TaxTMI 
TaxTMI 
2022 (9) TMI 710
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....7-18 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 vitiated and liable to be quashed. 3. Because the learned Commis....
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....nner. 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 the assessee was selected for framing scrutiny assessment through CASS. In the original assessment framed by the AO u/s 143(3) of the 1961 A....
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....49, 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 claim of assessee for deduction u/s 36(1)(viia) of the 1961 Act on the ground that the assessee is neither a scheduled bank nor a nonscheduled bank. The AO referred to ....
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....ar 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 the case under consideration as the AY is 2009-10. AO after detail discussion held that the assessee is a co-operative bank but not a scheduled co-operative bank and entitled to a d....
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....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 governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be overcome by textual indications that point in the other direction. (COMMERCIAL TAX OFFI....
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....a)] "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 reading of the two explanations above it is settled from the definition of rural branch, Scheduled bank and of Scheduled bank it is seen that the definition includes "any other bank being a bank included in Second Schedule to the Reserve Bank of India Act 1934(2 of 1934)". Before 01.04.2007, the same portion ....
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....ch 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 the assessee submitted that the said deduction u/s 36(1)(viia) claimed by the assesseee was earlier accepted by AO for ay:2010-11 by passing assessment order dated 26.03.2013 under Section 143(3) of the Act, and now this issue cannot be decided by AO under Section 154 of the 1961 Act. 7b. The Ld. CIT DR, on the other hand ....
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....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 concerns itself with deduction computed @10% of aggregate average advances made by Rural Branches of assessee, keeping in view amended provisions of Section 36(1)(viia) as amended by Finance Act, 2007 , w.e.f. 01.04.2007. The ld. CIT(A) further observed that Regional Office of Reserve Bank of India, Lucknow has granted banking license to the asses....
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....ding 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-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;] (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA);] [(c) a public financia....
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.... 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, which is reproduced hereunder: "(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.-For the purposes of this sub-section,- (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural....
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.... 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 to Cooperative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures "the Companies Act, 1956 (1 of 1956) and" shall be omitted; (c) in section 5,-- (i) after clause (cc), the following clauses shall be inserted, namely:-- (cci) "Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank;" It is equally relevant to reproduce substituted section 22 of the 1949 Act by virtue of Section 56 of the 1949 Act as is applicable to co-operative Banks: "(o) in section 22,-- (i) for sub-sections (1) and (2) the following sub-sections shall be substituted, namely:-- "(1) Save as hereinafter PROVI....
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....cieties 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 be omitted; (iii) in sub-section (4) in clause (iii) the words, brackets, figures and letter "and sub-section (3A)" shall be omitted;] At this stage , it will be relevant to refer to Notes on Clauses to Finance Bill, 2007 , wherein introducing the amendment, notes on clauses stipulates as under: "Sub-clause (a) of clause (viia) of sub-section (1) of the said section provides for deduction of an amount not exceeding seven and one-half per cent. of the total income (computed before making any deduction under the said clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of a scheduled bank as specified or a non-scheduled bank in the computation of income of such banks. The proposed amendment seeks to extend ....
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....) 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 proposed amendment will include scheduled co-operative banks. The referral definition of "scheduled bank" presently occurring in the Explanation to the aforesaid item (fa) does not allow exemption of interest payable to a non-resident or a not ordinarily resident by a co-operative bank. In order to continue with this position, the definition of "scheduled bank" in its pre-amended form in clause (ii) of Explanation to clause (viia) of sub-section (1) of section 36 is being substituted for the existing Explanation in the aforesaid item (fa) to ensure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed substitution of the definition of "scheduled bank" in the said item (fa) meets with this objective. The proposed amendment to the definition of "scheduled banks" as it appears in section 36 will also have the effect of making the....
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....ble 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 of such bank computed in the prescribed manner, as is stipulated in Section 36(1)(viia)(a) of the 1961 Act. While including 'Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank' in Section 36(1)(viia)(a) effective from 01.04.2007 , law makers have brought eligible Co-operative Banks to be entitled for deduction under first limb, and while referring to 'such bank' in the second limb, in our considered view by literal reading and interpretation, eligible Co-operative Banks shall also be entitled to claim deduction under second limb. As the use of the term 'such bank' in the second limb of Section 36(1)(viia)(a), will relate back to the banks as specified in the first limb which, inter-alia, will include eligible Co-operative Banks. In Explanation to Section 36(1)(viia) , it is provided that rural branches mean....
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....d 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 effect from 01.04.2007. By virtue of Section 56 of the Banking Regulation Act, 1949, the 1949 Act was made applicable to co-operative societies subject to modification as stipulated therein . It is stipulated that the provisions of the 1949 Act, shall apply to , or in relation to banking companies subject to modification stipulated. It is , inter-alia, stipulated that 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 . Thus, once Cooperative Banks stood covered by Section 36(1)(viia) by Finance Act, 2007 w.e.f. 01.04.2007 , then it shall be a non-scheduled bank as defined in explanation (i) to Section 36(1)(viia) , which explanation provides that a "non-scheduled bank" means a banking company as defined in clause (c ) of section 5 of the Banking Regulation Act, 1949, unless it is ....
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....ciety 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 of the 1949 Act from time to time, to seek license from RBI within the prescribed cut-off period and the RBI is empowered to grant such banking license from retrospective effect whence the statutory amendment bringing a class of co-operative society within the ambit of the 1949 Act. The assessee has claimed that RBI granted banking license to it to continue and carry on banking business , vide license dated 10.01.2012 , and although we are seized of ay: 2010- 11 , the assessee has claimed that it will be entitled and eligible for deduction u/s 36(1)(viia) as the said license was granted with retrospective effect to continue and carrying on the banking business. It is the claim of the assessee that it is carrying on banking business since its inception . These aspect has not been exhaustively looked into by the authorities below as the ld. CIT(A) has merely concluded that the assessee is n....
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....llage 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 Section 36(1)(viia). Reference is drawn to judgment of Hon'ble Kerala High Court in the case of CIT v. Lord Krishna Bank Limited (2011) 339 ITR 606(Ker. HC ) and judgment of Hon'ble Kerala High Court in the case of Ernakulam District Co-operative Bank Limited v. CIT reported in (2018) 98 taxmann.com 488(Ker. HC). We are in agreement with the afore-stated judgments of Hon'ble Kerala High Court. It is also observed that similar view was taken by Mumbai-tribunal in the case of Citizen Credit Co- operative Bank Limited v. ACIT, Mumbai reported in (2014) 49 taxmann.com 11(Mum-trib.), in which one of us namely Hon'ble Judicial Member was part of the Division Bench who pronounced the said judgment. No contrary judgment of Hon'ble Superior Courts including Jurisdictional High Court are cited by Revenue. Thus, the matter is remitted back to the file of the AO for fresh adjudication, as is directed ....