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Income Tax Appellate Tribunal, DIVISION BENCH ‘B’, CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘B’, CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA Nos. 384 & 385 /Chd/2008 (Assessment Years: 1999-2000 & 2000-01) M/s State Bank of Patiala Vs. The Asst. CIT The Mall, Patiala Circle- Patiala
PAN: AACCS0143D
(Appellant) (Respondent)
Assessee by : Shri. C. Naresh Department by : Shri. Manu Malik
Date of hearing : 05/06/2018 Date of Pronouncement : 03/08/2018
O R D E R PER DR.B.R.R.KUMAR, A.M. :
Both the above appeals have been filed by the Assessee.
Assessee has raised the following grounds of appeal in ITA No. 384/Chd/2008 for the A.Y. 1999-2000:
That the learned Commissioner of Income-tax (Appeals), Patiala has erred in holding that notice u/s 148 is not without jurisdiction and, as such, has erred in rejecting ground No. 1 of the appellant before him. 2. That the learned Commissioner of Income-tax (Appeals) has erred in dismissing grounds No. 2, 3 and 4 given below without assigning any reason:
"Gr. 2: That the assessment has been completed without disposing of the objections filed to notice u/s 148 vide letter dated 14-07-2006 and, as such, is illegal and void ab initio and may please be quashed.
Gr. 3: That the assessment has been completed without affording proper opportunity to the appellant thereby denying natural justice and, as such, the assessment completed is illegal and void ab initio and may please be quashed.
G. 4: That the learned Assessing Officer has erred in adopting the Income assessed vide order dated 29-05-2003 at Rs. 176,88,74,677/- as against income returned in response to notice u/s 148 at Rs. 168,76,85,442/-." 3 That the learned Commissioner of Income-tax (Appeals) has erred in upholding the addition of Rs. 6,41,00,600/- on account of disallowance of deduction claimed u/s 36(1)(viia). 4 That the learned Commissioner of Income-tax (Appeals) has erred in dismissing ground No. 6, which reads as under, without assigning any reason:
"Gr. 6: That the Assessing Officer has erred in assessing the
income at Rs. 182,89,16,277/- as against the returned income of Rs. 168,76,85,442/-" 5 That the learned Commissioner of Income-tax (Appeals) has erred in upholding the charging of interest u/s 234D amounting to Rs. 60,94,221/-. 6 That the whole order is against the provisions of law and facts of the case and right is reserved to assail the same on such other grounds as may be advanced at the time of hearing for which the appellant requests leave to amend, vary from or add to the ground of appeal hereinabove appearing.
For the A.Y. 2000-01,the assessee has taken the following grounds:
That the learned Commissioner of Income-tax (Appeals) has erred in holding that notice u/s 148 is not without jurisdiction and, as such, is not illegal and void ab initio. 2. That the learned Commissioner of Income-tax (Appeals) has erred in dismissing ground No. 2, which reads as under, without assigning any reason: "That the assessment has been completed without disposing of the objection filed against notice u/s 148 vide letter dated 04-08-2007 and, as such, is illegal and void ab initio and may please be quashed." 3 That the Commissioner of Income-tax (Appeals) has erred in upholding withdrawal of deduction u/s 36(1)(viia) amounting to Rs. 36,50,900/- 4 That the learned Commissioner of Income-tax (Appeals) has erred in dismissing the ground with regard to charging of interest u/s 234D amounting to Rs. 2,24,885/- despite the fact that the provisions are not applicable. 5 That the whole order is against the provisions of law and facts of the case and right is reserved to assail the same on such other grounds as may be advanced at the time of hearing for which the appellant requests leave to amend, vary from or add to the grounds of appeal hereinabove appearing.
Ground No. 1, 2 and 4 for the A.Y. 1999-2000 and Ground No. 1 and 2 for A.Y. 2000-01 pertaining to issue of notice under section 148 are not pressed by the assessee therefore no adjudication is required.
The effective ground taken by the assessee is ground no. 3 upholding the addition on account of disallowance of deduction under section 36(1)(viia) which is common to ground no. 3 in A.Y. 1999-2000 and 2000-01.
At the outset it is to be mentioned that the appeal of the assessee have been dismissed vide order dt. 02/08/2017 in an exparte order which has been recalled vide order dt. 20/04/2018 by this Tribunal. 6. Brief facts of the case are that return declaring income of Rs. 169,04,50,060/- has been filed on 27.12.1999. The return was processed u/s 143(l)(a) on 28.9.2002. Proceedings, u/s 147 were initiated in this case and notice u/s 148 was notice on 30.3.2006 Deduction u/s 36(l)(viia)
The assessee claimed deduction u/s 36(l)(viia) i.e. 10% of the rural advances. In the return, the assessee claimed deduction u/s 36(l)(viia) on a/c of bad and doubtful debts and on a/c of aggregate rural advances as under:-
(a) Deduction u/s 36(l)(viia) being 5% of total income 11,56,95,424/- (b) Deduction u/s 36(l)(viia) i.e. 10% of aggregate of rural advances 50.74,37.500/- Total 62,31,32,924/-
During the course of assessment proceedings for the assessment year 2004-05, it was noticed that the assessee has claimed deduction u/s 36(l)(viia) in respect of some branches treating them situated in the rural area although these branches are declared by the Census department situated in the Urban area or within the municipal limits. The detail is as under:-
Before the Assessing Officer the assessee submitted as under :
"After reasons recorded details of branches are given which are either within 8 km of the municipal limits or have been shown as urban in the census report, We draw your kind attention to the definition of rural branch in section 36(l)(viia) which reads as under:- "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 relevant figures have been published before the first day of the previous year"
It is clear from the definition of rural branch u/s 36(l)(viia) that only two conditions are to be fulfilled i.e. the branch has to be situated at a place in rural area, secondly the population of that place should not be more than ten thousand accordingly to the last census report. In the definition of rural branch, no criteria for categorization of branch as urban has been given where the branch is situated within 8 km of the municipal limit. The only criteria is the place where the branch is situated and the population of that place. Therefore, the criteria applied by you is not legally tenable as the criteria is only relevant for definition of urban land for the purposes of capital gain under the Income Tax Act and urban land under the Wealth Tax Act."
The Assessing Officer held that the above reply of the assessee is not correct as the assessee claimed deduction u/s 36(l)(viia) in respect of some branches, the details of the same are given above which are situated in the rural area but the population of the rural area is more than 10,000 and some of the branches are situated in the urban area as per the report of the Census Department. The Assessing Officer held that as per section 36(l)(viia), the assessee is not entitled to deduction u/s 36(l)(viia) @ 10% of aggregate rural advances on a/c of bad and doubtful debts. The Assessing Officer further held that as per report of the Registrar General of India, it was noticed that the populations these branches was more than 10000 or some of the branches were situated within 8 kms from the municipal limits of the town. So, the excess deduction claimed by the assessee u/s 36(l)(viia) to the tune of Rs.6,00,41,600/- is added back to the returned income of the assessee.
The Ld. CIT(A) confirmed the order of the Assessing Officer based on the census report.
The Ld. DR relied on the assessment order.
We have perused the statutory provisions and the facts on record. Section 36(1)(viia) stipulates the following conditions for claiming the deduction :
a) A scheduled bank incorporated by or under the laws of the Country
b) Deduction not exceeding 10% of aggregate average advances made by the rural branches of such bank.
c) As per Explanation (ia) to section 36(1)(viia) of Income Tax Act,1961
Rural Branch means –
i) A branch of scheduled bank
ii) Situated in a place which has a population of not more than 10,000
iii) As per last preceding census - Published before the first day of previous year
In the background of the above conditions stipulated the relevant facts pertaining to the assessee are hereby examined. i) A branch of scheduled bank : Yes – State Bank of Patiala incorporated under the Indian Laws
ii) Situated in a place which has a population of not more than 10,000 The population of the places wherein the following branches situated.
iii) As per last preceding census -published before the first day of previous year – For the previous year 1998-99 the first day being 1-4-1998, the last preceding census would be the census published in the year 1991.
In the contest of “place” what a place in relation to the rural branches has been deliberated upon by the Hon’ble High Court of Kerala in the case of The Lord Krishna Bank Ltd. in the ITA No. 234/2009 vide order dt. 07/10/2010 wherein it has been mentioned as under:
Next question raised pertains to assessee's claim for deduction of provision for bad debts in terms of Section 36(1)(viia) of the Income Tax Act. Here the only question raised is as to basis of classifying Branches of the Bank as Rural Branches and other Branches. Rural Branch is defined under Explanation (ia) to Section 36(1)(viia) as follows:
"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."
What is clear from the above is that classification between Rural and other Branches of a Bank is made based on the population in the place where the concerned Branch is located. While the assessee's case that found acceptance with the Tribunal is that "place" referred to in the above definition clause is the Ward of a Panchayat or Municipality, the Assessing Officer took the view that "place" contained in the definition clause should mean a Revenue Village. No doubt, "place" as such is not defined in the definition clauses and so much so, we have to find out the scope and meaning of "place" referred to in the Section. Standing counsel for the department produced before us last published Census Report of 2001. Even though the previous Census Report may be the relevant one, we feel the scope of "place" as referred to in the Census Report produced could be adopted for the purpose of this case. What is written in the Census Report 2001 is as follows:
"The basic unit for rural areas is the revenue village with definite surveyed boundaries. The rural area is however taken as the residual portion excluding the urban area and for that no strict definition is followed."
In our view, the definition clause does not exclude the literal meaning of rural branch which necessarily excludes urban areas. If the assessee's case accepted by the Tribunal that population in a Ward has to be reckoned for deciding as to whether the location of a Panchayat is in a rural area or not is accepted, then probably even in Municipal areas there may be Wards with less than 10000 population thereby answering the branch located in such Municipal area also as a rural Branch. Going by the ordinary meaning of Rural Branch, we feel only Branches of the Bank located in rural areas are covered. When the Legislature adopts population as the basis for classification of rural Branches, that too, with reference to the last Census Report, we feel the basic unit as available for identification of rural area in the Census Report can be legitimately
adopted. So much so, we feel the above meaning of rural area contained in the Census Report wherein revenue village is treated as a unit of rural area, can be rightly adopted. So much so, "place" referred to in the above definition clause for the purpose of identifying the branch of a Bank as a rural Branch with reference to it's location is the revenue village. Therefore, in our view, the finding of the Tribunal that "place" referred to in the definition is the Ward of a local authority like Panchayat or Municipality is incorrect and in our view, a rural Branch has to be always in rural areas and the place referred can easily be taken as a Village. Several Wards may come within a village, whether it be in Corporation, Municipality or Panchayats. There can be no Village in a Municipal or Corporation area where the population is less than 10000. So much so, rural Branches are such of the Branches located in a Village where the population in the Village as a unit is less than 10000. We, therefore, allow the appeal on this issue by reversing the order of the Tribunal and by restoring the assessment.
In view of the above judgment, the Branches of Daria, Khuda Ali Sher, Kambwala, Jonty, Chandi Mandir, Dadu Majra, Bahadurgarh, Sarangpur which are in the Rural limits would be eligible for deduction @10% under section 36(1)(viia) and the Branches mentioned below falling under Urban Areas as per the Census Department and hence not eligible for deduction @ 10% under section 36(1)(viia).
Name of the Branch Kasuli-0122 Palampur-0126 Sankhol-268 Kot Fatta-054 Raipur Rani-359 Nurpur-125 Kanga(MC)-124 Nalagarh(T)-119 Nalagarh(ADB)-206 Jandiala 0702 Mustafabad-92 Ghagga-694 Begowal-692 Mehatpur-243 Cheema-34 Shekhpura-404 Gardhiwala-716 Badni Kalan-695 Hadiyala 150 Dhillwan-454 Nagrota Bhagwan 705 Chhachhrauli 235
* Source Census of India 2001 and Paper Book Page 92 – 120. ** While the Census of India 1991 are applicable to the case in question even based on the Census of India 2001 the population of the Rural Branches did not exceed the stipulated limit of population of 10,000.
We have also examined the reason as to why the Assessing Officer has disallowed the deduction and found that the Assessing Officer has 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 we
find that the Census Report misinterpreted in relation to the definition of the “Rural Branch” to that extent.
The 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 Hon’ble 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 Assessing Officer in relation to these Branches is hereby 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. Order pronounced in the open Court.
Sd/- Sd/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 03/08/2018 AG Copy to: 1.The Appellant, 2. The Respondent, 3. The CIT(A), 4. The CIT, 5. The DR