1986 (1) TMI 83 - HC - Income Tax

Summary

Issues:
Interpretation of special reserve allowance under section 36(1)(viii) of the Income-tax Act, 1961 for assessment years 1970-71, 1971-72, and 1972-73.

Analysis:
The case involved a dispute regarding the calculation of the special reserve allowance under section 36(1)(viii) of the Income-tax Act, 1961. The Income-tax Officer initially allowed a deduction of Rs. 2,01,681, which was less than the claim made by the assessee at Rs. 2,58,320 for the assessment year 1970-71. The Appellate Assistant Commissioner held that the special reserve should be calculated at 25% of the total income before allowing the deduction for the special reserve, not just the business income. The Appellate Tribunal upheld this view based on a previous judgment by the High Court. The Tribunal emphasized that the total income should be computed before making any deduction under Chapter VI-A of the Act. The Tribunal's decision was consistent with the legislative intent to maintain the benefit available to the corporation. The Tribunal directed that the special reserve allowance should be calculated at 25% of the total income before the allowance of the special reserve itself.

In subsequent assessment years 1971-72 and 1972-73, similar views were taken by the Department, the Appellate Assistant Commissioner, and the Appellate Tribunal, following the decision of the High Court. The Tribunal justified its decision based on the interpretation of the relevant provisions and the legislative history. The Tribunal's decision was further supported by a detailed analysis of the amendments made to the relevant sections of the Act. The judgment highlighted the importance of interpreting the term "total income" correctly to determine the maximum limit of allowable deduction under section 36(1)(viii). The court emphasized that the total income should be computed before any deduction under Chapter VI-A to ensure consistency with the legislative framework and to avoid rendering certain provisions redundant.

The court also examined specific amendments made to the relevant provisions, emphasizing that the interpretation sought by the Revenue would make the amended provisions ineffective and inconsistent with the legislative intent. The court referred to a previous judgment that clarified the meaning of "total income" in the context of special reserve allowances. The court ultimately ruled in favor of the assessee, rejecting the Revenue's interpretation and upholding the Tribunal's decision. The question referred to the court was answered in the negative, in favor of the assessee. No costs were awarded in the circumstances of the case.