1990 (1) TMI 313 - HC - Income Tax

Issues Involved:
1. Entitlement to relief u/s 80-I for proportionate managing agency commission.
2. Calculation of relief u/s 80-I with reference to profits from priority industry.
3. Basis for computing profits for the purpose of relief u/s 80-I.
4. Reasonableness of the Tribunal's conclusion on additional deduction u/s 80-I.

Summary:

Issue 1: Entitlement to Relief u/s 80-I for Proportionate Managing Agency Commission
The Tribunal had to determine whether the assessee was entitled to relief u/s 80-I for the proportionate managing agency commission amounting to Rs. 1,85,061 for the assessment year 1968-69. The Tribunal concluded that the assessee was indeed entitled to this relief, relying on Supreme Court decisions in CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 and CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, which established that managing agency commission should not be deducted when computing the income of a branch.

Issue 2: Calculation of Relief u/s 80-I with Reference to Profits from Priority Industry
The Tribunal had to decide whether relief/deduction u/s 80-I should be allowed with reference to the profit and gains from the priority industry without deducting proportionate managing agency commission. The Tribunal held that the deduction should be computed on the profits and gains of the priority industry without deducting the managing agency commission, aligning with the Supreme Court's interpretation that managing agency commission is related to the overall profits of the company.

Issue 3: Basis for Computing Profits for the Purpose of Relief u/s 80-I
The Tribunal examined whether commercial or accounting profits should be considered for allowing deduction or relief u/s 80-I. The Tribunal agreed with the assessee's contention that the commercial profits, as worked out by the assessee, should be taken as the actual profits for the purpose of section 80-I, thereby not deducting the managing agency commission.

Issue 4: Reasonableness of the Tribunal's Conclusion on Additional Deduction u/s 80-I
The Tribunal's conclusion that the assessee is entitled to an additional deduction u/s 80-I for the proportionate managing agency commission was challenged as unreasonable and/or perverse. However, the Tribunal, supported by the Supreme Court's rulings, directed the ITO to revise the orders for the assessment years 1968-69 and 1969-70 by allowing the additional deduction.

Conclusion:
The High Court upheld the Tribunal's decision, answering both questions in the negative and in favor of the assessee. The principles laid down by the Supreme Court in the cited cases were applied, confirming that the managing agency commission should not be deducted when computing profits for the purpose of relief u/s 80-I. The Court also noted that the total income should be computed first, and then deductions under Chapter VIA, including section 80-I, should be applied. There was no order as to costs.

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