1986 (4) TMI 127 - AT - Income Tax

Issues Involved:
1. Quantum of deduction under section 36(1)(viii) of the Income-tax Act, 1961.
2. Claim for depreciation at revised rates.
3. Interest under section 215 of the Act.

Issue-wise Detailed Analysis:

1. Quantum of Deduction under Section 36(1)(viii):

The primary dispute concerns the quantum of deduction under section 36(1)(viii) of the Income-tax Act, 1961. The assessee, an approved financial corporation, claimed a deduction at 40% of its total income. The Income-tax Appellate Commissioner (IAC) allowed the deduction at 40/140 of the total income, which was upheld by the Commissioner (Appeals).

The assessee argued that the deduction should be 40% of the total income without making any deduction under section 36(1)(viii). The counsel for the assessee cited the Tribunal's earlier decisions and the Patna High Court's decision in CIT v. Bihar State Financial Corpn. [1983] 142 ITR 518 to support this claim. He emphasized that the context of 'total income' in section 36(1)(viii) should not be construed as total income as per section 2(45) of the Act. He also referred to various Board instructions, including a letter dated 12-11-1973, which clarified that the deduction should be computed before making any deduction under section 36(1)(viii).

The department argued that the statute granting reliefs or exemptions should not be liberally construed. The Tribunal's earlier decision was based on the Board's instruction dated 12-11-1973, which was later superseded by the Board's circular dated 13-8-1979. The department contended that the decision of the Patna High Court was rendered before the amendments to the section and did not consider the Board's circular dated 25-11-1969.

The Tribunal considered the rival submissions and the materials on record. It noted that the Board's instruction dated 12-11-1973 was withdrawn by the instruction dated 13-8-1979, which reinstated the earlier view communicated in the Board's circular dated 25-11-1969. The Tribunal observed that the Patna High Court's decision in Bihar State Financial Corpn.'s case was rendered on the merits of the case and was still applicable despite several amendments to the section. The Tribunal concluded that the amendment introduced by the Finance Act, 1985, clarifying that the deduction should be computed before making any such deduction under the section, was only clarificatory in nature.

The Tribunal rejected the department's argument that the amendment introduced by the Finance Act, 1985, was prospective and not retrospective. It held that the amendment was clarificatory in nature and applicable to the relevant assessment years. The Tribunal set aside the order of the Commissioner (Appeals) on this point and allowed the assessee's claim for deduction at 40% of the total income without making any deduction under section 36(1)(viii).

2. Claim for Depreciation at Revised Rates:

The assessee did not press the ground regarding the claim for depreciation at revised rates. Consequently, this ground was dismissed.

3. Interest under Section 215 of the Act:

The ground regarding interest under section 215 of the Act was not maintainable in view of the decision of the Andhra Pradesh High Court in M. G. Bros. v. CIT [1985] 154 ITR 695. Therefore, this ground was also dismissed.

Conclusion:

The appeals were partly allowed, with the Tribunal setting aside the order of the Commissioner (Appeals) regarding the quantum of deduction under section 36(1)(viii) and dismissing the grounds related to depreciation at revised rates and interest under section 215.

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