TMI Blog2014 (1) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... - Shri R. K. Gupta And Shri Sanjay Arora,JJ. For the Appellant : Shri Vinod Johari For the Respondent : Shri P. C. Parwal ORDER Per R. K. Gupta, J. M. This is an appeal by department against the order of ld. CIT (A) relating to assessment year 2008-09. 2. The department is objecting in directing to allow deduction of Rs. 58,81,000/- under section 36(1)(viia) of the IT Act. 3. The brief facts of the case are that The assessee is a Co-operative Bank registered under Co-operative Societies Act. During the year under consideration the assessee has claimed deduction u/s 36(1)(viia) as under: Amount not exceeding 7.5% of the Total Income (Computed before making any deduction under this clause and Chapter VIA) 29.14 Lacs and Amount not exceeding 10% of the Aggregate Average Advances made by the rural branches of such bank computed in the manner prescribed in the Income Tax Act 58.81 Lacs Total 87.95 Lacs 3.1. The ld. A O, after considering the provision of section 36(1)(viia) and the definition of rural branch in the explanation to section 36(1)(viia) held that deduction in respect of aggregate average advances made by the rural branch claimed at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submissions, the ld. CIT (A) has given a categorical finding. For the sake of better understanding, the explanation filed on behalf of the assessee is as under :- 1. The relevant extract of section 36(1)(viia) of the Income Tax Act, 1961 is reproduced hereunder: (viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Explanation. For the purposes of this clause, (i) non-scheduled bank means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank; (ia) rural branch means a branch of a scheduled bank or a nonscheduled bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Finance Act, 2007, provided that the deduction u/s 36(1)(viia) will be allowed to the Co-operative Banks. In para 164 of the budget speech, Hon ble Finance Minister has stated as follows [289 ITR 89, 118 (Statute)]: Profit-making co-operative banks, other primary society and primary banks (i.e.,PACs PCARDBs) have been brought on at par with other banks. However, I have noticed some anomalies and I propose to correct them in the interest of co-operative banks. Accordingly, the benefit of section 36 (1) (viii) will be available to co-operative banks. Likewise, cooperative banks will also be allowed deduction in respect of provision for bad and doubtful debts u/s 36(1)(viia). Amalgamation De-merger of banking co. is tax neutral and this benefit will be extended to co-operative banks. In the memorandum explaining the Finance Bill 2007 [289 ITR 292, 306 to 307)], it has been explained as follows: Deduction in respect of any provision for bad and doubtful debts to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Scheduled bank in its pre-amended form in clause (ii) of Explanation to clause (viia) of sub-section (1) of sec 36 is being substituted for the existing Explanation in the aforesaid item (fa) to ensure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed substitution of the definition of Scheduled bank in the said item (fa) meets with this objective. The proposed amendment to the definition of Scheduled bank as it appears in sec 36 will also have the effects of making the provisions of sec 43 D applicable to Scheduled co-operative banks. Thus from the memorandum explaining Finance Bill, 2006, speech of Finance Minister presenting budget for the year 2007 and the memorandum explaining Finance Bill 2007, it is clear that these amendments are made by the legislature to bring the taxability of Cooperative banks at par with the other commercial banks. Wherever, the intention of legislation was there to restrict the benefit only with reference to Schedule Banks other than Co-operative Banks, specific amendment has been brought in the definition of Schedule Bank in that particular section. For instance in item (fa) of clasue (15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires (i) references to a banking company or the company or such company shall be construed as reference to a Co-operative Bank. In view of these provisions, any Co-operative Bank is a banking company as per clause (c) of section 5 of the Banking Regulation Act, 1949. Therefore any co-operative bank which is not a schedule bank, is a Non-schedule bank as per clause (i) of Explanation to section 36(1)(viia). Hence any rural branch of such Co-operative bank is covered by the clasue (ii) of the said explanation. Even otherwise if it is assumed that rural branches of Co-operative banks are not covered by the explanation, the explanation cannot override the main provisions of the sections. The Supreme Court in case of S. Sundaram Pillai v. V. R. Pattabiraman AIR 1985 SC 582 observed as follows (referred in case of ITO Vs. D. Manoharlal Kothari 236 ITR 357, 376): Thus, from a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is (a) To explain the meaning and intendment of the Act itself, (b) Where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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