• has to hold continuously for aminimum period of 5 years

from the date ofamalgamation at least 75% inthe book value of fixed assets of the amalgamating company

acquired in a scheme ofamalgamation

Theamalgamatedcompany


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Company

•has to continue the

business of theamalgamating companyfor a minimum period of5 years from the date ofamalgamation



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Company

• in case of the industrial undertaking of theamalgamating company , has to achieve at

least 50% level of production of theinstalled capacity (capacity of productionexisting on the date of amalgamation) ofthe undertaking before the end of fouryears from the date of amalgamation and

continue to maintain the said minimumlevel of production till the end of five yearsfrom the date of amalgamation.



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Cancellation

In a case where the conditions specifiedearlier are not complied with, ...

the set off of loss or allowance ofdepreciation made in any previous year in thehands of the amalgamated company ..

shall be deemed to be the taxable income ofthe amalgamated company for the year inwhich such conditions are not complied with.


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Special Provisions Of Carry

Forward And Set Off OfAccumulated Loss And

Unabsorbed DepreciationAllowance In Case Of

Demerger [Sec. 72A]

D T Of


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Demerger : Treatment Of


Depreciation

shall be allowed to be carried forward and set off in the hands ofthe resulting company.

of the demerged company related to the transferred undertaking

In case of a demerger,


In case of demerger, there is only a continuation of loss and not

revival of loss as is the case with amalgamation.


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Quantum Of Loss For Resulting Company

• Where such loss or

unabsorbed

depreciation is directly

relatable to the

undertakings

transferred to theresulting company

• Whole of such loss

shall be allowed tobe carried forward

and set off in the

hands of the

resulting company.


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Quantum Of Loss For Resulting Company


unabsorbed

depreciation is not

directly relatable to

the undertakings

transferred to the

resulting company

it shall be apportioned between the demergedcompany and the resulting company in thesame proportion in which

the assets of the undertakings have beenretained by the demerged company andtransferred to the resulting company.


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Special Provisions Of Carry

Forward And Set Off Of

Accumulated Loss AndUnabsorbed Depreciation

Allowance In Case OfReorganisation Of Business

[Sec. 72A]


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Reorganisation Of Business

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

is succeeded by a company fulfilling the conditions laid down inSection 47 (xiii) or 47 (xiv) of the act or

Reorganisation of business refers to the case where

a firm or a proprietary concern


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Reorganisation Of Business : Treatment Of


Depreciation

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

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

of the predecessor firm/proprietary concern/company

In case of reorganisation of business,


In this case also there is a revival of loss as in the case of

amalgamation.


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Cancellation

If any of the conditions laid down in Section47 (xiii),47(xiiib) or 47 (xiv) are not compliedwith,

the set-off of loss or allowance ofdepreciation made in any previous year in thehands of the successor entity,

shall be deemed to be the taxable income ofthe entity of the year in which suchconditions are not complied with.


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Important Points to Pick

Provisions of section 72A, in all the threecases, are applicable only in respect oflosses under the head "Profits And GainsOf Business Or Profession" and“Unabsorbed Depreciation”.

These provisions are not applicable on

other losses e.g. Speculative Business Loss,Capital loss etc.


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Provisions Relating To Carry

Forward And Set-off OfAccumulated Loss And

Unabsorbed DepreciationAllowance In Scheme Of

Amalgamation Of BankingCompany In Certain Cases

Sec. 72 AA.


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Applicability of the Section

This section is applicable

in case of an amalgamation of a banking company with anyother banking institution

and this amalgamation is under a scheme sanctioned andbrought into force by the Central Government under sec. 45(7)

of the Banking Regulation Act, 1949.


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Treatment Of Accumulated Loss And

Unabsorbed Depreciation

and other provisions of this Act relating to set-off and carry forward of lossand allowance for depreciation apply accordingly.

are deemed to be the loss or allowance for depreciation of the bankinginstitution for the previous year in which the scheme of amalgamation was

brought into force

of amalgamating banking company

In the cases covered by Sec. 72AA



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Carry Forward And Set Off Of

Accumulated Loss AndUnabsorbed Depreciation

Allowance In BusinessReorganisation Of Co-

operative Banks : Sec. 72AB


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Treatment Of Accumulated Loss And

Unabsorbed Depreciation

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

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

business reorganisation had not taken place

of the predecessor co-operative bank

In case of business reorganisation of a co-operative bank,



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Conditions

Certain conditions are required to befulfilled for the purpose of applicability of

this provision as discussed in next slides.


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Conditions For The Predecessor Co-

operative Bank

The predecessor co-operative bank

has been engaged in thebusiness of banking for

three or more years; and

has held at least 75% of thebook value of fixed assetsas on the date of thebusiness reorganisation,

continuously for 2 yearsprior to the date ofbusiness reorganisation.


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Conditions For The Successor Co-

operative Bank

The successor co-operative bank

has to hold at least 75%of the book value of fixedassets of the predecessorco-operative bankacquired through businessreorganisation,

continuously for aminimum period of 5years immediatelysucceeding the date ofbusiness reorganisation.

has to continue thebusiness of thepredecessor co-operativebank for a minimum

period of 5 years from thedate of businessreorganisation and

has to fulfil such otherconditions as may beprescribed to ensure therevival of the business ofthe predecessor co-operative bank or toensure that the businessreorganisation is forgenuine businesspurpose.


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Amount of Set Off u/s. 72AB


unabsorbed

depreciation is directlyrelatable to the

undertakings

transferred to the

resulting co-operativebank

• Whole of such loss

shall be allowed to becarried forward and

set off in the hands of

the resulting co-

operative bank.


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Amount of Set Off u/s. 72AB


unabsorbed

depreciation is notdirectly relatable to

the undertakings

transferred to the

resulting co-operative

bank

the amount which bears the sameproportion to the accumulated loss orunabsorbed depreciation of thedemerged co-operative bank

as the assets of the undertakingtransferred to the resulting co-operative bank bears to theassets of the demerged co-operative bank.


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Other Provisions

The period commencing from the 1st April ofthe previous year and ending on the dateimmediately preceding the date of businessreorganisation, and

the period commencing from the date of suchbusiness reorganisation and ending with theprevious year

shall be deemed to be two different previousyears for the purposes of set off and carryforward of loss and allowance for depreciation.


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Cancellation

shall be deemed to be the income of the successor co-operative bankchargeable to tax for the year in which the conditions are notcomplied with.

the set off of accumulated loss or unabsorbed depreciation allowedin any previous year to the successor co-operative bank

In a case where the conditions specified earlier are not compliedwith,


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Other Provisions

Accumulated loss means only the loss under the head “Profitsand gains of business or profession” (not being a losssustained in a speculation business) which

such amalgamating co-operative bank or the demerged co-operative bank,

would have been entitled to carry forward and set-off underthe provisions of section 72 as if the business reorganisationhad not taken place.


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Thank You

aggregation of income

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