By TIOL News Service

CHANDIGARH, SEPT 25, 2018: THE ISSUE IS - Whether branches which fall within 8 km from municipal limit and town planning scheme are rural branches of bank and are eligible for deduction u/s 36(1)(viia) at rate of 10% of aggregate rural advances on a/c of bad and doubtful debts. YES IS THE VERDICT.

Facts of the case

The assessee bank had filed return for relevant AY. The return was processed u/s 143(1)(a). Proceedings, u/s 147 were initiated and notice u/s 148 was issued. The assessee claimed deduction u/s 36(1)(viia) at rate of 10% of aggregate rural advances on a/c of bad and doubtful debts. During the course of assessment proceedings, it was noticed by AO that the assessee had claimed deduction u/s 36(1)(viia) in respect of some branches treating them situated in the rural area although these branches were declared by the Census department situated in the Urban area or within the municipal limits. The AO held that, the assessee was not entitled to deduction u/s 36(1)(viia) @ 10% of aggregate rural advances on a/c of bad and doubtful debts. So, the excess deduction claimed by the assessee was added back to the returned income of the assessee. The CIT(A) confirmed the order of the AO based on the census report.

Tribunal held that,

++ what a place in relation to the rural branches has been deliberated upon by the High Court of Kerala in the case of The Lord Krishna Bank Ltd. Considering this judgement, it was found that the AO had mislead himself by taking out the rural branches that are falling within 8Km from municipal limit and town planning scheme from the eligible deduction. Thus the Census Report misinterpreted in relation to the definition of the "Rural Branch" to that extent;

++ provisions of the Income Tax Act,1961 have to be read strictly and nothing which is not intended nor mentioned could be read or intrapolated. While the section clearly mentions with explanation as to what a scheduled bank is and what a rural branch of a schedule bank means and the High Court has defined as to what a Rural Branch means in relation to the place in which the Branch is situated, any attempt to expand the definition bringing into the explanation given with regard to any other section which is not relevant even for harmonious interpretation of the Act cannot be accepted. Hence, keeping in view the provisions of the Act, facts on the record and as the rural branches namely Daria, Khuda Ali Sher, Kaimbwala, Delhi Jounti Block, N.Delhi Bamnoli, Chandi Mandir, Dadu Majra, Bahadurgarh, and Sarangpur have been found to be situated in the Rural Areas/Villages wherein the population is less than 10,000 as required under section 36(1)(viia) read with Explanation (ia) below sub clause (viia) to Section 36 of the Income Tax Act,1961 the disallowance made by the AO in relation to these Branches was ordered to be deleted. The branches namely Kasauli, Palampur, Sankhol, Kot Fatta, Raipur Rani, Nurpur, Kangra, Nalagarh, Nalagarh(ADB), Jandiala, Mustafabad, Ghagga, Begowal, Mehatpur, cheema, Shekhpura, Gardhiwala, Badni Kalan, Hadiyala, Dhillwan, Nagrota Bhagwan and Chachhrauli being the branches situated in the urban areas are not eligible for deduction @ 10% of aggregate advances. As a result, both the appeals of the assessee are partly allowed.

(See 2018-TIOL-1623-ITAT-CHD)