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TMI Blog1986 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of 40 per cent of its total income as it had created the necessary special reserve as envisaged in section 36(1) (viii). The total income in this context should be construed not as total income as understood in section 2(45) of the Act. He submitted that the authorities below did not consider in the proper perspective the decision of the Tribunal for earlier years in the assessee's own case and also the decision of the Patna High Court in CIT v. Bihar State Financial Corpn. [1983] 142 ITR 518. It was his plea that what is envisaged in section 36(1) (viii) is related to the reserve and, therefore, once the reserve is created, deduction at 40 per cent of the total income should be allowed. In this context, he took us through the definition of 'income' and 'total income' as contained in the 1961 Act and emphasized that section 2 dealing with the definitions is prefaced by the clause to the effect that all the definitions should be understood in the manner defined unless the context otherwise requires. He pleaded that here is a context in which total income should be construed not as total income after deduction under section 36(1) (viii) for purpose of computing the admissible ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment years. As regards the decision of the Patna High Court in the case of Bihar State Finance Corpn. it was his submission that that decision was rendered prior to the amendments made in the section and there was no discussion about the Board's Circular F. No. 36/19/65-IT (Audit), dated 25-11-1969 in which it was specifically laid down that the deduction should be allowed only after allowing deduction under section 36(1) (viii). Therefore, he submitted that the decision of the Patna High Court's case supra would be of no avail to the assessee. 5. In the addition to the above, Shri Ratnakar Murthy has given submissions in writing which are as follows : "1. At the outset, it is submitted that there is no longer any case of vested right in favour of the assessee, as the Board's instruction dated 12-11-1973 has been withdrawn by the Board in their instruction dated 13-8-1979 and the earlier instruction dated 25-11-1969 has been restored. 2. Thus only the decision of Patna High Court dated 19-7-1974 in CIT v. Bihar State Finance Corpn. [1983] 142 ITR 518 which is said to support the stand of the Board in their instruction dated 12-11-1973, according to the Tribunal, surv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I-A but also as before giving the deduction under this section. This is something like increasing the exemption limit in the case of income-tax levy, instead of reducing the rates. (f) It may be noticed that the deduction under section (which should not be equated with the case of exemption of incomes) is not of an expense but of allocation/appropriation of income and the statute has precisely specified a measure with reference to the total income. If a certain higher deduction is allowed in a subsequent year in deference to representations of assesses, it should not be interpreted as clarificatory of the earlier position of law and the benefit passed on for earlier year also." In view of the above reasonings, he defended the orders of the authorities below..6. Shri Ratnakar for the assessee, in his counter arguments explained that even though there was in extence a circular of the Board, F. No. 36/19/65 IT (Audit), dated 25-11-1969, which was adverse to the assessee, the Patna High Court decided the issue in favour of the assessee in the case of Bihar State Finance Corpn. The Courts are not bound by the circulars of Board even though the IAC is bound by them. The Patna High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-1969. The view taken at that time was that the deduction to be allowed under section 36(1) (viii) is to be calculated by applying the specified percentage to the total income arrived at after allowing the deduction under section 36(1) (viii). Subsequently, however, the Board issued a clarification to the Department of Banking vide its U. O. No. 204/35/73-IT (A-II), dated 12-11-1973 wherein it was clarified that the percentage would be applied to the total income computed before making any deduction under Chapter VI-A as well as any deduction under section 36(1) (Viii) of the Income-tax Act, 1961. Thus, the above clarification had the effect of negating the earlier instructions of the Board dated 25-11-1969. 3. The matter has been re-examined by the Board and it has been decided that the earlier view communicated vide letter dated 25-11-1969 is correct. It means that the specified percentage will be applied to the total income (before making any deduction under Chapter VI-A) as reduced by the deduction allowable under section 36(1) (viii). 4. The Board desires that the pending assessments be completed in accordance with the aforesaid instructions. Remedial action wherever fea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation, will it be reasonable to say that the total income must be the total assessed income plus the amount of deduction allowable under Chapter VI-A of the Act ? It would thus be seen that if the interpretation which is sought to be put by the Department on the expression 'total income' is accepted, then the amended provisions would be wholly otiose and inept; but it would not be so, rather it would be consistent and in consonance with the earlier Act, if the interpretation sought to be put on behalf of the corporation is accepted to be correct." The words in parenthesis as introduced by Finance (No. 2) Act, 1967, are found in section 36(1) (viii) for the relevant assessment years before us and the departmental representative has not made out any case as to why this decision of the Patna High Court is not applicable to the facts of the case for the relevant assessment years, viz., 1982-83 and 1983-84. 9. Shri Radhakrishna Murthy has referred to the amendments made to the sub-clause of this section since 1966. These amendments are in the nature of enhancing or liberalising the amount of deduction available to approved financial corporations. The latest amendment introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After this amendment in 1967, the value of self-occupied property was limited to 10 per cent of the assessee's other income without deduction.under Chapter VI-A and section 280-O of the Act. The reason for the amendment is given in the portion of the following Board's circular : "In computing the income attributable to house property owned and occupied by an assessee for his own residence, the annual value of such house property is determined under section 23(2) of the Income-tax Act, in a sum equal to the full amount of its annual value (i.e., its annual letting value) as reduced by 50 per cent thereof, or Rs. 1,800, whichever is less. Under the proviso to section 23(2), as it stood before its amendment by the Finance (No. 2) Act, the reduced annual value so arrived at was further limited to 10 per cent of the total income of the assessee, and any excess over that limit was ignored. The prescription of the above-mentioned limit of 10 per cent of the total income of the assessee gave rise to certain complications in calculating the assessable annual value of the house property. This is because the total income itself comprises the net assessable income from such house property, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 36(1) (viii). Section 2 dealing with the definitions is prefaced by the words 'unless the context otherwise requires'. Section 36(1) (viii) speaks of the reserve and the grant of deduction for the reserve so created. A reserve is only an appropriation of profit. Therefore, to accept the strict or restricted interpretation as suggested by the departmental representative, is to go against the accepted concept of 'reserve'. If the amount of total income is taken as the total income before making such deduction and deduction under Chapter VI-A, it will be in harmony with the creation of the reserve as envisaged by the said section. In our view, the amendment made by the Finance Act, 1985, is only clarificatory in nature. 12. In yet another submission, the learned departmental representative argues that the deduction should not be equated with the case of exemption of income for liberal construction and, therefore, it should not be held that the amendment of 1985 was clarificatory in nature. The 1961 Act deals with exemptions and exclusions only in section 10 of the Act. Other sections including those matters found under Chapter VI-A, like insurance premia, contribution to provident ..... X X X X Extracts X X X X X X X X Extracts X X X X
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