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TMI Blog1997 (2) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961. It is submitted that section 40(b) deals with amounts not deductible from the profits and gains of business of firms and sub-clauses (iv) and (v) provide for payment of interest or remuneration to any partner as not deductible from the profits of the business in computing the income. According to sub-clause (iv) of clause (b), the payment of interest to a partner which is authorised by, and is in accordance with, the terms of the partnership deed and relating to any period falling after the date of the partnership deed insofar as such amount exceeds the amount calculated at the rate of 18 per cent. simple interest per annum shall not be deducted. So far as remuneration is concerned, according to sub-clause (v) of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed. 32. 2 : The estimated income is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed." The Central Board of Direct Taxes later found that the circular dated June 10, 1994, had created confusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanatory Notes to the Finance Act, 1994. Therefore, for the sake of clarity and removal of doubts in this regard, the following lines are deleted from paras. 31.3 and 32.2 of Circular No. 684, dated June 10, 1994. ' In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed '. " Since the earlier circular had in effect given a benefit to the assessee that the permissible deductions under section 40(b) of the Income-tax Act were also available while calculating the comprehensive rate of 8 per cent. under section 44AD, it is the argument of Mr. Ratnakar, that the latter circular can have only prospective application and could not have any retrospective effect so as to deprive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular manner. A reading of the proviso suggests without any ambiguity that the scope of issuance of circulars by the Board is confined to the purpose of proper administration of the Act. The circulars are admittedly executive in character and have to be issued in aid of the functioning of the Act and with the objective that the provisions of the Act are properly administered. The Board may, in issuing a circular, clarify a point of ambiguity in any provision of the law. Such clarification is not only not binding upon the courts, but also cannot assume a substantial right in itself to run counter to the legislative provisions and create rights or obligations which are contrary to the statute. The Board itself being a creature under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions and could always be prospectively withdrawn. However, on what lines the rights of the parties should be adjusted in consonance with justice in view of these circulars is not a subject matter to be adjudicated by us and, as rightly contended by counsel for the Revenue, the circulars cannot detract from the Act. This case hence took the view that a circular issued by the Board could not deviate from the provisions of the Act. In Kerala Financial Corporation v. CIT [1994] 210 ITR 129, the Supreme Court observed at page 135 as under : " The fact that the circular to which Shri Salve has referred is one which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been cited by Mr. Ratnakar like CIT v. Modi Spg. and Wvg. Mills Co. Ltd. [1991] 187 ITR 51 (SC), Navnit Lal C. Javeri v. K K. Sen, AAC [1965] 56 ITR 198 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), which are cases where some circulars issued by the Central Board of Direct Taxes were held by the Supreme Court as having been held to be binding on the Department and allowed benefits in accordance with them. But in all those cases, the questions as to whether circulars can deviate from the provisions of the statute did not arise. Those cases allowed the relief because the circulars were taken to have explained the law in a particular manner. A resume of the discussion above would show that a later decision of a larger Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X
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