Amended and updated notes on section 44DB of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to special provision for computing deductions in the case of business reorganization of co-operative banks.
Chapter IV (Sections 14 to 59) of the Income Tax Act 1961 deals with the provisions related to computation of total income. Section 44DB of IT Act 1961-2022 provides for special provision for computing deductions in the case of business reorganization of co-operative banks.
Recently, we have discussed in detail section 44DA (special provision for computing income by way of royalties, etc., in case of non-residents) of IT Act 1961. Today, we learn the provisions of section 44DB of Income-tax Act 1961. The amended provision of section 44DB is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 44DB of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-44DB: Special provision for computing income by way of royalties in case of non-residents
Section 44DB(1) of Income Tax Act
The deduction under section 32, section 35D, section 35DD or section 35DDA shall, in a case where business reorganisation of a co-operative bank has taken place during the financial year, be allowed in accordance with the provisions of this section.
Section 44DB(2) of Income Tax Act
The amount of deduction allowable to the predecessor co-operative bank under section 32, section 35D, section 35DD or section 35DDA shall be determined in accordance with the formula—
A × B /C
where A = the amount of deduction allowable to the predecessor co-operative bank if the business reorganisation had not taken place;
B = the number of days comprised in the period beginning with the 1st day of the financial year and ending on the day immediately preceding the date of business reorganisation; and
C = the total number of days in the financial year in which the business reorganisation has taken place.
Section 44DB(3) of Income Tax Act
The amount of deduction allowable to the successor co-operative bank or to the converted banking company under section 32, section 35D, section 35DD or section 35DDA shall be determined in accordance with the formula—
[Sub-section (3) of section 44DB has been amended (inserted) w.e.f. 1st April, 2021 by the Finance Act 2021]
Section 44DB(4) of Income Tax Act
The provisions of section 35D, section 35DD or section 35DDA shall, in a case where an undertaking of the predecessor co-operative bank entitled to the deduction under the said section is transferred before the expiry of the period specified therein to a successor co-operative bank or to a converted banking company on account of business reorganisation, apply to the successor co-operative bank or to the converted banking company in the financial years subsequent to the year of business reorganisation as they would have applied to the predecessor co-operative bank, as if the business reorganisation had not taken place.
[Sub-section (4) of section 44DB has been amended (inserted) w.e.f. 1st April, 2021 by the Finance Act 2021]
Section 44DB(5) of Income Tax Act
For the purposes of this section,—
(a) “amalgamated co-operative bank” means—
- (i) a co-operative bank with which one or more amalgamating co¬-operative banks merge; or
- (ii) a co-operative bank formed as a result of merger of two or more amalgamating co-operative banks;
(b) “amalgamating co-operative bank” means—
- (i) a co-operative bank which merges with another co-operative bank; or
- (ii) every co-operative bank merging to form a new co-operative bank;
(c) “amalgamation” means the merger of an amalgamating co-operative bank or banks with an amalgamated co-operative bank, in such manner that—
- (i) all the assets and liabilities of the amalgamating co-operative bank or banks immediately before the merger (other than the assets transferred, by sale or distribution on winding up, to the amalgamated co-operative bank) become the assets and liabilities of the amalgamated co-operative bank;
- (ii) the members holding seventy-five per cent or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank; and
- (iii) the shareholders holding seventy-five per cent or more in value of the shares in the amalgamating co-operative bank (other than the shares held by the amalgamated co-operative bank or its nominee or its subsidiary, immediately before the merger) become shareholders of the amalgamated co-operative bank;
(ca) “banking company” shall have the meaning assigned to it in clause (c) of section 5 of Banking Regulation Act, 1949;
[Clause(ca) of sub-section (5) of section 44DB has been newly inserted w.e.f. 1st April, 2021 by the Finance Act 2021]
(d) “business reorganisation” means the reorganisation of business involving the amalgamation or demerger of a co-operative bank or conversion of a primary co-operative bank;
[Clause(d) of sub-section (5) of section 44DB has been amended (inserted) w.e.f. 1st April, 2021 by the Finance Act 2021]
(da) “conversion” means transition of a primary co-operative bank to a banking company under the scheme of the Reserve Bank of India as notified vide its circular number DCBR. CO. LS. PCB. Cir. No. 5/07.01.000/2018-19, dated the 27th September, 2018;
(db) “converted banking company” means a banking company formed as a result of conversion from primary co-operative bank;
[Clause(da) and (db) of sub-section (5) of section 44DB has been newly inserted w.e.f. 1st April, 2021 by the Finance Act 2021]
(e) “co-operative bank” shall have the meaning assigned to it in clause (cci) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(f) “demerger” means the transfer by a demerged co-operative bank of one or more of its undertakings to any resulting co–operative bank, in such manner that—
- (i) all the assets and liabilities of the undertaking or undertakings immediately before the transfer become the assets and liabilities of the resulting co-operative bank;
- (ii) the assets and the liabilities are transferred to the resulting co-operative bank at values (other than change in the value of assets consequent to their revaluation) appearing in its books of account immediately before the transfer;
- (iii) the resulting co-operative bank issues, in consideration of the transfer, its membership to the members of the demerged co-operative bank on a proportionate basis;
- (iv) the shareholders holding seventy-five per cent or more in value of the shares in the demerged co-operative bank (other than shares already held by the resulting bank or its nominee or its subsidiary immediately before the transfer), become shareholders of the resulting co-operative bank, otherwise than as a result of the acquisition of the assets of the demerged co-operative bank or any undertaking thereof by the resulting co-operative bank;
- (v) the transfer of the undertaking is on a going concern basis; and
- (vi) the transfer is in accordance with the conditions specified by the Central Government, by notification in the Official Gazette, having regard to the necessity to ensure that the transfer is for genuine business purposes;
(g) “demerged co-operative bank” means the co-operative bank whose undertaking is transferred, pursuant to a demerger, to a resulting bank;
(h) “predecessor co-operative bank” means the amalgamating co-operative bank or the primary co-operative bank which has been succeeded as a result of conversion or the demerged co-operative bank, as the case may be;
[Clause(h) of sub-section (5) of section 44DB has been amended (inserted) w.e.f. 1st April, 2021 by the Finance Act 2021]
(ha) “primary co-operative bank” shall have the meaning assigned to it in clause (ccv) of section 5 of the Banking Regulation Act, 1949;
[Clause(ha) of sub-section (5) of section 44DB has been newly inserted w.e.f. 1st April, 2021 by the Finance Act 2021]
(i) “successor co-operative bank” means the amalgamated co-operative bank or the resulting bank, as the case may be;
(j) “resulting co-operative bank” means—
- (i) one or more co-operative banks to which the undertaking of the demerged co-operative bank is transferred in a demerger; or
- (ii) any co-operative bank formed as a result of demerger.