CPT V24P7-Art1 (Content).pmd - Taxmann

DIRECT TAX LAWS
Write off of non-rural advances by
banks not impaired by provision
kept for rural advances
INTRODUCTION
1. Some of the provisions of the income-tax
law are so fascinating that what one interprets
on plain reading of the provision at some
point of time undergoes a change due to effluxion
of time. This is not a change of opinion or
understanding but a change due to proper
look through and more so at the High Court
level where this kind of dynamic interpretation
leads to fascinating study of judgments.
The Apex Court in Catholic Syrian Bank Ltd.
v. CIT [2012] 18 taxmann.com 282/206 Taxman
182 made a path breaking interpretation of the
application of section 36(1)(vii) vis-a-vis section
36(1)(viia) of the Act. This decision is not only
taxpayer friendly but also gives wider coverage
of the statute by looking into the circular issued
by the CBDT and the purposive interpretation
of the statutory provision.
This write up discusses the Apex Court’s decision
which reversed the decision of the Kerala High
Court and how the High Court interpreted the
law to deviate from its own precedent available
in South Indian Bank Ltd. v. CIT [2003] 130
Taxman 749.
LEGAL PROVISIONS
2. Legal provisions discussed in the Apex Court’s
decision relate to write off of bad debt contained
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in section 36(1)(vii), read with Explanation to
section 36(1)(viia) meant for deduction in respect
of provision for bad and doubtful debts for
scheduled banks and the conditional rider
contained in section 36(2) for bad debt write
off envisaged in section 36(1)(vii).
Section 36(1)(vii) meant for bad debt deduction
says that any debt or a part thereof which is
written off as irrecoverable in the accounts of
the assessee is eligible for deduction. The proviso
to the section says that where the assessee is
a bank, etc., the amount of deduction shall be
limited to the amount by which such debt or
part thereof exceeds the credit balance maintained
in the provision for bad and doubtful debts.
The Explanation to the section says that any
debt written off as irrecoverable would not
include any provision for bad and doubtful
debts made in the accounts of the assessee.
Section 36(1)(viia) is meant for deduction
towards provision for bad and doubtful debts
for scheduled banks and the quantum of
deduction is with reference to 7.5% of the total
income computed before any deduction under
Chapter VI-A and an amount not exceeding
10% of the aggregate average advances made
by the rural branches of such banks.
Section 36(2) imposes the conditions which
are to be satisfied when a debt is written off
and deduction is claimed under section 36(1)(vii)