1992 (2) TMI 37 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 36(1)(viii) of the Income-tax Act, 1961.
2. Justification of modifying the Commissioner's order under section 263 of the Act by the Income-tax Appellate Tribunal.

Analysis:
The High Court of Orissa was presented with a case where the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack referred two questions under section 256(1) of the Income-tax Act, 1961 for interpretation. The first question pertained to the modification of the Commissioner's order under section 263 of the Act, while the second question revolved around the computation of total income for the purpose of deduction under section 36(1)(viii) of the Act. The case involved M/s. Industrial Promotion and Investment Corporation of Orissa Limited, which had filed its income tax return for the assessment year 1981-82 declaring a net profit of Rs. 7,24,255 and creating a reserve of Rs. 2,89,702. The Commissioner of Income-tax initiated proceedings under section 263, contending that excess relief had been granted to the assessee. The dispute primarily centered around the interpretation of section 36(1)(viii) of the Act, which allows for a deduction in respect of special reserves created by financial corporations. The Commissioner's position was that the deduction should be calculated before making any deduction under Chapter VI-A of the Act, while the assessee argued otherwise based on the relevant provisions and instructions.

The Court delved into the legislative history and amendments to section 36(1)(viii) of the Act to ascertain the correct interpretation. It was noted that the provision had undergone several amendments over the years, with the latest amendment emphasizing that the deduction under section 36(1)(viii) should be based on the total income computed before making any deduction under Chapter VI-A of the Act. The Court highlighted that the total income for the purpose of calculating the deduction must exclude any deductions under Chapter VI-A, as per the specific wording of the provision. The Tribunal's decision to uphold the original deduction granted to the assessee was deemed correct by the Court, as it aligned with the legislative intent behind the amendment to section 36(1)(viii). The Court also cited precedents from other High Courts supporting a similar interpretation, while differing from a contrary view expressed by the Karnataka High Court.

In conclusion, the High Court answered both questions in the affirmative, affirming the Tribunal's decision and disposing of the reference application accordingly. Justices S. K. Mohanty and Arijit Pasayat concurred with the judgment, settling the dispute regarding the interpretation of section 36(1)(viii) of the Income-tax Act, 1961.