RBI seeks IT Act change to facilitate GTB takeover

The Reserve Bank of India (RBI) has moved the Union finance ministry seeking an amendment to the Income Tax Act.

This is to enable Oriental Bank of Commerce (OBC) to get the tax benefits from taking over the loss-making Global Trust Bank (GTB).

Section 72 A of the Income Tax Act deals with provisions relating to carry forward and set off of accumulated losses and unabsorbed depreciation allowance in the event of an amalgamation or a demerger.

This section states: "Where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company, then, notwithstanding anything contained in any other provisions of this Act, the accumulated loss and the unabsorbed depreciation of the amalgamating company shall be deemed to be loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected, and other provisions of this Act relating to set-off and carry forward of loss and allowance for depreciation shall apply accordingly."

Being a nationalised bank, Oriental Bank of Commerce may not be entitled to get the full income tax benefit under this section. Hence, the regulator wants an amendment to the IT Act.

Sources in New Delhi said the amendment will be done to clear the hurdles, in any, on OBC's way of getting the tax benefit from the merger.

"If the Act is interpreted correctly, the bank could have got the benefit even without the amendment. But it seems that the Reserve Bank does not want to take any chances on this front," a legal source said.

Global Trust Bank (GTB) has posted a net loss of Rs 812.38 crore for the year ended March 31, 2004. In 2002-03, it had posted a loss of Rs 272.70 crore.

A GTB statement at the time of results attributed the huge loss to provisioning of about Rs 535 crore for non -performing assets (NPAs), an operating loss of Rs 79 crore and accelerated and prudent provisioning of Rs 164 crore, apart from Rs 35 crore towards other provisions.

The accounts were finalised almost a fortnight after the proposed draft scheme of amalgamation with OBC was announced on July 26.