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2014 (8) TMI 635 - HC - Income TaxAdvances made to rural branched u/s 36(1)(viia) - co-operative society - scheduled bank - Deduction of 10 per cent of the aggregate average advances - Applicability of definition of rural branch in Explanation (ia) to section 36(1)(viia) to co-operative banks – Held that:- Rural branch is a branch which falls under Explanation (ia) to section 36(1)(viia) - The Explanation to section 5(c) clearly indicates which are the transactions which would not come within the meaning of banking business - Non-schedule bank means a banking company as defined under section 5(c) which is not a scheduled bank - co-operative bank cannot be considered as a scheduled bank as the Second Schedule to the Reserve Bank of India Act does not include any of the co-operative banks - though any company which transacts business of banking in India would come within the meaning of non-scheduled bank, by virtue of Explanation (1) under this, clause scheduled bank is excluded - So far as sub-clause (a) of clause (viia) of section 36(1), two types of deductions are provided to non-scheduled bank, a scheduled bank and a co-operative bank other than a primary agricultural credit society, etc. It is to be noted that the assessees are not primary agricultural credit co-operative society or other kind of bank so as to go out of the definition of cooperative bank under sub-clause (a) to clause (viia) of section 36(1) - No doubt, Explanation (ia) to section 36(1)(viia) defines what is a rural branch - It is with reference to a place and certain number of population - It refers to branch of a scheduled bank or a non-scheduled bank - co-operative bank also falls under the category of non-scheduled bank for the purpose of this section - reading of the entire section 36(1)(viia)(a) along with the Explanation would mean two kinds of deductions referred to in the section will be allowed to all those banks only if they satisfy the terms and conditions referred to in the provision - the authorities below were justified in opining that the benefit of deduction of 10 per cent of the aggregate average advances is applicable to co-operative bank also provided their rural branches have advanced such amounts - Such rural branch means a branch as explained under Explanation (ia), as opined in the decision of Lord Krishna Bank's case [2010 (10) TMI 860 - Kerala High Court] - Decided against Assessee.
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