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Facts
The assessee, a cooperative bank, claimed deduction u/s 36(1)(viia) for its rural branches. The AO and CIT(A) disallowed this deduction, contending the branches were not rural. The assessee also disputed being treated as a 'Trust' instead of an 'AOP' for tax assessment.
Held
The Tribunal held that the notification excluding certain villages from the municipal limits of Vasai-Virar, which declared them as rural, continued to have force. It also held that the assessee, being a cooperative society, should be assessed as an AOP, not a Trust, irrespective of the PAN's indication.
Key Issues
Whether branches located in villages subsequently excluded from municipal limits qualify as 'rural branches' for deduction u/s 36(1)(viia)? Whether the assessee, a cooperative bank, should be assessed as an AOP or a Trust?
Sections Cited
36(1)(viia), 154, 143(1)(a)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI B.R. BASKARAN
O R D E R PER B.R. BASKARAN, A.M :
The assessee has filed this appeal challenging the order dt.22-01-2024 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟] and it relates to AY. 2021-22.
At the time of hearing, the Ld.AR did not press Ground Nos. 2 to 5 on the reasoning that the grievance of the assessee has been redressed by the order passed by the AO u/s. 154 of the Income Tax Act, 1961 („the Act‟). Accordingly, those grounds are dismissed as not pressed. Ground No. 1 is general in nature and Ground No. 9 is consequential in nature.
The assessee is a co-operative bank and hence it claimed deduction u/s 36(1)(viia) of the Act in respect of provision created for advances given by the Rural branches. The Ground No. 6 relates to the decision of the Ld.CIT(A) in confirming the disallowance of deduction claimed u/s.36(1)(viia) of the Act in respect of the following four branches – a. Nandkhal branch b. Nirmal branch c. Girji branch d. Bhuigaon branch 3.1. The Ld.AR submitted that the assessee classified the above said four branches as “rural branches” and accordingly claimed deduction u/s. 36(1)(viia) of the Act. The Ld.AR submitted that the villages, where these four branches were located wereincluded in the limits of Vasai- Virar Municipal Corporation, vide notification dt. 03-07-2009. However, subsequently, vide notification dt. 31-05-2011, the above said four villages were excluded from the limits of municipal corporation of city of Vasai-Virar. Hence the branches located in the four villages have again become rural branches with effect from 31-05-2011. Accordingly, the assessee claimed the deduction u/s. 36(1)(viia) of the Act in respect of the branches located in the above said four villages, treating them as rural branches. In the meantime, certain persons filed a Writ Petition before the Hon Bombay High Court, challenging the notification issued on 31.05.2011. In view of the above said Writ Petition, the AO took the view that the deduction u/s. 36(1)(viia) of the Act cannot be allowed to the assessee in respect of the branches located in the above said four villages. The Ld.CIT(A) also confirmed the same.
3.2. The Ld.AR further submitted that the State Government issued another draft notification on 14-02-2024, calling for suggestions and objections for inclusion of various villages in the municipal corporation of city of Vasai-Virar, which, inter alia, included three of the above said four villages, i.e., except Nandkhal branch. On the basis of the above said notification, the Hon‟ble Bombay High Court vide its order dt. 22- 02-2024, dismissed the Writ Petitions filed by various persons, without expressing any view on the notifications issued by the Government in the year 2011.
3.3. On the basis of the above said factual aspect, the Ld.AR submitted that the notification issued by the Urban Development Authority on 31.05.2011 continues to have force in the eyes of law and hence, the branches located in the above said four villages should be considered as rural branches only. Accordingly, he submitted that the assessee is eligible for deduction u/s. 36(1)(viia) of the Act in respect of these four branches.
3.4. We heard theLd.DR and perused the record. On the basis of the facts discussed above, we find force in the submissions made by the Ld.AR. A perusal of the order passed by the Hon‟ble Bombay High Court in the Writ Petition referred supra, we notice thatthe Hon‟ble Bombay High Court has declined to interfere to the notification issued by observing that – “there is no question of clarifying today that on issuance of the draft, the previous notifications “stand superseded”, “withdrawn”, “rescinded” or anything to that effect” The above said observations made by the Hon‟ble Bombay High Court would show that the notification issued on 31-05-2011 shall continue to have effect. There is no dispute with regard to the fact that all the four villages mentioned above have been excluded from the municipal limits of Vasai-Virar by the above said notification dated 31-05-2011. Hence all the four villages shall continue their character as villages only. Accordingly, we are of the view that the reasoning given by the AO/CIT(A) would fail in respect of the four branches in view of the order passed by Hon‟ble Bombay High Court.
3.5. Accordingly, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to allow deduction u/s. 36(1)(viia) of the Actin respect of the above four branches.
Ground No.7 is related to the action of the AO in treating the assessee as Trust; whereas the claim of the assessee is that it should be assessed as „AOP‟. The Ld.AR submitted that the assessee is a Co-operative Society, carrying on banking business and is assessed as AOP only in the earlier years with the „PAN – AAATB3965B‟. The CPC while processing the return of income u/s. 143(1)(a) of the Act also, treated the assessee as AOP only. However, the AO while computing the income tax on the income assessed by him, treated the assessee a “Trust”. The apparent reason is that the fourth letter of the PAN, viz., “T” signifies the status as “Trust” only. The Ld.AR submitted that the AO did not call for any explanation from the assessee in this regard and hence, the above said decision has been taken by the AO behind the back of the assessee. He submitted that the Ld.CIT(A) also confirmed the action of the AO on the reasoning that the fourth character of the PAN i.e., „ T ‟ shows that the assessee is a Trust only. Accordingly, he confirmed the action of the AO in treating the status of the assessee as a Trust.
4.1. We heard the parties and perused the record. There is no dispute with regard to the fact that the assessee is a Co-operative Society, carrying on banking business and hence, its status cannot be a „Trust‟. It appears that there is a mistake committed while applying/allotting PAN to the assessee. Merely because PAN indicates that the assessee as a Trust, in our view, the same cannot change the actual status of the assessee. This is for the reason that there is no estoppels against the law. i.e, the tax has to be levied only on the correct status of the assessee, meaning thereby the status of the assessee has to be determined as per the provisions of Income tax Act only. Mentioning wrong status in the PAN number will not alter the status of the assessee. Accordingly, we direct the AO to treat the assessee as „AOP‟ only. We also notice that the assessee has been assessed as „AOP‟ in earlier years. The order passed by the Ld.CIT(A) on this issue is set aside.
Ground No. 8 is related to the levying of tax at maximum marginal rate, since the status of the assessee was treated as a „Trust‟. Since we have held that the assessee should be assessed as „AOP‟, we set aside the order passed by the Ld.CIT(A) on this issue and direct the AO to compute the tax on income of the assessee as per the rates applicable to the assessee in the status of AOP.
In the result, the appeal filed by the assessee is allowed.