CPT V24P7-Art1 (Content).pmd - Taxmann

of the Act. It will not apply to deduction
towards provision made for bad and doubtful
debts applicable to banks under section 36(1)(viia).
CATHOLIC SYRIAN BANK’S CASE
3. The assessee a scheduled bank filed its return
of income for the assessment year 2002-03
declaring total income of ` 61.16 lakhs.
Subsequently, during the course of scrutiny
assessment, it was found that the assessee had
made claim of ` 1265.96 lakhs towards bad
debts written off which was in addition to
provision created for bad and doubtful debts
under section 36(1)(viia) of the Act. The Assessing
Officer held that when the assessee had
maintained provision for bad and doubtful
debts of ` 1501.30 lakhs, the bad debts written
off could not be allowed in view of the proviso
to section 36(1)(vii).
The Commissioner (Appeals) applied the
precedent in the case of South Indian Bank Ltd.
(supra) and held that since the debts written
off pertained to urban branches and did not
relate to provision made for advances of rural
branches under section 36(1)(viia), the claim of
deduction was allowable.
The appellate Tribunal also considered the
arguments of the assessee and decided the case
in assessee’s favour. When the matter reached
the Court, the Full Bench vide its order dated
16-12-2009 set aside the precedent view of the
Division Bench in South Indian Bank Ltd.’s case
(supra) and held that the banks are entitled to
claim deduction in respect of provision for bad
and doubtful debts in terms of clause (viia) but
with regard to bad debts write off the eligibility
for deduction is satisfied only when it exceeds
the provision created and allowed as deduction
under clause (viia). It held that the distinction
drawn in South Indian Bank’s case between
bad debts written off in respect of advances
made by rural branches and bad debts pertaining
to advances made by other branches of the
bank does not exist and was not visualized
under proviso to section 36(1)(vii).
The Court held that in respect of bad debt
write off by banks it is eligible for deduction
only to the extent it exceeds the provision
created and allowed as a deduction under
section 36(1)(viia) of the Act.
POINTS OF CONTENTION
4. The Apex Court had to decide the appeal
of the assessee. The following two questions
were to be resolved:
(i) Whether the Full Bench of the High Court
had grossly erred in reversing the Division
Bench’s decision in order to deny the
deduction in respect of bad debts written
off in the books with respect to which
provision was made under clause (viia) of
the Act?
(ii) Whether the Full Bench was correct in
reversing the findings of the earlier Division
Bench that if the bad debt written
off relates to debt other than for which
the provision is made under clause (viia),
such debts will squarely fall within the
main part of clause (vii) which is entitled
to deduction and in respect of part of the
debt which relates to provision made under
clause (viia), the proviso will operate to
limit the deduction to the extent of the
difference between the debt written off
and credit balance in the provision for
bad and doubtful debts made under clause
(viia)?
The above questions could be simplified as
under:
Whether the proviso to section 36(1)(vii) limits
the deduction in respect of bad debts written
off only when it exceeds the provision made
under section 36(1)(viia)?
Whether bad debts relating to non-rural branches,
when written off would be governed by section
36(1)(vii), which is independent of the provision
maintained in respect of rural advances of the
bank governed by section 36(1)(viia)?
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