1974 (7) TMI 3 - HC - Income Tax

Summary

Issues:
- Interpretation of deduction under section 36(1)(viii) of the Income Tax Act, 1961.

Detailed Analysis:
The judgment by the High Court of Patna involved a reference made by the Income-tax Appellate Tribunal regarding the interpretation of a deduction under section 36(1)(viii) of the Income Tax Act, 1961. The question at hand was whether the deduction should be based on 10% of the total income or 10% of the total assessed income before the deduction allowed. The case revolved around the Bihar State Financial Corporation, where the Income Tax Officer initially allowed a deduction based on the total income. However, upon a review, the Officer revised the deduction amount, leading to a dispute between the assessee and the Revenue. The Appellate Tribunal set aside the revised order, prompting the reference to the High Court for a legal determination.

The primary issue was the interpretation of the term "total income" in section 36(1)(viii) of the Act. The Corporation argued that the deduction should be based on 10% of the total income arrived at after all additions and deductions, while the Revenue contended it should be based on the total assessed income before the deduction. The Court analyzed the relevant provisions of the Act, emphasizing that deductions should be made in accordance with the provisions applicable and the total assessable income chargeable to tax under section 4 of the Act.

The Court delved into the legislative history and subsequent amendments to the Act to resolve the ambiguity in the interpretation of the term "total income." It referred to legal principles that allow later legislation to clarify ambiguous earlier acts. The amendments introduced by the Finance Act of 1966 and Finance (No. 2) Act of 1967 clarified that the deduction should be based on the total income computed before making any deduction under Chapter VI-A of the Act.

Ultimately, the Court concluded that the deduction under section 36(1)(viii) should be based on 10% of the total income computed before any deductions under Chapter VI-A. The judgment favored the assessee, holding that the deduction envisages 10% of the total income, not 10% of the total assessed income before the deduction. The Department was directed to pay the costs of the reference, with a hearing fee assessed at Rs. 100. Both judges, Untwalia C.J. and S. K. Jha J., concurred with the decision.