Section 44DB of ITA, 1961 : Section 44Db: Special Provision For Computing Deductions In The Case Of Business Reorganisation Of Co-Operative Banks

Explanation using Example

Imagine a scenario where 'Farmers Co-operative Bank' (FCB), a co-operative bank, decides to merge with 'Cultivators Co-operative Bank' (CCB) to form a new entity called 'Agro Co-operative Bank' (ACB) on July 1, 2023. This is considered a business reorganisation. FCB had been eligible for certain tax deductions for depreciation (under section 32) and for certain expenses (under sections 35D, 35DD, and 35DDA) for the financial year 2023-2024.

According to Section 44DB of the Income-tax Act, 1961, the tax deductions available to FCB before the merger must now be split between FCB and ACB based on the number of days each entity operated during the financial year.

Let's calculate the deduction for FCB:

A = Total deduction FCB would have claimed for the full year (say INR 100,000)

B = Number of days FCB operated before the merger (April 1, 2023, to June 30, 2023, which is 91 days)

C = Total number of days in the financial year (365 days)

Deduction for FCB = A × B / C = 100,000 × 91 / 365 = INR 24,931 (approximately)

Now, let's calculate the deduction for ACB:

A = Same as above (INR 100,000)

B = Number of days ACB operated after the merger (July 1, 2023, to March 31, 2024, which is 274 days)

Deduction for ACB = A × B / C = 100,000 × 274 / 365 = INR 75,068 (approximately)

FCB (now part of ACB) will claim INR 24,931, and ACB will claim INR 75,068 in tax deductions for the financial year 2023-2024 for depreciation and certain expenses as per Section 44DB.