TaxTMI 
TaxTMI 
Assessment of existing banks and their shareholders and corresponding new banks in the context of nationalisation and payment of compensation - Guidelines therefor
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....tion 4 of the 1970 Act, the undertaking of every "existing bank" (i.e., the old bank) stands transferred to and vests in the "corresponding new bank" (i.e., the nationalised bank), on the commencement of the 1970 Act, namely, July 19, 1969. Under section 5(1) of the 1970 Act, the "undertaking" of each existing bank includes all assets, rights, powers, authorities and privileges and all movable and immovable property, cash balances, reserve funds, investments and all other rights and interests in, or arising out of, such property as were, immediately before July 19, 1969, in the ownership, possession, power or control of the existing bank in relation to the undertaking, whether within or without India, and is also deemed to include all borro....
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....of the 1970 Act? Will such income be chargeable to tax as the income of— (a) the existing bank, or (b) the corresponding new bank? (4) Does any capital gain arise on the transfer of the undertaking of the existing bank to the corresponding new bank? If so, how is such gain to be computed, and will such gain be assessable to tax as income of the existing bank for the assessment year 1970-71 ? (5) Will there be any income liable to tax as "balancing charge" under section 41(2) of the Income-tax Act, in relation to transfer of assets on which depreciation has been allowed to the existing bank in past years? (6) What are the tax liabilities of the existing bank which stand transferred to the corres....
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....initiated and completed against— (a) the existing bank, or (b) the corresponding new bank? These issues are dealt with in the following paragraphs : 3. Assessment and other proceedings in the case of the existing banks for assessment years up to and including the assessment year 1969-70 - According to the scheme of the 1970 Act, there is succession to the business of the existing bank by the corresponding new bank and where any proceeding was pending on the appointed day, which has been defined in section 2(a) of the 1970 Act to mean February 14, 1970, these may, under the specific provisions of section 5(5) of the 1970 Act be continued against the corresponding new bank. Section 17 of the 1970 Act also lays down t....
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....ferred is the entire undertaking of the existing bank and not the individual assets comprising that undertaking. The amount of the capital gain will be ascertained by deducting from the amount of the compensation, the aggregate of the cost of acquisition of the undertaking and the cost of any improvements thereto. 6. Where the existing bank has been in existence from a date prior to January 1, 1954, it has the option, under section 55(2)(i) of the Income-tax Act, of substituting the market value of the capital asset as on January 1, 1954, for the cost of acquisition. 7. Liability to balancing charge under section 41(2) of the Income-tax Act - There will be no liability to tax on the existing bank in respect of the "balancing charge" u....
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....ng new bank. l Capital gains on the transfer - As the gains arose only on and as a result of the transfer, the tax liability relating to such gains did not subsist at the commencement of the Act. Accordingly, such tax liability will be the liability of the existing bank. l Income of foreign branches to which section 5(6) applies - This liability also continues to be that of the existing bank. l Other income, if any, of the existing bank for the whole of 1969 - This continues to be the liability of the existing bank. l Balancing charge under section 41(2) - As there can be no balancing charge, as stated in para 7 above, there can be no tax liability in relation to it. 9. Distribution to shareholders - Any distribution by the e....
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....fits which arose after the end of the previous year relevant to the assessment year 1953-54. 11. Refunds falling due to the existing bank - Under the definition of "undertaking" in section 5(1) of the 1970 Act, this term includes, inter alia, all rights in the ownership, possession, power or control of the existing bank in relation to the undertaking. Accordingly, if the existing bank becomes entitled to a refund in relation to the undertaking for the period up to July 18, 1969, such refund becomes the property of the corresponding new bank. However, any refund arising to the existing bank in relation to its income from a source which is outside the scope of the term "undertaking", such refund will continue to be granted to the existing ....