Co-operative bank deduction under bad-debt provisions turns on the meaning of non-scheduled bank and rural branch.

A co-operative bank claiming deduction for provision for bad and doubtful debts under section 36(1)(viia) was examined against the Banking Regulation Act, 1949. The statutory scheme, including the Part V definitions, was taken to mean that a co-operative bank falls within "banking company" and, if not scheduled, within "non-scheduled bank". The Explanation to section 36(1)(viia) defines a rural branch only as a branch of a scheduled bank or non-scheduled bank situated in a place with population not exceeding ten thousand. The earlier jurisdictional High Court view on "rural branch" was followed, and the claimed deduction on the footing urged by the assessee was denied.

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Issues: Whether a co-operative bank is entitled to deduction for provision for bad and doubtful debts under section 36(1)(viia) of the Income-tax Act, 1961, and whether its branches can be treated as rural branches for that purpose.

Analysis: The provision allows deduction to a scheduled bank, non-scheduled bank, and a co-operative bank, but the Explanation defining "rural branch" refers to a branch of a scheduled bank or a non-scheduled bank situated in a place having population not exceeding ten thousand. The Banking Regulation Act, 1949 was examined to determine whether a co-operative bank falls within the expression "non-scheduled bank". In view of the statutory scheme, especially the definitions in Part V of the Banking Regulation Act, 1949, a co-operative bank was held to fall within the expression "banking company" and, if not scheduled, within "non-scheduled bank". The earlier jurisdictional High Court decision on the meaning of "rural branch" was followed.

Conclusion: The co-operative bank was held to be covered by the expression "non-scheduled bank" for the purposes of section 36(1)(viia), and the assessee was not entitled to the claimed deduction on the footing urged by it.

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