Budget 2021-22 + FINANCE Bill, 2021

Tax neutral conversion of Urban Cooperative Bank into Banking Company

Section 44DB of Act provides for computing deductions in the case of business re-organization of cooperative banks. Further, the said section, inter alia, provides that where such business reorganization of co-operative banks takes place, the deductions under sections 32, 35D, 35DD and section 35DDA will be apportioned between the predecessor co-operative bank and the successor co- operative bank in the proportion of the number of days before and after the date of business reorganization. Further transfer of a capital asset by the predecessor co- operative bank to the successor co-operative bank, as well as transfer of shares by the shareholders in the predecessor co-operative bank, in a case of business reorganization under section 47 of the Act, is also not regarded as transfer.

The Reserve Bank of India (RBI) has permitted voluntary transition of primary co- operative bank [urban co-operative banks (UCB)] into a banking company by way of transfer of Assets and Liabilities vide Circular reference no. DCBR.CO.LS.PCB. Cir.No.5/07.01.000/2018-19 dated September 27, 2018.

It is proposed to expand the scope of business reorganization to include conversion of a primary co-operative bank to a banking company and the deductions available under section 44DB of the Act shall also be made applicable in relation to such conversion of primary co-operative bank to the banking company. Further it is also proposed that transfer of a capital asset by the primary co-operative bank to the banking company as a result of conversion shall not be treated as transfer under section 47 of the Act. Consequently, the allotment of shares of the converted banking company to the shareholders of the predecessor primary co-operative bank shall not be treated as transfer under the said section of the Act.

Necessary amendments to this effect have been proposed in section 44DB and in clause (vica) and clause (vicb) of section 47 of the Act.

These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

[Clauses 13 and 15]

 

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Full Text:

Budget 2021-22 + FINANCE Bill, 2021

Tax neutral conversion of cooperative banks preserves deduction apportionment and treats asset and share transfers as non-transfers. Conversion of primary co-operative (urban co-operative) banks into banking companies is brought within the business reorganisation provisions so that section 44DB's apportionment of deductions between predecessor and successor applies; transfers of capital assets and allotment of shares on conversion are not to be treated as transfers under section 47, effected by amendments to section 44DB and clauses (vica)/(vicb) of section 47, effective 1 April 2021.