1997 (11) TMI 70 - HC - Income Tax

Summary

Issues: Interpretation of provisions of section 36(1)(viii) of the Income-tax Act, 1961 regarding the deduction for financial corporations engaged in providing long-term finance, and the applicability of circulars issued by the Central Board of Direct Taxes in determining the deduction.

The judgment by the High Court of Delhi involved a statutory corporation established under the Industrial Finance Corporation Act, 1948, which transferred a sum to a reserve under section 36(1)(viii) of the Income-tax Act, 1961. The issue revolved around whether the specified percentage for deduction under section 36(1)(viii) should be applied to the total income before or after making deductions under Chapter VI-A and section 36(1)(viii). The Central Board of Direct Taxes issued circulars offering differing interpretations on this matter. The Income-tax Officer, Commissioner of Income-tax (Appeals), and the Income-tax Appellate Tribunal rejected the assessee's claim for deduction under section 36(1)(viii) when computing the total income. The Tribunal referred questions to the High Court regarding the applicability of circulars issued by the Central Board of Direct Taxes.

The High Court considered conflicting decisions by different High Courts, including the Calcutta High Court and the Karnataka High Court, on the interpretation of section 36(1)(viii). The Calcutta High Court held that the total income should be computed before making any deduction under Chapter VI-A and section 36(1)(viii). The High Court also referenced a Supreme Court decision affirming the interpretation of the law by the Calcutta High Court. Consequently, the High Court of Delhi agreed with the interpretation provided by the Calcutta High Court and held that the specified percentage of deduction under section 36(1)(viii) should be calculated on the total income before any deductions under Chapter VI-A.

In conclusion, the High Court answered the questions referred by the Tribunal by stating that the circulars issued by the Central Board of Direct Taxes should be applied in favor of the assessee and were in consonance with the provisions of the Act. The judgment aligned with the interpretation provided by the Calcutta High Court and held that the deduction under section 36(1)(viii) should be given on the total income computed before any deductions under Chapter VI-A.