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TMI Blog2012 (12) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee claimed deduction towards provision for bad and doubtful advances u/s 36(1)(viia) of the Act at 7.5% of the Gross total income amounting to ₹ 32,72,731/- and further deduction of ₹ 7,30,66,667/- being 10% of the aggregate advances made by the rural branches. The AO disallowed the claim of ₹ 32.72,731/- as no provision was made, as required u/s 36(1)(viia) of the Act. The AO also disallowed the claim of ₹ 7,30,66,667/- also on the ground that the assessee bank does not have any rural branch, i.e., the location of the branches of the bank are not rural . The assessee filed appeal before Ld CIT(A) on both the issues, but could not succeed. Hence, the assessee is in appeal before us. 3. None appeared on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erala High Court are extracted below, for the sake of convenience:- In our view, the definition clause does not exclude the literal meaning of rural branch which necessarily excludes urban areas. If the assessee's case accepted by the Tribunal that population in a Ward has to be reckoned for deciding as to whether the location of a Panchayat is in a rural area or not is accepted, then probably even in Municipal areas there may be Wards with less than 10000 population thereby answering the branch located in such Municipal area also as a rural Branch. Going by the ordinary meaning of Rural Branch, we feel only Branches of the Bank located in rural areas are covered. When the Legislature adopts population as the basis for classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an alternative plea with regard to the issue of determination of rural branch by submitting that the definition of rural branch given in sec. 36(1)(viia) shall not apply to the Co-operative banks and hence the order of Hon'ble Jurisdictional High Court shall not apply to the assessee herein. 7.1 In order to understand this alternative plea, it is necessary to explain the relevant provisions. The section 36(1)(viia) opens with the words 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 agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation of the various provisions/clauses of the Act/other Central Act only, in the interest of natural justice, we proceed to address the alternative plea of the assessee in the coming paragraphs. 8. The Explanation below section 36(1)(viia) defines various terms. Some of the definitions, which are relevant to the issue under consideration, are extracted below:- 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Banking Regulations Act, 1949. The said Part V starts with section 56, which reads as under:- 56:- Act to apply to Co-operative societies subject to modifications:- The provisions of this Act, as in force for the time being, shall apply to, or in relation to cooperative societies as they apply to, or in relation to banking companies subject to the following modifications namely:- Throughout this Act, unless the context otherwise requires:- References to a banking company or the company or such company shall be construed as reference to a Co-operative Bank In section (5), after clause (cc), the following clauses shall be inserted, namely - (cci) co-operative bank means a state Co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income (computed before making any deduction under clause 36(1)(viia) and Chapter VIA) made as per the provisions of sec. 36(1)(viia) of the Act. The AO has pointed out that the assessee has not created any Provision for bad and doubtful debts as mandated by sec. 36(1)(viia) of the Act. Hence, he disallowed the above said claim and the same was upheld by the Ld CIT(A). 6. We have carefully gone through sec. 36(1)(viia) of the Act. The deduction under that section is allowed in respect of any provision for bad and doubtful debts made by the assessee . Hence, the condition for allowing any deduction is the creation of any provision for bad and doubtful debts , which can only be created in the books of accounts maintained by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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