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TMI Blog2014 (1) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 58.81 Lacs is not allowable as Co-operative banks are not entitled to this benefit. He accordingly disallowed the claim of Rs. 58.81 Lacs. 3.2. The CIT (A) deleted the addition after considering the assessee's submission and by giving following findings: "The A O has merely reproduced the provisions of section 36(1)(viia) and has disallowed the deduction @ 10% of the aggregate average advances made by the banks rural branches by holding that the co-operative is not entitled to it without giving any rationale for his decision. On the other hand the AR of the assessee has filed copy of the Banking Regulation Act 1949 on perusal of which, it is seen that the assessee falls u/s 5(c) of the said Act and is a non-schedule bank. It is clearly covered u/s 36(1)(viia) wherein it has been mentioned that "rural branch" means a branch of a scheduled bank (or non-scheduled bank) situated in a place which has a population of not more than 10000 according to the last preceding census. The bank has rural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (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 situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act." 2. From the bare reading of clause (viia) of section 36, it is clear that deduction of provision for bad and doubtful debts is allowable to a schedule bank or a non-schedule bank or co-operative bank with reference to certain percentage of tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um 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 allowed in the case of co-operative banks u/s 36(1)(viia) Under the existing provision of clause (viia) of sub section (1) of section 36, deduction of an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under the said clause and chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of a scheduled bank or a non-scheduled bank computed in the prescribed manner is allowed as a deduction in the computation of income of such banks. "Scheduled bank", as defined in the explanation to clause (viia) of subsection (1) of the section 36, does include a co-operative bank. The deduction earlier allowable under section 80P in the case of cooperative society engaged in carrying on the business of banking (cooperative banks) has been withdrawn from A.Y. 2007-08 barring in the case of a primary agriculture credit society or a primary co-operative agriculture and rural development bank. Since profits of co-operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) of section 10 which provides exemption of interest payable by Schedule Bank to Non resident or NOR, it was not the intention of legislation to provide this exemption for the interest payable by the Co-operative Bank. Hence the definition of "Scheduled bank" in its pre-amended form in clause (ii) of Explanation to clause (viia) of sub-section (1) of sec 36 is substituted for the existing Explanation in the aforesaid item (fa) by the Finance Act 2007. However legislature intended that provisions of section 43D also applies to scheduled Co-operative Bank. No amendment in the definition of Scheduled bank is brought in section 43D which refers to the definition given in explanation to clause (viia) of sub-section (1) of section 36. Thus had it been intention of the legislature to not to provide for deduction u/s 36(1)(viia) in respect of aggregate average advances of rural branches to the Co-operative Bank, it would have been specifically mentioned in the clause (viia) itself. Once it is not denied in main section, it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it consistent with the dominant object which it seems to subserve, (c) To provide an addition support to the dominant object of the Act in order to make it meaningful and purposeful, (d) An Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act, it can help or assist the court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming a hindrance in the interpretation of the same." Thus when in the clause (viia), it has been expressly provided that deduction shall be allowed to Co-operative Banks in respect of aggregate average advances of rural branches, it cannot be denied in view of the explanation to the said clause. In view of above, the CIT (A) has rightly allowed the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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