COMMISSIONER OF INCOME TAX TRICHY II Vs. CITY UNION BANK LTD

JUDGEMENT

(1.) THE above tax case appeals were admitted on the following questions of law: T. C. (A) No. 22 of 2004 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that in the case of the assessee bank interest on securities has to be assessed only on the basis of the interest due on the half-yearly due dates and the interest accrued as at the end of the assessment year is not be taken?

(2.) WHETHER on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim of bad debts in relation to non-rural branches of the assessee bank is allowable without first setting off against the provision already allowed under Section 36 (1) (viia) when no distinction is made between advances relating to non-rural and rural advances has been made in Section 36 (1) (vii)?

(3.) 1. With regard to the second question of law in T. C. (A)No. 22 of 2004, the only question of law in T. C. (A) No. 196 of 2004 and the second question of law in T. C. (A) No. 466 of 2004, the learned counsel for the assessee submitted that a similar issue has been answered in favour of the assessee in South Indian Bank Ltd. v. Commissioner of Income-tax, [2003] 262 itr 0579. 5. 2. The Division Bench of Kerala High Court in South indian Bank Ltd. Case referred supra, held that: "the proviso to clause (vii) of section 36 (1) and clause (v) of section 36 (2) of the Income-tax Act, 1961, were inserted simultaneously with effect from April 1, 1985, by the Finance Act, 1985. The scope of the proviso to clause (vii) of section 36 (1) has to be ascertained from a cumulative reading of the provisions of clauses (vii), (viia) of section 36 (1) and clause (v) of section 36 (2 ). The intention of the Legislature in enacting the proviso to clause (vii) of section 36 (1) and clause (v) of section 36 (2) simultaneously is only to see that a double benefit in respect of the same bad debt is not given to a scheduled bank. A scheduled bank may have both urban and rural branches and advances given from both branches. Having regard to the hazards involved in realising the advances made by rural branches particularly to agriculturists, certainly the assessee-bank might prefer to make provision for bad debt in respect of advances made in the rural branches. As a result of the amendment the scheduled 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 provisions for bad and doubtful debts account relating to advances made by the rural branches made under clause (viia ). If the bad debt written off relates to debts other than for which provision is made under clause (viia) such debt will fall squarely under the main part of clause (vii) which is entitled to deduction and in respect of that part of the debt with reference to which a provision is made under clause (viia), the proviso will operate to limit the deduction to the extent of the difference between that part of debt written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia ). " 5. 3. In the instant case, while allowing the claim for bad debts written off in respect of advances made by rural branches, the commissioner of Income Tax (Appeals) as well as the Tribunal, was of the firm opinion that the assessee has not claimed any debts written off in respect of rural branch in the earlier year. If that be so, we find no error in the order of the Tribunal in holding that the claim of bad debts in relation to non-rural branches of the assessee bank is allowable. Accordingly, this issue is answered in favour of the assessee and against the Revenue.