2008 (5) TMI 320 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 36(1)(viia) of the Income Tax Act to co-operative banks.
2. Interpretation of the term 'non-scheduled bank' under Section 36(1)(viia).
3. The relevance of Section 56 of the Banking Regulation Act, 1949.
4. Opportunity for the assessee to present its case.

Issue-wise Detailed Analysis:

1. Applicability of Section 36(1)(viia) of the Income Tax Act to co-operative banks:
The assessee, a co-operative society engaged in banking, claimed a deduction under Section 36(1)(viia) for bad and doubtful debts. The Assessing Officer (AO) disallowed the claim, limiting the deduction to 5% of total receipts, resulting in a disallowance of Rs. 93,44,884. The CIT(A) upheld the AO's decision, referencing a Tribunal decision which stated that Section 36(1)(viia) applies only to scheduled and non-scheduled banks, not co-operative banks. The CIT(A) also noted that the Finance Minister's speech during the 2007-08 Budget proposed the inclusion of co-operative banks under Section 36(1)(viia) from April 1, 2007, indicating that the provision was not applicable to co-operative banks prior to this date.

2. Interpretation of the term 'non-scheduled bank' under Section 36(1)(viia):
The main contention was whether a co-operative bank could be classified as a 'non-scheduled bank' under Section 36(1)(viia). The assessee argued that based on the definition in the Banking Regulation Act, a 'non-scheduled bank' includes any banking company, which should encompass co-operative banks. The Revenue countered that the definition of 'non-scheduled bank' in the Income Tax Act is exhaustive and does not include co-operative banks. The Tribunal agreed with the Revenue, stating that the definitions provided in the Income Tax Act are comprehensive and do not extend to co-operative banks. The Tribunal emphasized that the legislative intent was clear, as the benefit under Section 36(1)(viia) was explicitly extended to co-operative banks only from April 1, 2007.

3. The relevance of Section 56 of the Banking Regulation Act, 1949:
The assessee relied on Section 56 of the Banking Regulation Act, which applies the provisions of the Act to co-operative societies, arguing that this should extend the definition of 'non-scheduled bank' to include co-operative banks. The Revenue argued that Section 56 is intended to regulate the banking activities of co-operative banks, not to redefine terms in the Income Tax Act. The Tribunal agreed with the Revenue, stating that Section 56 does not override the specific definitions in the Income Tax Act. The Tribunal noted that Section 56 aims to bring co-operative banks under the regulatory framework of the Banking Regulation Act, not to alter the definitions used in the Income Tax Act.

4. Opportunity for the assessee to present its case:
The assessee claimed that the CIT(A) did not provide sufficient opportunity to present its case. The Tribunal did not find merit in this argument, as the CIT(A) had relied on existing legal interpretations and legislative amendments. The Tribunal concluded that the CIT(A)'s decision was based on a thorough understanding of the law and the legislative intent.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the provisions of Section 36(1)(viia) did not apply to co-operative banks for the assessment year in question. The appeal filed by the assessee was dismissed.