1990 (11) TMI 18 - HC - Income Tax

1997 (5) TMI 18 - HC

Issues Involved:
1. Interpretation of "total income" for the purpose of deduction under section 36(1)(viii) of the Income-tax Act, 1961.
2. Computation method for the deduction under section 36(1)(viii) before and after the amendment by the Finance Act, 1985.
3. Judicial precedents and divergent views of various High Courts on the interpretation of section 36(1)(viii).

Issue-wise Detailed Analysis:

1. Interpretation of "total income" for the purpose of deduction under section 36(1)(viii) of the Income-tax Act, 1961:
The central issue revolves around the interpretation of "total income" for the purpose of computing the deduction under section 36(1)(viii). The High Court had to determine whether the deduction should be computed on the total income before or after allowing the deduction under section 36(1)(viii).

2. Computation method for the deduction under section 36(1)(viii) before and after the amendment by the Finance Act, 1985:
- Before the Amendment (Pre-1985): The dispute was whether the total income for computing the deduction should be reduced by the amount of the deduction itself. The Income-tax Officer computed the deduction by reducing the total income by the allowable deduction and then computing the deduction on the balance. However, the Commissioner of Income-tax (Appeals) and the Tribunal held that the total income should be taken without reducing it by the amount of the said deduction.

- After the Amendment (Post-1985): The amendment clarified that the total income should be computed before making any deduction under section 36(1)(viii) and Chapter VI-A. This amendment provided statutory recognition to the interpretation that the deduction should be computed on the total income before allowing the deduction under section 36(1)(viii).

3. Judicial precedents and divergent views of various High Courts on the interpretation of section 36(1)(viii):
- Patna High Court: In CIT v. Bihar State Financial Corporation [1983] 142 ITR 518 and CIT v. Bihar State Financial Corporation [1986] 159 ITR 275, the court held that the deduction should be computed on the total income before deducting the amount allowable under section 36(1)(viii). The court emphasized that the literal meaning of "total income" should be taken for finding out the admissible deduction.

- Andhra Pradesh High Court: In CIT v. Andhra Pradesh State Financial Corporation [1989] 175 ITR 87, the court followed a similar interpretation, holding that the total income should be computed before giving any deduction under section 36(1)(viii).

- Madhya Pradesh High Court: In CIT v. M. P. Audyogik Vikas Nigam Ltd. (No. 1) [1989] 178 ITR 177, the court also held that the deduction should be calculated on the total income as it stood before the deduction allowable under section 36(1)(viii).

- Karnataka High Court: In Karnataka State Financial Corporation v. CIT [1988] 174 ITR 206, the court took a contrary view, holding that the total income should be computed after making the deduction under section 36(1)(viii). The court provided a mathematical explanation to support its interpretation, suggesting that the deduction should be 2/7ths of the gross total income.

Judgment Summary:
The High Court of Calcutta, in this case, endorsed the view taken by the Patna, Andhra Pradesh, and Madhya Pradesh High Courts, rejecting the interpretation of the Karnataka High Court. The court held that the deduction under section 36(1)(viii) should be computed on the total income before making any deduction under the said section and Chapter VI-A. The court emphasized that the amendment by the Finance Act, 1985, provided statutory recognition to this interpretation, confirming that the total income for the purpose of deduction should be computed before allowing the deduction under section 36(1)(viii).

The court concluded that the Tribunal was correct in holding that the deduction under section 36(1)(viii) should be allowed on the total income as reduced by the said deduction allowable under section 36(1)(viii). The question was answered in the affirmative and in favor of the assessee, with no order as to costs.

← Previous Next →