2018 (5) TMI 903 - HC - Income Tax

Deduction u/s 36(1)(viia) - double deduction - same advances made for all previous years leading to multiple deductions in every assessment year - Tribunal allowed deduction - Held that - Clauses (a) and (b) in Rule 6ABA cannot be given the restricted interpretation. The amounts of advances as outstanding at the last day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provide for bad and doubtful debts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by Rule 6ABA. We find from the amended direction made by the Tribunal that such direction is in terms of Rule 6ABA. The ITO had made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT(A). The Tribunal amended such direction, in our view, correctly applying the rule. No substantial questions of law

Issues:
1. Interpretation of deduction under section 36(1)(viia) of the Income Tax Act, 1961.
2. Calculation of deduction for rural bank branches.
3. Applicability of Rule 6ABA of the Income Tax Rules, 1962.
4. Double deduction concerns under Rule 6ABA.

Interpretation of Deduction under Section 36(1)(viia) of the Income Tax Act, 1961:
The case involved the interpretation of deduction under section 36(1)(viia) of the Income Tax Act, 1961. The Revenue questioned the Tribunal's decision to allow the deduction for the same advances made for all previous years, leading to multiple deductions in each assessment year. The Revenue contended that this interpretation was against the judgment in the case of J.K Synthetics Ltd. vs. UOI. The Tribunal, however, allowed the deduction for the assessee, emphasizing the specific calculation method prescribed under Rule 6ABA of the Income Tax Rules, 1962.

Calculation of Deduction for Rural Bank Branches:
The assessee, a regional rural bank, claimed deduction under section 36(1)(viia)(a) of the Income Tax Act, 1961 for its rural branches. The dispute arose regarding the calculation of the deduction amount based on the aggregate monthly average advances made by the rural branches. The Income Tax Officer (ITO) calculated a different sum compared to the assessee's claim. The Tribunal intervened, directing the correct computation method based on the advances made by each rural branch as outstanding at the end of each month in the previous year.

Applicability of Rule 6ABA of the Income Tax Rules, 1962:
The Tribunal's decision was based on the applicability of Rule 6ABA of the Income Tax Rules, 1962. The Tribunal clarified that the computation of the deduction under section 36(1)(viia) should consider the advances made by each rural branch separately and aggregate them as per the prescribed manner in Rule 6ABA. This interpretation aligned with the statutory provisions and aimed to prevent double deductions.

Double Deduction Concerns under Rule 6ABA:
The Revenue raised concerns about the possibility of double deduction due to the Tribunal's amended direction. The Revenue argued that such double deduction was not permissible and cited a Supreme Court judgment emphasizing the need for clear and express language to allow for unusual deductions impacting state revenues. However, the assessee's representative defended the computation method prescribed by Rule 6ABA, highlighting that the deduction was limited to a percentage of the aggregate average advance, as per the rule.

In conclusion, the High Court dismissed the application and appeal, finding that the Tribunal's amended direction was in line with Rule 6ABA. The Court upheld the Tribunal's interpretation, emphasizing the correct application of the rule in calculating the deduction for rural bank branches. The judgment clarified the statutory provisions regarding the deduction under section 36(1)(viia) and addressed concerns related to double deductions, ultimately resolving the dispute in favor of the assessee.

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