TaxTMI 
TaxTMI 
2022 (9) TMI 710
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....) in Appeal No. CIT(A), Allahabad/10022/2017-18 which in turn has arisen from rectification order dated 31.03.2017 passed by AO u/s 154 of the 1961 Act . Both these appeals were heard by Division Bench of the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called "the tribunal") in Open Court Proceedings through physical hearing of the appeals. 2. The assessee has raised following grounds of appeal in memo of appeal filed with Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called " the tribunal"), in ITA no. 134/Alld./2019 ,for ay: 2009-10, which reads as under:- "1. Because the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not adjudicating the Ground of Appeal relating to validity of initiation of reassessment proceeding under section 147 as taken during the course of hearing of appeal. 2. Because the reassessment proceeding initiated on the basis which has already been considered and decided by the assessing officer in original assessment proceeding under section 143(3) is only on the basis of change of opinion, therefore, whole of the reassessment proceeding is vitiate....
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....llowed deduction of 10% of aggregate average advances made by its rural branched(sic.branches) computed in the prescribed manner. 6.Because the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the Rules is the subordinate legislation which prescribed only the computation mechanism cannot override the substantive provision of section 36(1)(viia) of the Income Tax Act, 1961. 7. Because the order appeal against is contrary to the facts, law and principle of natural justice." 4. The issues involved in both these appeals are common , and we will take appeal in ITA No. 134/Alld/2019 for ay: 2009-10 as lead case. The brief facts of the case in ITA No. 134/Alld/2019 for ay:2009-10, are that the assessee is a Co-operative society registered on 29.03.1963 by Registrar of Co-operative Societies U.P. under the Uttar Pradesh Co-operative Societies Act, 1965 and engaged in the business of banking in Fatehpur district. The assessee filed its return of income on 30.09.2009 declaring income of Rs. 6,72,02,250/- . Thereafter, the assessee filed its revised return of income on 11.12.2010 declaring total income of Rs. 4,70,77,050/- . The case of ....
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....ion (i) of Section 36(1)(viia) of the 1961 Act, non scheduled bank means a banking company as defined in clause (5) of Section 5 of the Banking Regulation Act, 1949, which is not a scheduled bank. The assessee also referred to clause(c ) of Section 5 of Banking Regulation Act, 1949 , which is not a scheduled bank. The assessee referred to provisions of Section 5(c ) of the Banking Regulation Act, 1949 and submitted that banking company means any company which transacts the business of banking in India.It was further submitted that as per Part V of the 1949 Act, reference to 'Banking Company' or 'the company' or 'such company' shall be construed as reference to Co-operative Bank. The assessee further submitted that as per Section 2(i) of RBI Act, 1934 ,Co-operative Bank shall have the meaning respectively assigned to them in Part V of the 1949 Act. The assessee also claimed that although Rule 6ABA of the 1961 Act was not amended , but since Section 36(1)(viia) of the 1961 Act provides for deduction to Non Scheduled Bank and Co-operative Banks, the assessee claimed before the AO that it is entitled for deduction u/s 36(1)(viia) of the 1961 Act. 5b. The Learned AO rejected the clai....
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....Pradesh Cooperative Societies Act vide certificate of registration dated 11.12.1905 issued by Sub Registrar, Uttar Pradesh Cooperative Societies. Ever since its inception in the year 1905 the appellant had been in continuous pursuance of its main object being banking business. Appellant drew my attention to the fact that Indian Banks are broadly classified under two kinds, one is Commercial Bank and the others are Cooperative Banks. Both types of bank may be Scheduled or non-scheduled bank. As per definition non-scheduled bank means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949, which is not listed in the Second Schedule to the Reserve Bank of India Act, 1934. All banks which are not included in the 2nd scheduled of the Reserve Bank of India are non-scheduled banks. Appellant is admittedly a Non-scheduled Co-operative Bank. Section 36(l)(viia) and Rule 6 ABA relevant to the issue in question has been reproduced above. The benefit of deduction of provision for bad and doubtful debts u/s 36(l)(viia) have been extended to co-operative banks by the amendment made by the Finance Act, 2007 w.e.f. 01-04-2007 that are admittedly applicable in t....
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....f Rule 6ABA. It is well settled legal proposition that where a Statute contains both a general provision as well as specific provision, the latter must prevail - In other words, where a general statute and a specific statutory Rule relating to the same subject matter cannot be reconciled, the special or specific statute ordinarily will control - The principle finds its origins in the Latin maxim of generalia specialibus non derogant, i.e., general law yields to special law should they operate in the same field on same subject. While determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act - With this basic principle in mind, the provisions of S. 36(1)(viia) must be examined to find out whether it is possible to construe harmoniously the two provisions. Once it is seen that intention of the legislation is to exclude the words 'non-scheduled bank' used in general provision of S. 36(1)(viia) then the rule "general provision should yield to special provision" is squarely attracted - The rule of statutory construction that the specific gove....
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....use (viia) of sub-section (1) of section 36 Explanation.- For the purposes of this clause,- [(i) "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;] [(ia)] "rural branch" means a branch of a scheduled bank [or a non-scheduled 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, 1934 (2 of 1934); From a plain read....
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.... rural branches. The ld. Counsel submitted that the assessee has duly filed complete details of the advances made by the rural branches before the AO for the financial year 2009-10(ay: 2010-11) and computation chart was before the AO for ay: 2010-11. The assessee also submitted that complete details of the population in each of the rural branches were submitted for ay: 2010-11 which was less than 10000. It was submitted that even certificate of General Manager/Secretary of the Bank was submitted that deduction for ay: 2010-11 were claimed as per provisions of Section 36(1)(viia) of the 1961 Act. Our attention was drawn to paper book Page No. 12 to 15 ( filed for ay: 2010-11 which is placed on record in file) and it was submitted that the details as well declaration were also filed before the AO that the deduction has been claimed under Section 36(1)(viia) of the Act. So far as disallowance made by the AO for ay: 2010-11, the ld. Counsel submitted that the disallowance u/s 36(1)(viia) was made by AO by invoking provisions of Section 154 of the 1961 Act, which is not permissible as the scope of Section 154 is limited to rectifying mistakes apparent from records. The Ld. Counsel for t....
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....wherein the deduction claimed @10% of aggregate average advances made by Rural Branches of the assessee, stood disallowed........... Now, coming back to the first effective issue concerning grant of deduction u/s 36(1)(viia) of the 1961 Act. The assessee has claimed deduction to the tune of Rs. 1,78,85,718/- u/s 36(1)(viia) of the 1961 Act , while filing return of income with the Revenue. The said amount is reflected by assessee as deduction while computing Profits of the assessee, in the audited Profit and Loss Account of the assessee. The audited financial statements of the assessee are placed in paper book filed by the assessee. The AO has allowed deduction of Rs. 8,03,763/- computed at the rate of seven and half percent of the total income under the first limb of Section 36(1)(viia), while the AO did not allow deduction to the tune of Rs. 1,70,81,955/- which stood disallowed by AO. The ld. CIT(A) upheld disallowance of the deduction to the tune of Rs. 1,70,81,955/-. While confirming the disallowance as was made by the AO, the ld. CIT(A) observed that the assessee is not eligible for deduction under the second limb of Section 36(1)(viia)(a) of the 1961 Act which concern....
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....serve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:] [Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted :] [Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession." ] [Explanation.-For the purposes of this sub-clau....
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....of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) [***];] [(iii) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956); (iv) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (v) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and [eligible for deduction under clause (viii) of this sub-section];] [(vi) "co-operative bank", "primary agricultural credit society" and "primary cooperative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;]" It will also be appropriate at this stage to reproduce Explanation to sub-section (4) of Section 80P as it stood at relevant time, whic....
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....on.-Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;" It is equally relevant to reproduce the definition of Co-operative Bank as is contained in Part V of Banking Regulation Act,1949 , which is reproduced hereunder: "PART V APPLICATION OF THE ACT TO CO-OPERATIVE BANKS 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:-- (a) throughout this Act, unless the context otherwise requires,-- (i) references to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank; (ii) references to "commencement of this Act" shall be construed as references to commencement of the Banking Laws (Application t....
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....Act, 2012, shall before the expiry of three months from the date on which it had become a primary cooperative bank] and every co-operative society [***] shall before commencing banking business in India, apply in writing to the Reserve Bank for a licence under this section: PROVIDED that nothing in clause (b) of sub-section (1) shall be deemed to prohibit- (i) a co-operative society carrying on business as a cooperative bank at the commencement of the Banking Law (Application to Co-operative Societies) Act, 1965 (23 of 1965); or (ii) a co-operative bank which has come into existence as a result of the division of any other co-operative society carrying on business as a cooperative bank, or the amalgamation of two or more co-operative societies carrying on banking business at the commencement of the Banking Laws (Application to Cooperative Societies) Act, 1965 (23 of 1965) or at any time 2[thereafter]; [***] from carrying on banking business until it is granted a licence in pursuance of this section or is, by a notice in writing notified by the Reserve Bank that the licence cannot be granted to it.]; (ii) sub-section (3A) shall b....
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.... credit society or a primary co-operative agricultural and rural development bank. Since profits of co-operative banks are now taxable after withdrawal of deduction available to a co-operative society engaged in carrying on the business of banking under section 80P, such co-operative society banks should be allowed deduction in respect of any provision for bad and doubtful debts as its profits have become taxable. The amendment proposes to allow this deduction to co-operative banks not being a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The definition of scheduled bank in clause (ii) of Explanation to said clause (viia) is also proposed to be amended to include scheduled co-operative banks within the definition. Under the existing provisions contained in the Explanation to item (fa) of sub-clause (iv) of clause (15) of section 10, the expression "scheduled bank" has been defined to have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of subsection (1) of section 36 which does not include co-operative banks. However, the definition of "scheduled bank" after the propose....
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....007, Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank were not entitled to claim deduction of profits and gains of business attributable to business of banking , while computing total income chargeable to tax under the provisions of Section 80P by virtue of insertion of Section 80P(4), but Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank were brought within the ambit of Section 36(1)(viia) by Finance Act, 2007 w.e.f. 01.04.2007 , for claiming deductions in respect of provisions made for bad and doubtful debts. Bare perusal of provisions of Section 36(1)(viia) will reveal that Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank shall be eligible and entitled for claiming deduction u/s 36(1)(viia)(a) so far as first limb is concerned to the tune of seven and half percentile of total income. So far as second limb of Section 36(1)(viia) (a) is concerned, the deduction allowed is 10% of aggregate average advances made by the Rural Branches....
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....igible to get deduction, then the provision is to be liberally construed to give full effect to the beneficial provision to enable the achievement of the purposes for which it was intended. It is equally true that taxation provisions are to be strictly construed and there is no equity in taxing statute, but at the same time provision are to be read in a harmonious manner to make it workable and any reading of the provision which makes it otiose so far it is possible is to be avoided. The Revenue has heavily relied on the decision of Lucknow Bench of tribunal in the case of Mansarover Urban Co-operative (supra) to contend that the Co-operative Banks shall not be entitled for deduction under second limb of Section 36(1)(viia)(a) with respect to deduction computed based on aggregate average advances made by Rural Branches . We have carefully gone through the aforesaid decision of tribunal and it is observed that the relevant ay under consideration before tribunal was ay: 2003-04 and the tribunal decided that the benefit u/s 36(1)(viia) shall not be available to Co-operative Bank prior to 01.04.2007, as the Co-operative Banks are brought under the purview of Section 36(1)(viia) with ef....
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....wever, going by the definition of non-scheduled bank in Explanation (i) to Section 36(1)(viia), it means a banking company as defined in clause (c) of Section 5 of the 1949 Act. By virtue of Section 56 of the 1949 Act, the provisions of the 1949 Act as are applicable to banking companies were made applicable to Co-operative Banks and reference to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank and as defined in Part V of the 1949 Act, the "Co-operative bank" means a state co-operative bank, a central cooperative bank and a primary co-operative bank, as Section 5 of the 1949 Act stood amended by virtue of Section 56 wherein clause (cci) stood inserted in Section 5 of the 1949 Act, after clause (c). Similarly Section 22 of the 1949 Act stood amended by substitution by virtue of Section 56 of the 1949 Act , and no co-operative society shall carry on banking business in India unless it is a co-operative bank and holds a license issued in that behalf by the RBI. There are certain relaxation periods granted to class of certain cooperative societies who are already carrying on banking business and are brought within the ambit ....
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....it complete details with respect thereto. Further, so far as manner in which Rural Branches are to be determined, we clarify that it will be in the same manner as is specified in Explanation (ia) to Section 36(1)(viia), although the said explanation does not refer to Co-operative Bank specifically , but the said issue is adjudicated by Hon'ble Kerala High Court in the case of Kannur District Co-operative Bank Limited v. CIT reported in (2014) 50 taxmann.com 189(Kerala HC), wherein Hon'ble High Court held that Rural Branch defined under aforesaid explanation would also include rural branch of a co-operative bank and same terms and conditions as stipulated in explanation (ia) to Section 36(1)(viia) shall apply while determining Rural Branches of Co-operative Bank. Thus,the place referred for identifying the branch of the bank as a rural branch with reference to is location is the revenue village as that the Rural Branch has to be always in rural area and the place referred can be taken as village , and that it cannot be extended beyond the rural unit being village as recognized in the census report and then reference is to the population criteria as specified in Explanation (ia) to S....