THE COMMISSIONER OF INCOME TAX V. M/S CANARA BANK

ITA/1011/2008

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against M/s. Canara Bank concerning the disallowance of a bad debt claim for the assessment year 2004-05. The primary legal issue was whether the appellate authorities were correct in their decision, which was influenced by a prior judgment of the Karnataka High Court in CIT vs. Karnataka Bank. The revenue challenged the ITAT Bangalore's decision, which had favored the assessee, arguing that the facts of the present case were not identical to those in the cited case. The court referenced the Supreme Court's decision in CATHOLIC SYRIAN BANK LIMITED vs COMMISSIONER OF INCOME TAX, which clarified the distinct and independent nature of provisions for bad and doubtful debts under Section 36 of the Income Tax Act, 1961.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 701218 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-10-2014
• Assessment Year: misc
• Other Referred Cases: CIT vs. Karnataka Bank, CATHOLIC SYRIAN BANK LIMITED vs COMMISSIONER OF INCOME TAX
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: G SARANGAN
• Assessee Lawyers: K V ARAVIND
• Keywords: Assessment Year 2004-05; Income Tax; ITAT Bangalore; Substantial questions of law; Bad debt claim
• Section: 36(1)(vii); 36(2); 36(1)(viia); 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 13th day of October, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No.1011 of 2008 BETWEEN: 1. The Commissioner of Income Tax C. R. Building Queens Road Bangalore 2. The Asst. Commissioner of Income Tax Circle-11(2) C. R. Building Queens Road Bangalore …Appellants (By Sri K. V. Aravind, Advocate) AND: M/s. Canara Bank H.O. No.112 J. C. Road Bangalore …Respondent 2 (By Sri G. Sarangan, Senior Advocate for Sri K.S. Ramabhadran, Advocate) This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 20-06-2008 passed in ITA No.953/Bang/2006, for the Assessment year 2004-05, praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.953/Bang/2006, dated 20-06-2008 confirming the order of the Appellate Commissioner and confirm the order passed by the Assistant Commissioner of Income Tax, Circle-11(2), Bangalore. This ITA coming on for hearing this day, N. KUMAR J delivered the following: J U D G M E N T The revenue has preferred this appeal against the order passed by the Tribunal. 2. The substantial question of law which arise for consideration in this appeal is as under:- Whether the appellate authorities were correct in holding that the bad debt claim made by the assessee which was disallowed by the assessing officer was not justified as the controversy is caused by the judgment of this Hon’ble Court in CIT vs. Karnataka Bank in ITA 3 No.480/2003, DD. 19-03-2008, when the facts of the present case is not identical to that decided by this Hon’ble Court.” 3. The Apex Court in the case of CATHOLIC SYRIAN BANK LIMITED vs COMMISSIONER OF INCOME TAX [(2012) 343 ITR 270] dealing with the very same question has held as under:- “24. Clear legislative intent of the relevant provisions and unambiguous language of the circulars with reference to the amendments to Section 36 of the Act demonstrate that the deduction on account of provisions for bad and doubtful debts under Section 36(1)(viia) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. Another material aspect of the functioning of such banks is that their rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of 4 accounts of the principal or head office branch. Thus, this Court would be more inclined to give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert the same. The Circulars in question show a trend of encouraging rural business and for providing greater deductions. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. To put it simply, the deductions permissible under Section 36(1)(vii) should not be negated by reading into this provision, limitations of Section 36(1)(viia) on the reasoning that it will form a check against double deduction. To our mind, such approach would be erroneous and not applicable on the facts of the case in hand. Interpretation and Construction of Relevant Sections 25. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a 5 benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of `any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee'. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of Section 36(1)(vii) 6 simplicitor. The proviso, as already noticed, will have to be read with the provisions of Section 36(1)(viia) of the Act. Once the bad debt is actually written off as irrecoverable and the requirements of Section 36(2) satisfied, then, it will not be permissible to deny such deduction on the apprehension of double deduction under the provisions of Section 36(1)(viia) and proviso to Section 36(1)(vii). This does not appear to be the intention of the framers of law. The scheduled and non-scheduled commercial banks would continue to get the full benefit of write off of the irrecoverable debts under Section 36(1)(vii) in addition to the benefit of deduction of bad and doubtful debts under Section 36(1)(viia). Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of Section 36(1)(viia)(a), may be allowable without insisting on an actual write off.” 4. In view of the said statement of law, the substantial question of law framed in this case is answered in favour of the assessee and against the revenue. In that view of the 7 matter, we do not see any merit in this appeal. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE ckl/- "