Section 65 — Interpretation for purposes of section 64. Successor to s.44DB of the 1961 Act.
Section 65 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
The section is a definition provision operating only for the purposes of section 64, and it is written entirely around co-operative banks. Clause (a) defines "amalgamation" as the merger of an amalgamating co-operative bank with an amalgamated co-operative bank subject to three cumulative conditions: all assets and liabilities of the amalgamating bank immediately before the merger, other than assets transferred by sale or distribution on winding up to the amalgamated bank, become those of the amalgamated bank; members holding 75% or more voting rights in the amalgamating bank become members of the amalgamated bank; and shareholders holding 75% or more in value of the shares in the amalgamating bank, excluding shares held by the amalgamated bank or its nominee or subsidiary immediately before the merger, become shareholders of the amalgamated bank. Clauses (b) and (c) define the amalgamating and amalgamated banks, including banks merging to form a new bank.
Clause (d) defines "business reorganisation" as reorganisation involving the amalgamation or demerger of a co-operative bank or the conversion of a primary co-operative bank. Clause (e) defines "conversion" as the transition of a primary co-operative bank to a banking company under the Reserve Bank of India scheme notified by its circular number dcbr. Co. Ls. Pcb. Cir. No. 5/07.01.000/2018-19, dated 27th September, 2018, and clause (f) defines the resulting "converted banking company".
Clause (g) defines "demerger" as the transfer by a demerged co-operative bank of one or more undertakings to a resulting co-operative bank on six conditions: all assets and liabilities of the undertaking become those of the resulting bank; assets and liabilities are transferred at book values immediately before the transfer, disregarding any change on revaluation; the resulting bank issues its membership to the members of the demerged bank on a proportionate basis in consideration; shareholders holding 75% or more in value of the shares in the demerged bank, other than shares already held by the resulting bank or its nominee or subsidiary, become shareholders of the resulting bank otherwise than as a result of the acquisition of assets; the transfer is on a going concern basis; and the transfer meets the conditions the Central Government specifies by notification having regard to the need to ensure that it is for genuine business purposes.
Clauses (h) to (l) define "demerged co-operative bank", "predecessor co-operative bank" (the amalgamating bank, the demerged bank, or the primary co-operative bank succeeded on conversion), "primary co-operative bank" by reference to clause (ccv) of section 56 of the Banking Regulation Act, 1949, "resulting co-operative bank", and "successor co-operative bank" as the amalgamated bank or the resulting bank.
Section 64 gives relief on a co-operative bank reorganisation, and this section fixes the boundary of that relief so it cannot be claimed on any merger, split or conversion that happens to involve a co-operative bank. The two 75% tests and the book-value and going-concern conditions are the substance of that boundary: they require genuine continuity of ownership and of the business, not a sale dressed as a reorganisation.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Member continuity test for an amalgamation | 75% or more voting rights | Members holding that proportion in the amalgamating co-operative bank must become members of the amalgamated co-operative bank | Clause (a)(ii) |
| Shareholder continuity test for an amalgamation | 75% or more in value of the shares | Excluding shares held by the amalgamated co-operative bank or its nominee or subsidiary immediately before the merger; those shareholders must become shareholders of the amalgamated bank | Clause (a)(iii) |
| Shareholder continuity test for a demerger | 75% or more in value of the shares | Excluding shares already held by the resulting bank or its nominee or subsidiary immediately before the transfer; they must become shareholders otherwise than as a result of the acquisition of the assets of the demerged bank or any undertaking of it | Clause (g)(iv) |
| Value at which assets and liabilities must be transferred on a demerger | Values appearing in the books of account immediately before the transfer | Other than a change in the value of assets consequent to their revaluation | Clause (g)(ii) |
| Date of the Reserve Bank of India scheme defining conversion | Circular dcbr. Co. Ls. Pcb. Cir. No. 5/07.01.000/2018-19, dated 27th September, 2018 | Transition of a primary co-operative bank to a banking company must be under that notified scheme to be a "conversion" | Clause (e) |
Two separate 75% tests have to be met for an amalgamation and they count different things — voting rights of members under clause (a)(ii), and value of shares held by shareholders under clause (a)(iii) — so satisfying one does not carry the other. In both the amalgamation and demerger tests, shares already held by the acquiring or resulting bank, its nominee or its subsidiary are excluded from the count, which makes an existing stake unhelpful rather than helpful in reaching the threshold. On a demerger the assets and liabilities must move at their book values immediately before the transfer, so a revaluation carried out to improve the numbers is disregarded, and the consideration must be membership of the resulting bank issued proportionately, not cash. "Conversion" is narrower than it sounds: it is only a transition under the specific Reserve Bank scheme notified by the circular of 27th September, 2018, so a primary co-operative bank that becomes a banking company by some other route is outside the definition.
A primary co-operative bank merges into a larger co-operative bank. Members holding 78% of voting rights and shareholders holding 80% in value of the shares, ignoring the 6% the acquiring bank already held, become members and shareholders of the merged entity, and all assets and liabilities pass across. Clause (a) is satisfied and section 64 can operate. Had the shareholder continuity been 72% once the acquiring bank's existing 6% was excluded, the merger would be a merger in law but not an "amalgamation" for section 64, and the relief would fall away.
An individual taxpayer never encounters this section. It is the definitional gate a co-operative bank and its advisers work through when claiming section 64 treatment for a merger, demerger or Reserve Bank scheme conversion, and the provision an Assessing Officer cites when refusing that treatment.
the members holding 75% or more voting rights in the amalgamating co-operative bank become members of the amalgamated co-operative bank
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
the transfer of the undertaking is on a going concern basis
See the full 1961 to 2025 concordance.