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TMI BlogAssessment of existing banks and their shareholders and corresponding new banks in the context of nationalisation and payment of compensation - Guidelines thereforX X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 borrowings, liabilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponding 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 corresponding new bank by virtue of the provisions in section 5(1) of the 1970 Act? In particular, are the tax liabilities in relation to the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings 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 that any reference to any existing bank in any law or in any contract or other instrument is to be construed as a reference to the undertaking referred to in section 4 of the 1970 Act. It follows tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensation, 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" under section 41(2) of the Income-tax Act. 8. Taxation liabilities of the existing bank which stand transferred to the corresponding new bank - The effect of the provision in section 5(1) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 existing bank to its shareholders out of the compensation moneys received by it would ordinarily constitute dividends under the Companies Act and will be chargeable to tax as the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng" 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 bank. This applies also to any refund arising in relation to the income of a foreign branch of the existing bank which falls within the purview of section 5(6) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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