Co-operative bank deduction under bad-debt rules depends on statutory rural branch conditions and was restricted accordingly.

A co-operative bank's claim to deduction under section 36(1)(viia) for 10% of the aggregate average advances of its rural branches depends on satisfying the statutory conditions attached to that allowance. The provision for bad and doubtful debts, read with the banking law definitions of banking company, co-operative bank, scheduled bank and non-scheduled bank, may extend to a co-operative bank, but the rural-branch component is available only where the specific rural branch requirement is met. Applying harmonious construction and binding jurisdictional precedent in the assessee's own case, the claim was restricted under the statute and the issue was decided against the assessee.

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Issues: Whether a co-operative bank is entitled to deduction under section 36(1)(viia) of the Income-tax Act, 1961 in respect of 10% of the aggregate average advances made by its rural branches.

Analysis: The deduction provision for bad and doubtful debts under section 36(1)(viia) extends to specified banks, and the statutory explanation defines the relevant expressions for the purpose of the clause. The interpretation of the provision, read with the banking law definitions of banking company, co-operative bank, scheduled bank, and non-scheduled bank, shows that a co-operative bank can fall within the ambit of the provision, but the additional deduction linked to rural branches is available only where the statutory requirement of rural branches is satisfied. The reasoning adopts a harmonious construction of section 36(1)(viia) and the connected banking law provisions, and follows the binding jurisdictional precedent in the assessee's own case.

Conclusion: The assessee was not entitled to succeed on the claim; the deduction was restricted in accordance with the statutory conditions, and the issue was decided against the assessee and in favour of the Revenue.

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