Section 36(1)(viia)(d)

Section 36(1)(viia)(d) — the law in short

What the courts have decided on section 36(1)(viia)(d), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• M/s Ashok Leyland Finance Ltd v DCIT (Madras High Court) — a non-banking financial company cannot claim a deduction for a provision against non-performing assets beyond the amount the statute recognises High CourtHelps departmentNo later treatment found
  My client is an NBFC that has made a provision against non-performing assets in accordance with the Reserve Bank of India's directions. Can it deduct that provision, or claim it as a business loss if it is not a bad debt?
  The Madras High Court held it cannot claim beyond the statutory limit and dismissed the appeal. It reasoned that section 36(1)(viia) provides a special dispensation for named institutions, that a non-banking financial company within the meaning of section 45-I of the Reserve Bank of India Act 1934 is included in that list, and that the provision for bad and doubtful debts made by such a company cannot exceed five per cent of the total income computed before any deduction under section 36 and Chapter VI-A. Its conclusion is stated in one sentence: the appellant cannot claim a deduction beyond the amount that is statutorily recognised. It also answered against the assessee the questions on diminution in the value of investments and on diminution in the value of repossessed stock of vehicles, the latter by reference to a separate order passed the same day in a connected appeal.
• Statutory position — s.36(1)(viia): the provision for bad and doubtful debts, the percentage for each class of assessee, the separate rural-branch limb, and Rule 6ABA CBDT Circulars & InstructionsCuts both ways
  My client is a bank and the Assessing Officer has cut down its claim for provision for bad and doubtful debts. What exactly does section 36(1)(viia) allow, at what percentage, to which class of assessee, and how is the rural-branch figure worked out?
  Section 36(1)(viia) allows a deduction for a PROVISION for bad and doubtful debts — not a write-off — and the percentage depends entirely on which of its four lettered sub-clauses the assessee falls in. Sub-clause (a) (a scheduled bank not incorporated outside India, a non-scheduled bank, or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank) carries TWO separate and cumulative limbs on TWO different bases: an amount not exceeding eight and one-half per cent of total income computed before any deduction under this clause and under Chapter VIA, PLUS an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of that bank computed in the prescribed manner. Sub-clause (b) (a bank incorporated under the laws of a country outside India) is five per cent of total income; sub-clause (c) (a public financial institution, a State financial corporation or a State industrial investment corporation) is five per cent of total income; sub-clause (d) (a non-banking financial company) is five per cent of total income. Rule 6ABA prescribes the three-step arithmetic for the aggregate average advances of the rural branches.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.