After introduction of section 36(1)(viia) of Income Tax Act, 1961 w.e.f 1.4.2007 which deals with provision for deduction of NPA or r bad debt by the cooperative bank other than primary agricultural societies and this section has left a vital confusion in interpretation of taxing statue by distinguishing cooperative banks with the cooperative societies. That now I shall canvass the reasons for said confusion.
Firstly it is pertinent to mention that not only this section has drawn border line between the cooperative banks and cooperative societies , there has been another newly introduced section 80P(4) which has laid the identical distinction between these two entities. Although the literally both the sections are crystal clear in wording conveying the intention of legislatures but the judicial interpretation of these two sections has stirred a fresh confusion on the aspect of interpretation of taxing statues. It is pertinent to deal first with the section 80P(4) and the judicial views as well as the legislatures. Although the very section clearly distinguished the cooperative bank with the cooperative societies in order to impose some restriction but many cases related to allowance of deduction of deposits made by the cooperative societies to the cooperative banks u/s 80P(2)(d)came before the various benches of ITAT, HIGH COURTS and APEX COUT too and the solitary question for adjudication before these Honble Benches was whether the department is justified by not allowing this deduction on account of making the deposits in cooperative banks instead of the other co-op societies thus violating the clear mandate of said section as well as the section 80P(4) as well. Therefore naturally all the Honble benches considered the moot issue whether the cooperative banks comes within the genre of cooperative societies? Most of the Honble Benches are unanimous on the point that the all cooperative banks as per BANKING REGULATION clearly comes within the category of co-op societies which means all cooperative banks are species of cooperative societies u/s 80P(2)(d) and being beneficial section it must be interpreted liberally thus allowing such deduction despite the bar u/s 80P(4) upon the cooperative banks to avail the deduction u/s 80P like the cooperative societies. So in this issue both the legislative and judicial views are totally opposite.
That now it is pertinent to deal with section 36(1)(viia) which like the section 80P(4) has clearly distinguished the cooperative banks from the cooperative societies and has allowed deduction on account of provision for NPA or bad debt allowable only for cooperative banks only otherwise the co-op societies. Now practical problem is that many co-op societies are claiming deduction under this section on account of NPA or bad debts but they are clearly being disallowed by the department for the reason that the co0op societies are not co-op banks real problem is that this section has yet come to judicial scrutiny for interpretation and only one decision in doing round the Honble ITAT COCHIN BENCH order in Chettiamparamba Service … vs Assessee, wherein the Honble Bench had the occasion whether the appellant society is a cooperative bank or not and finding that the said society being governed by the section 56( c) of BANKING REGULATION ACT, 1949 will definitely be entitled for the deduction u/s 36(1)(vii) of INCOME TAX ACT. So it is clear that no judicial authorities have the occasion to deliberate on the distinction between the cooperative banks and societies like the 80P(4) yet.
Now in this perspective this author has the humble opinion that if the judicial view which are the sacrosanct and final has clearly settled the controversy regarding the impugned distinction between the cooperative banks and cooperative societies by affirming the view that both are identical, then question is that is the department just by denying the deduction claimed by the co-op societies u/s 36(1)(viia) not being the cooperative banks? Why the interpretation of various Honble Benches on u/s 80P(4) will not be applicable in this section too? Let us wait for further judicial views on this section in future to settle the dust.
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