TaxTMI 
TaxTMI 
2002 (11) TMI 53
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.... all these appeals are scheduled banks and that the appellants in their assessments under the Act for the concerned assessment years had claimed deductions both under the provisions of section 36(1)(vii) and under the provisions of section 36(1)(viia) of the Act. There is no dispute with regard to the computation of the benefit available under clause (viia) of sub-section (1) of section 36 of the Act. However, the dispute is only with regard to the computation of the benefit available under clause (vii) of the said sub-section. As already noted, the scope of the proviso to clause (vii) of section 36(1) of the Act is the issue involved in these appeals. It is therefore necessary to refer to the relevant provisions of section 36 of the Act. Here, it must be noted that section 36(1)(vii) in terms refers to the provisions of section 36(2) and also section 36(1)(viia) of the Act. It is also necessary to note that the proviso to clause (vii) of section 36(1) and clause (v) of section 36(2) were inserted simultaneously with effect from April 1, 1985, by the Finance Act, 1985. Clause (viia) of section 36(1) of the Act, it must be noted, was inserted by Act 21 of 1979 with effect from April....
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....clause and Chapter VI-A) or an amount not exceeding two per cent. of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher." Clause (viia) had again undergone a change, by the Income-tax (Amendment) Act, 1986, from April 1, 1987, the relevant portion of which reads as follows: "(viia) in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank (not being a bank approved by the Central Government for the purposes of clause (viia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding two per cent. of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner." There is a further amendment to the main part of clause (via) by Act 4 of 1988 with effect from April 1, 1989. Clause (vii) main part reads as follows: "Subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in....
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....ural branches of the banks. Now, after the 1985 amendment, the deduction was geared to a percentage of the total income computed before making any deduction under this clause or Chapter VI-A or an amount not exceeding two per cent. of the aggregate average advances made by the rural branches of such banks computed in the prescribed manner whichever is higher. The amendment of clause (viia) made with effect from April 1, 1987, gave a twofold deduction (1) an amount not exceeding five per cent. of the total income, and (2) an amount not exceeding two per cent. of the aggregate average advances made by the rural branches, computed in the prescribed manner. Thus, it is evident from clause (viia) both before and after the amendments made in 1985 and 1987 provision for bad and doubtful debts in relation to rural advances made by the bank was given a special benefit. The deduction allowable under clause (vii) is subject to the provisions of section 36(2). Clause (v) of sub-section (2), as already noted, was introduced with effect from April 1, 1985. Under that clause, where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies,....
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....troduced simultaneously in clause (vii) of section 36(1). This is for the reason that by virtue of the proviso to clause (vii), the deduction under clause (vii) is limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. By the combined operation of the provisions of clause (v) of section 36(2) and the proviso to section 36(1)(vii), the deduction available under clause (vii) will be the difference between the bad debt written off by the assessee-bank in its book and the provision made for such bad debt under clause (viia) of section 36(1). In other words, the assessee-bank will be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written off in the books relating to advances made by the rural branches during the previous year relevant to the assessment year and the credit balance in the provision for bad and doubtful debts account relating to advances made by the rural branches made under clause (viia). The contention of the assessee is that the debt to be debited in....
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....il 1, 1985, a scheduled bank was entitled to a special treatment in respect of bad debts incurred on account of advances made by rural branches. By virtue of clauses (vii) and (viia), a scheduled bank was getting full deduction of the entire bad debt claim provided it is established to have become bad and an additional benefit in respect of such debt or part thereof relating to the advances made by the rural branches by way of provision made under clause (viia). The Legislature, it appears, thought that such double benefits in respect of rural advances should not be allowed and, therefore, they have inserted a proviso to clause (vii) and simultaneously inserted clause (v) of section 36(2). There is no dispute that a scheduled bank which makes a provision in respect of bad debts, be it in respect of urban advances or in respect of rural advances, is entitled to the benefit of deduction under clause (viia) of section 36(1) after April 1, 1985. Similarly, all assessees who are engaged in money lending business, who are not covered by clause (viia) are entitled to deduction of the entire bad debt established as such up to April 1, 1987, and thereafter the entire bad debt written off in....
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.... branches. Having regard to the hazards involved in realising the advances made by rural branches particularly to agriculturists, certainly the assessee-bank will prefer to make provision for bad debt in respect of advances made in the rural branches. If an assessee makes a provision under clause (viia) in respect of bad debts relating to rural advances only, to deny such an assessee the benefit provided under clause (vii) which is available to all other assessees who are engaged in money-lending business will result in discrimination without reason. The Legislature cannot be presumed to have intended such a result in the case of scheduled banks. The intention of the Legislature in enacting the proviso to clause (vii) of section 36(1) and clause (v) to section 36(2) simultaneously is only to see that a double benefit in respect of the same bad debt is not being given to a scheduled bank. It is only for the said purpose, the proviso and clause (v) were introduced simultaneously by the Amendment Act, 1985, with effect from April 1, 1985. According to us, the scope of the proviso to clause (vii) of section 36(1) of the Act is only to deny the deduction to the extent of bad debt writte....