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Issues involved: Interpretation of deduction u/s 32AB of the Income-tax Act, 1961 based on computation method.
Summary: The High Court of Madras considered the issue of whether the deduction u/s 32AB of the Income-tax Act should be allowed at 20% of the book profit of the undertaking as per Schedule VI of the Companies Act, or based on the business income computed as per the Income-tax Act. The assessee, a banking business, claimed the benefit of section 32AB(1) for the assessment years 1987-88 and 1988-89. The Assessing Officer initially rejected the claim, stating that the limit of 20% of profits should be based on business income per the Income-tax Act, not as per Schedule VI of the Companies Act. The Tribunal, however, reversed this decision, emphasizing that the computation method under section 32AB(3) should be followed. The court highlighted that the statutory provision of section 32AB does not refer to the computation of income under the Income-tax Act, and such a requirement cannot be imported into it. Section 32AB provides a benefit to the assessee as an incentive for specific actions, such as depositing amounts in a development bank or utilizing funds for certain purposes. The deduction under section 32AB(1) is to be determined based on the computation method outlined in section 32AB(3), which requires adherence to Schedule VI of the Companies Act. The court clarified that the computation of income under the Income-tax Act is not relevant for determining the benefit under section 32AB(1) or (2). In conclusion, the court ruled in favor of the assessee, stating that the deduction should be based on the computation method specified in section 32AB(3) and not on the business income calculated as per the Income-tax Act. The Revenue was directed to pay costs to the assessee.
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