Section 72AB Income Tax Act: Carry Forward and Set Off in Co-operative Bank Business Reorganisation
Section 72AB of the Income-tax Act, 1961 dealt with carry forward and set off of accumulated loss and unabsorbed depreciation when a co-operative bank underwent specified business reorganisation. Under the Income-tax Act, 2025, the corresponding current provision is Section 118.
What did Section 72AB of the Income-tax Act, 1961 provide?
Section 72AB created a special rule for accumulated business loss and unabsorbed depreciation in the business reorganisation of co-operative banks. In an amalgamation, a qualifying successor co-operative bank could set off the accumulated loss and unabsorbed depreciation of the predecessor co-operative bank as if the amalgamation had not taken place, subject to the statutory conditions.
| Provision | Section 72AB of the Income-tax Act, 1961 |
|---|---|
| Subject | Carry forward and set off of accumulated loss and unabsorbed depreciation in business reorganisation of co-operative banks |
| Who may claim | A qualifying successor co-operative bank; special allocation rules also applied to a resulting co-operative bank in a demerger |
| Related provisions | Section 72 for business losses and Section 44DB for defined expressions under the 1961 Act |
| Current corresponding law | Section 118 read with Section 65 of the Income-tax Act, 2025 |
Main conditions under Section 72AB
The relief was conditional. Broadly, the predecessor and successor co-operative banks had to satisfy continuity requirements intended to ensure that the reorganisation represented a genuine continuation or revival of banking business.
Conditions for the predecessor co-operative bank
- It had to be engaged in the business of banking for at least three years.
- It had to hold at least three-fourths of the book value of its fixed assets, measured on the date of business reorganisation, continuously for two years before that date.
Conditions for the successor co-operative bank
- It had to retain at least three-fourths of the book value of fixed assets acquired from the predecessor through the reorganisation for a minimum of five years immediately after the reorganisation.
- It had to continue the predecessor bank's business for at least five years from the date of reorganisation.
- It had to satisfy other prescribed conditions directed at revival of the predecessor's business or ensuring a genuine business purpose.
How were losses and depreciation dealt with in a demerger?
Under Section 72AB(3), where the accumulated loss or unabsorbed depreciation was directly attributable to the undertaking transferred to the resulting co-operative bank, that amount followed the transferred undertaking. Where it was not directly attributable, the amount was apportioned by reference to the proportion that the assets of the transferred undertaking bore to the assets of the demerged co-operative bank.
What happened if the conditions were not met?
If the conditions specified under the section or notified by the Central Government were not complied with, the set off already allowed to the successor co-operative bank could be treated as its taxable income for the year in which the non-compliance occurred.
The section also treated the period before the date of business reorganisation and the period beginning on that date as two separate previous years for the limited purposes of set off, carry forward of loss and depreciation allowance.
Definitions under the 1961 Act
Accumulated loss
For Section 72AB, accumulated loss broadly meant eligible non-speculation business loss of the amalgamating or demerged co-operative bank that could have been carried forward and set off under Section 72 if the business reorganisation had not occurred.
Unabsorbed depreciation
Unabsorbed depreciation meant the depreciation allowance of the amalgamating or demerged co-operative bank that remained to be allowed and would have remained available if the reorganisation had not taken place.
Other expressions
The 1961 Act linked expressions such as amalgamated co-operative bank, amalgamating co-operative bank, amalgamation, business reorganisation, demerged co-operative bank, demerger, predecessor co-operative bank, successor co-operative bank and resulting co-operative bank to the meanings assigned in Section 44DB.
Current law: Section 118 of the Income-tax Act, 2025
The Income-tax Act, 2025 reorganises this subject under Section 118, titled in substance as the provision for carry forward and set off of losses and unabsorbed depreciation in business reorganisation of co-operative banks. The current section retains the core continuity approach while expressing the rules in the structure and terminology of the 2025 Act.
Section 118 covers amalgamation and expressly sets out the treatment of a demerger. Where loss or unabsorbed depreciation of a demerged co-operative bank is directly relatable to the transferred undertaking, the whole relevant amount may be carried forward and set off by the resulting co-operative bank. Where it is not directly relatable, the amount is apportioned between the demerged and resulting co-operative banks in the proportion in which the relevant assets are distributed.
The current provision also preserves the principal qualifying conditions: a minimum three-year banking history for the predecessor, the two-year fixed-asset holding condition, a five-year asset-retention requirement for the successor, continuation of the predecessor's business for at least five years, and compliance with prescribed or notified genuine-business-purpose conditions. The principal defined expressions are now linked to Section 65 of the Income-tax Act, 2025.
Official sources
This article is an explanatory reference. For a filing, assessment, appeal or transaction, check the text applicable to the relevant tax year and any rules, notifications, circulars and judicial decisions governing the facts.