1. Introduction :
Co-operative societies and co-operative banks have made invaluable contribution to the socio-economic development of our country, particularly in rural area. This form of organisation is typically suited for the not-so-educated masses of our country. Agriculture, sugar, dairy and even in the credit sector, the co-operative societies have performed well. These co-operative credit societies and banks are indispensable since commercial banks may not afford to cater to the tiny borrower. Admittedly, there are problems of lack of professionalism, political interventions, mismanagement and so on. But then the so-called urban corporate sector is also not immune to such menaces. Pandit Nehru had rightly said “Co-operation has failed, but co-operation must succeed.”
In the economy, losses and sickness are quite common. S. 72A was inserted in the Income-tax Act, 1961 way back in the year 1977. It was welcomed and since then it has encouraged amalgamations by protecting unabsorbed losses and depreciation. Further, S. 72AA was inserted in the year 2005 to make special provision for banking companies in ‘certain cases’, although the banking companies had been very much covered in S. 72A. Against this background, I wish to highlight the provision of S. 72AB introduced in the year 2008 in respect of co-operative banks.
2. The unfairness :
2.1 S. 72A provides that in the event of amalgamation of companies, the losses and unabsorbed depreciation of amalgamating company shall be treated as the losses and depreciation of the amalgamated company as if the same were the losses of the previous year in which the amalgamation took place. There is similar provision for banking companies in S. 72AA. The fresh carry forward begins from the year of amalgamation.
2.2 However, S. 72AB grants a restrictive benefit. Here, the carry forward of losses and depreciation of the predecessor bank is allowed as if amalgamation had not taken place. Thus, unlike in the case of companies, the carry forward would get restricted only to the unexpired period out of the eight years permitted u/s.72.
2.3 Further, Ss.(5) of S. 72AB states that the period commencing from the previous year and ending on the date immediately preceding date of business re-organisation and period from the date of business re-organisation to the end of previous year are to be considered as two previous years for the purpose of carry forward and set-off of loss and unabsorbed depreciation. No such provision appears in S. 72A or S. 72AA. The implication of this provision is that current year’s business loss up to the date of reorganisation cannot be set off by successor co-operative bank against income under other heads u/s.71. As against this, S. 72A and S. 72AA provide that the accumulated loss of predecessor is considered as current year’s loss of successor and hence benefit of S. 71 is available to successor in the year of succession even for the loss of the years prior to the year of succession. Thus, S. 72A and S. 72AA confer the benefit of S. 71 even to prior year’s loss, whereas S. 72 AB is taking away such benefit even for current year’s loss till the date of succession ! ! !
2.4 It needs to be appreciated that by taking over the liabilities of the loss-making bank, the successor co-operative bank renders a great social service by giving comfort to thousands of small depositors. If commercial banks and companies get the benefits of merger, co-operative banks deserve it all the more.
2.5 Hence, the law needs to be amended to bring the provisions for carry forwarded of loss and depreciation on par.
