IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri Vijay Pal Rao, Judicial Member and
Shri D. Karunakara Rao, Accountant Member
ITA No.338/Mum/2012
(Assessment year: 2008-09)
Citizen Credit Co-operative ACIT Range 1(2)
Bank Limited Mumbai.
Helena Apartments, 57 Mount Vs.
Carmel Road, Bandra (West)
Mumbai-400 050.
(Appellant) (Respondent)
Permanent Account No. : AAAAC 0016 F
Assessee by : Shri Vijay Kothari
Revenue by : Shri Ravinder Sindhu
Date of hearing : 17/07/2014
Date of Pronouncement : 25/07/2014
ORDER
Per Vijay Pal Rao, Judicial Member:
This appeal by the assessee is directed against the order dated
19/10/2011 of CIT(A) for the assessment year 2008-09. The assessee
raised the following grounds :-
"1. The learned Commissioner of Income-tax (Appeals) erred on
facts and in law in denying to the appellant the deduction u/sec.
36 (l)(viia) by not accepting the fact that the Branch at 'Naigaon-
Juhchandra', which is a rural place has a population of only
4,679, in support whereof the appellant had furnished before the
learned Assessing Officer:
(a) The letter from the Tehsildar confirming the population of
'Naigaon-Juhchandra' as per published Census Report;
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(b) Had produced record of Property Taxes paid to the 'Gram
Panchayat Juhchandra'; and
(c) Had given a copy of the census of India specific to
'Juhchandra'.
2. The learned Commissioner of Income-tax (Appeals) erred on
facts in observing -"It would not be out of place to point out that in
subsequent assessments the appellant bank has not treated its
Naigaon branch as a rural branch." In fact, the assessee has made
a claim for deduction under section 36(1)(viia) of the Income-tax
Act treating the Naigaon Branch as a rural branch in the past for
assessment year 2007-08 as also in subsequent assessment year;
and in the assessment for assessment year 2007-08 such a claim
has been allowed."
2. The only issue arising for our consideration and adjudication is
whether the assessee's branch at Naigaon-Juchandra is a rural branch
for the purpose of deduction under section 36(1)(viia) of the Income tax
Act. The assessee is a co-operative bank and in the banking business.
The assessee is having interalia a branch namely Naigaon-Juchandra,
Thane Dist. The assessee claimed deduction under section 36(1)(viia) of
the Income tax Act in respect of the aggregate average advances of its
rural branches including the branch Juhuchandra Naigaon. The AO
rejected the claim of the assessee on the ground that the advances given
by Naigaon-Juchandra branch of the assessee is not limited to the said
gram panchayat only but includes several other areas of Mumbai. The
AO accordingly has taken into consideration the population of three
panchayats of Naigaon and found that the population as per census of
2001 of these three panchayats exceeds ten thousand and therefore, the
Naigaon branch cannot be treated as a rural branch as per provisions of
Section 36(1)(viia). The assessee challenged the order of AO before CIT(A)
but could not succeed as CIT(A) confirmed the action of the AO in
disallowing claim of the assessee under section 36(1)(vii)(a) in respect of
the advances given by said branch.
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3. Before us the ld. AR of the assessee has submitted that while
deciding the issue the AO has taken into consideration the population of
three panchayat areas and not the population of the village where the
bank is located. He has referred to the census report as per census of
2001 and submitted that the village Juhuchandra Naigoan is having
total population of 5911 and the entire population is rural population as
per census report. Therefore, for the purpose of classification of branch
being rural the criteria is the place where the branch is situated has a
population of not more than ten thousand according to the last census
of which the relevant figures have been published before the date of
previous year as defined under explanation -2 clause (ia) of section
36(1)(viia). He has also referred and relied upon house tax receipt issued
by the gram panchayat of Juhchandra Naigaon and submitted that the
said branch of the assessee is situated and housed in the premises 42C.
Thus the ld. AR of the assessee has submitted that the criteria to
determine the category/class of the branch being rural is having
population less than 10000 of the locality where the branch is situated
and not the population of the area of service of the branch. In support of
his contention he has relied upon the decision of the Hon'ble High Court
of Kerala in the case of CIT vs. Lord Krishna Bank Ltd. (339 ITR 606).
4. On the other hand the ld. DR has heavily relied upon the orders of
authorities below and submitted that when the assessee is catering to
the needs of people in a wide spread area by advancing loans to the
customers beyond the area of the village Juhuchandra Naigaon, then the
population of the entire area has to be taken into account for the
purpose of determining whether the branch of the assessee is rural or
not.
5. We have considered the rival submissions as well as relevant
material on record. There is no dispute that the Juhuchandra Naigaon
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Branch of the assessee bank is situated in village Juhuchandra and
under the village panchayat of Juchandra Naigoan. It is also not
disputed by the revenue that the population of the village Juchandra
Naigoan is 5911 and the entire population is rural as per census report
of census India 2001. The AO has denied the deduction under section
36(1)(viia) on the ground that the area of catering the services by the
said branch is spread over to two other panchayats also and accordingly
the population of the area of all three panchayats was taken into
consideration for determining the classification of the said branch as
rural branch. At the outset we note that an identical question fell for
consideration of Hon'ble Kerala High Court in the case of CIT vs. Lord
Krishna Bank Ltd. (supra), wherein the Hon'ble High Court has
discussed and decided the issue in para-4 to 6 as under :-
"4. Next question raised pertains to the 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
nonscheduled 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."
5. What is clear from the above is that the 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
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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."
6. 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 its 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."
6. The Hon'ble High Court has analysed the provision of section
36(1)(viia) and was of the view that the meaning of rural area contained
in the census report wherein the revenue village is treated as a unit of
rural area, can be, rightly adopted . It has been further observed that the
place referred to in the definition clause for the purpose of identifying
the branch of a bank is rural branch with reference to its location as the
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revenue village and accordingly the Hon'ble High Court has rejected the
finding of the Tribunal that "place" referred to in the definition is the
Ward or local authority like panchayat or municipality. Thus it is clear
from the above decision of the Kerala High Court that a rural branch has
to be always in the rural area and the place referred can easily be taken
as village. In view of the above decision the scope of definition of a place
where the branch of the bank is situated cannot be extended beyond the
rural unit being village as recognized in the census report. It is not the
case of the AO that though the branch in question is situated in a rural
village however, the entire or majority part of the advances are given to
the customers belonging to the neighboring urban area so as to defeat
the very purpose and object of the incentive in the shape of deduction
under section 36(1)(viia) granted under the Act.
7. In view of the above discussion and facts and circumstances of the
case, as well as following the decision of Hon'ble Kerala High Court in the
case of CIT vs. Lord Krishna Bank Ltd. (supra), we hold that Juchandra
Naigaon, branch situated at village Juhchandra Naigaon is a rural
branch in terms of section 36(1)(viia) of the Income tax Act and
accordingly entitled for deduction under the said section.
8. In the result, the appeal is allowed.
Order pronounced in the open court on 25th July, 2014.
Sd/- Sd/-
(D. KARUNAKARA RAO) (VIJAY PAL RAO )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 25/07/2014.
Jv.
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Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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