2005 (1) TMI 619 - AT - Income Tax

Summary

Issues:
- Computation of deduction under section 80-O of the Income-tax Act, 1961.
- Interpretation of provisions under Chapter VI-A regarding deductions from gross total income.
- Application of sections 80AA and 80AB in determining deduction eligibility.

Analysis:
1. Computation of deduction under section 80-O:
The case involved cross appeals against the order of the CIT(A)-XLII at Mumbai regarding the assessment completed under section 143(3) of the Income-tax Act, 1961 for the relevant assessment year 1997-98. The primary issue was the restriction of the claim of deduction under section 80-O by the assessee to Rs. 1,19,07,992 instead of the claimed amount of Rs. 1,43,96,775. The Assessing Officer calculated the eligible deduction at Rs. 1,19,07,992 based on the proportionate expenses deduction. However, the assessing authority restricted the deduction to Rs. 1,05,52,014, citing that it should be limited to the business income of the assessee. The first limb of the ground raised by the assessee was decided against them, upholding the working of the assessing authority on the eligible deduction amount.

2. Interpretation of provisions under Chapter VI-A:
The second limb of the ground raised by the assessee focused on whether the deduction under section 80-O should be restricted to the business income or allowed for the entire eligible amount of Rs. 1,19,07,992. The contention was whether the deduction should be limited by the provisions of section 80AB, which stipulate that deductions should not exceed the income to which it belonged. The Chartered Accountant for the assessee argued that deductions under Chapter VI-A are available from the gross total income and not limited to a specific head of income. On the other hand, the Departmental Representative argued that the deduction should be restricted to the business income of the assessee. The Tribunal analyzed the provisions of section 80A(1) and section 80-O, concluding that the deduction under section 80-O should be allowed from the gross total income without being limited to the business income.

3. Application of sections 80AA and 80AB:
The Tribunal referred to the introduction of sections 80AA and 80AB by the Finance (No. 2) Act, 1980, and Circular No. 281 issued by the Central Board of Direct Taxes. The purpose of section 80AB was to limit deductions under Chapter VI-A to the true income element of the receipt and not the gross amount. The Tribunal held that section 80AB does not restrict the deduction under section 80-O to the business income of the assessee. Therefore, the Assessing Officer was directed to allow the deduction to the assessee for the full amount of Rs. 1,19,07,992 as computed by the assessing authority.