Amalgamated banks cease operations and lose eligibility for bad debt deductions post-amalgamation under the Banking Regulation Act.

1.The assessee is before us. It was carrying on banking business. By virtue of the notification issued under S.45 of the Banking Regulation Act, 1949 (for short the Act) the assessee Bank got amalgamated with the Lord Krishna Bank Ltd., Cranganore. The notification is dated 7-10-1965. It contains the scheme of amalgamation. It came into force on 13-10-1965. As per the said scheme the assets and liabilities of the assessee bank shall be and shall become the assets and liabilities of Lord Krishna Bank. The assessee bank under the scheme of amalgamation is the transferor and the Lord Krishna Bank Ltd. is the transferee

2. The assets immediately taken over was of the value of Rs. 36,47,559.57 and the liabilities as it stood then came to Rs. 34,01,542.39. The assets taken over were all good and readily realisable assets. So far as ''advances considered as not readily realisable and / or bad or doubtful of recovery", the transferee bank was authorised to take steps to recover the same in terms of the scheme of amalgamation as notified. The value of such assets was found to be Rs. 7,72,439.70 As per the scheme if any amounts are to be realised by the transferee the same were to be distributed to the shareholders of the assessee bank.

3. During the previous year ending 31-12-1970 the year of assessment being 1971-72, the assessee bank had realised a sum of Rs. 44,714.68 as interest on moneys deposited for short periods. The moneys in such short term deposits represented the amounts realised by the transferee bank from those assets which were not readily realisable. In the return for the relevant year the assessee had shown a loss of Rs. 23,098/- and in doing so it had claimed a sum of Rs 58,560/-, representing the bad debts, as deduction. The assessing authority accepted the return and completed the assessment on 7-1-1972 determining the loss at Rs. 23,098/-.

4. The assessment was reopened on the basis of an audit note which had pointed out that in as much as the assessee bank had discontinued its business since 1965, the assessee bank was not eligible for the deduction of the bad debt while computing the income of the year. The assessee opposed the reopening on two grounds; (1) the reopening is based on a change of opinion and hence not sustainable in law and (2) it is incorrect to say that it ceased to carry on business after the amalgamation The assessing authority rejected both the contentions and made an assessment as per the order of assessment dated 8-12-1976. The appeal filed against this order of assessment was allowed by the Appellate Assistant Commissioner, Trivandrum. It is, however, seen from the said order of the Appellate Assistant Commissioner, that he had rejected the contention of the assessee bank that the reopening was bad in law. The assessing authority thereupon filed a second . appeal before the Income Tax Appellate Tribunal, Cochin Bench. The Appellate Tribunal accepted the arguments of the assessing authority that the assessee ceased to carry on business since the date of amalgamation with Lord Krishna Bank and hence it was not eligible for the deduction it had claimed while computing the assessable income. Accordingly it allowed the appeal.

5. The assessee thereupon filed a petition under S.256(1) of the Income Tax Act arid sought reference of certain questions said to be questions of law arising out of the order of the Tribunal, to this Court. The Appellate Tribunal held that the following question of law arose out of its order and accordingly referred it to us for our opinion:
"Whether on the facts and circumstances of the case, the assessee could be said to have carried on business in