The Kochi division of the Income Tax Appellate Tribunal, in A recent decision held that a co-operative rural bank is not entitled to get deduction under section 36(1)(viia) of the Income Tax Act, 1961 on ground that none of its branches can be classified as a “rural branch.”
Coming to the facts of the case, the assessee, Mowancherry Coop Rural Bank, is a co-operative credit society registered under the Kerala Co-operative Societies Act, 1969.During the relevant assessment year, the assessee has 11 branches. The assessee filed returns belated and has claimed deduction under section 80P of the Act along with deduction in respect of bad and doubtful debts of 10% which can be claimed by the Rural Branch. According to the officer, the branches of the assessee are not “rural branches” since as per the last census data, these branches were situated in a village having population more than 10,000. The assessing officer completed the assessment by rejecting the claims of the assessee. The matter was brought before the Appellate Tribunal to decide that whether these disallowances are justified.
Regarding the first issue, the Tribunal, following the decision of the Kerala High Court in similar cases, observed that the assessee is entitled to get the deduction under section 80P despite of the fact that the returns were filed after the due date.
On the issue of disallowance of bad and doubtful debts, the Tribunal found that the Finance Act, 2007 had amended section 36(1)(viia) of the Income Tax Act to extend the deduction in respect of any provision for bad and doubtful debts also to a Cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. The said provision allows a total of 7.5% of maximum deduction in respect of bad and doubtful debts and 10% of aggregate average advances made by rural branches of the assessee.
The Tribunal noticed the decision of the Kerala High Court in Lord Krishna Bank Ltd, held that the terms “place” mentioned under section 36(1)(viia) is to be interpreted as the revenue village and not as ward. Further, the Tribunal noticed its earlier decision in Kannur district Co. Bank Ltd, that the ratio of the above decision applies to Co-operative Banks also.
Following the above decisions, the Tribunal held that the assessee is not entitled to the benefit of section 36(1)(viia)since none of the branches of the assessee can be classified as a rural branch.
Read the full text of the order below.