TMI Blog2019 (8) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The assessee has raised the following grounds of appeal:- 1. The learned CIT(A)-2, Pune erred in law an don facts in upholding the disallowance of ₹ 30,53,340/- (being 7.50% of the total income) u/s. 36(1)(viia) of the ITA, 1961 made by learned ITO, Ward 5(2), Pune (hereinafter referred to as the learned AO). 2. The learned CIT(A)-2, Pune and the learned AO erred in law and on facts in holding that, provision of section 36(1)(viia) of the ITA, 1961 is applicable only if advances are made by rural branches of a Bank. The learned CIT(A)-2, Pune ought to have appreciated the fact that there are two components of deduction u/s. 36(1)(viia) of the ITA, 1961. 3. The appellant craves leave to add / modify / delete / amend all / any of the grounds of appeal. 3. The only issue raised in the present appeal is against the disallowance made u/s. 36(1)(viia) of the Act. 4. The ld. AR for the assessee at the outset pointed out that the issue stands covered by the decision of Pune Bench of Tribunal in the case of Bhagini Nivedita Sahakari Bank Ltd. Vs. Deputy Commissioner of Income Tax reported as 100 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation to section 36 of the Act defines the terms used in sub-clause (a) of clause (vii), wherein it was defined as non-scheduled banks, rural branches, co-operative banks and scheduled banks. The assessee before us is a co-operative bank. In the initial years, co-operative banks were entitled to the benefit of deduction under section 80P of the Act. However, the said deduction has been withdrawn by the Finance Act, 2007 w.e.f. 01.04.2007. Thereafter, the Legislature has extended the benefit of section 36(1)(viia) of the Act to co-operative banks also. Initially, only scheduled banks were entitled to the aforesaid deduction but w.e.f. 01.04.2007, the benefit has been extended to co-operative banks and they are entitled to claim the deduction on account of provision for bad and doubtful debts, subject to the condition that provision to that extent is made in the books of account. Sub-clause (a) refers to deduction of an amount not exceeding 7.5% of total income, before allowing any deduction under the Chapter VI-A and secondly, it also refers to a deduction of an amount not exceeding 10% of aggregate average advances made by rural branches of such banks, which have been computed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and second on account of total income other than the rural advances and two different types of deductions were provided. It may be clarified herein itself that the Circular which is dated 18.07.1986 was in respect of scheduled or non-scheduled banks and extending to the foreign banks but the Co-operative banks were not included at that relevant point for the aforesaid deduction. It was only w.e.f. 01.04.12007, amendment was made to section 36(1)(viia) of the Act in respect of any provision for bad and doubtful debts. It was provided that scheduled banks or non-scheduled banks, all Co-operative banks other than primary agricultural credit society or primary co-operative agricultural and rural development banks, deduction was allowable to the extent of an amount not exceeding 7.5% of total income computed before making any deduction under Chapter VI-A and an amount not exceeding 10% of aggregate average advances made by rural branches of such banks, computed in the prescribed manner. The scope of said section has thus been enlarged w.e.f. 01.04.2007 and deduction is available not only to the scheduled or non-scheduled banks but to the Co-operative banks also i.e. the assessee befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section one refers to deduction of an amount not exceeding10% of the aggregate average advances made by rule branches of such bank while computing in the prescribed manner. So far as benefit of 7.5% of the total income, there is no condition that it should be in respect of any rural branch. All types of banks described under sub claque (a) of clause (viia) are entitled to seek deduction of an amount of exceeding 7.5% of the total income. Only condition is there should be a provision for bad and doubtful debts 10 . 11 . 12 ..So far as sub-clause (a) of clause (viia) to 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 society, etc. It is to be noted that appellants/assessees are not primary agricultural credit co-operative society or other kind of bank so as to go out of the definition of co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk along with meaning of rural branch under Explanation to section 36(1) of the Act clearly indicate that co-operative bank also falls under the category of non-scheduled bank for the purpose of said section. It further goes on to hold that reading the entire section along with Explanation would mean two kinds of deductions referred to in section would be allowed to all those banks only if they satisfy the terms and conditions referred to in the provision. Since the assessee bank in the said case did not have any rural branches, it was held that the benefit of deduction of 10% of aggregate average advances was not available to them. Hence, appeal of Revenue was decided in their favour i.e. on the second issue of deduction in respect of rural branches. 19. The Cochin Bench of Tribunal in a subsequent decision relating to assessment year 2010-11 in the case of Kodungallur Town Co-Op. Bank Ltd. Vs. ACIT (supra) again decided the aforesaid issue of claim of deduction under section 36(1)(vii) of the Act, especially in view of the ratio laid down by the Hon'ble Supreme Court in Catholic Syrian Bank Ltd. Vs. CIT (supra) relied upon by the Commissioner while invoking r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction by the Commissioner was held to be not justified, relying on the ratio laid down by the Apex Court in Catholic Syrian Bank Ltd., which is dated 17.02.2012. 21. The Bangalore Bench of Tribunal in DCIT Vs. ING Vysya Bank Ltd. (2014) 149 ITD 611 (Bangalore) vide its order dated 25.10.2013 had held vide para 32 that the object of substitution of clause (viia) as explained in para 5 of CBDT Circular No.464, dated 18.07.1986 was to give separate deduction. The first was in respect of rural advances and second for provision for bad and doubtful debts in general. 22. Similar proposition has been laid down by the Hyderabad Bench of Tribunal in State Bank of Hyderabad Vs. DCIT (2015) 63 taxmann.com 322 (Hyderabad-Trib.), order dated 14.08.2015 and also by Visakhapatnam Bench of Tribunal in ACIT Vs. Chaitanya Godavari Grameena Bank (supra), judgment dated 04.05.2016). 23. The learned Authorized Representative for the assessee has pointed out before us that no other decision of any Hon ble High Court, whether in favour or contrary, is available. The learned Departmental Representative for the Revenue has not pointed out any contrary d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The specific question before. Their Lordships was whether the Tribunal, while sitting in Bombay, was justified in following the Madras High Court decision holding the relevant section as unconstitutional Hon'ble High Court concluded as follows: It should not be overlooked that Income Tax Act is an all India statute, and if a Tribunal in Madras has to proceed on the footing that Section 140A(3) was non existent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the Tribunal in the State of Bombay (as it then was), it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land...an authority like Tribunal has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision on that issue by any other High Court.... 26. The Tribunal had also referred to the decision of Hon ble Bombay High Court in CIT Vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom), wherein the limited question was whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon ble High Court of Kerala (supra) though not the jurisdictional High Court, but the only decision available on the said issue squarely binds the Tribunal and hence, applying the said ratio, we hold that the assessee is entitled to the claim of deduction under section 36(1)(viia) of the Act to the extent of 7.5% of total income. The assessee co-operative bank do not have any rural branches, hence is not entitled to the second part claim of 10% of advances made by rural branches. The deduction is allowable with a rider to satisfy the provisions of said section i.e. making a provision to that extent in the books of account. The first issue which is raised in the case of different co-operative banks stands decided in favour of assessee. 8. The issue arising in the present appeal is identical to the issue before the Tribunal in Bhagini Nivedita Sahakari Bank Ltd. Vs. Deputy Commissioner of Income Tax (supra) and following the same parity of reasoning, we hold that the assessee is entitled to claim the aforesaid deduction u/s. 36(1)(viia) of the Act. Consequently, the grounds of appeal raised by assessee are thus, allowed. 9. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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