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TMI Blog1986 (1) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the allowance for special reserve under section 36(1)(viii) should be calculated at 25% of the total income computed before the allowance of the special reserve itself ? " A consolidated statement of the case has been framed and submitted to this court for all the three assessment years in question. The facts that emerge from the statement are these. In the assessment year 1970-71, the Income-tax Officer, while completing the assessment of the Corporation, allowed a sum of Rs. 2,01,681 as admissible deduction under section 36(1)(viii) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), as against the claim of the assessee at Rs. 2,58,320 which had been transferred to a special reserve account. The allowance by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , accepted the second contention regarding the inclusion of interest on securities for the purpose of calculating special reserve. A copy of the order of the Appellate Assistant Commissioner has been marked annexure and forms part of the statement of the case. When the matter came up before the Appellate Tribunal, the judgment of this court in the case of the assessee for the assessment year 1965-66 was available which had been registered as Tax Case No. 96 of 1971-since reported as CIT v Bihar State Financial Corporation [1983] 142 ITR 519. This court accepted the plea of the assessee that the special reserve had to be allowed on the basis of total income computed before allowing the deduction for special reserve. Regarding the amended pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit which was available to the State Financial Corporation before the amendment. There has been, however, no change regarding the basis of calculation of the reserve in any other respect. In view of this, the principles laid down by the Lordships of the Patna High Court would apply to this case also. Respectfully following their Lordships, we direct that the allowance for the special reserve should be calculated at 25% of the total income before the allowance of the special reserve itself. " On these facts, the Commissioner has suggested the following question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in holding that the allowance for special reserve under section 36(1)(viii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 36(1)(viii) was amended and a slight change was made in clause (b) of section 36(1)(viii) by section 8 and Chapter III of the Finance (No. 2) Act of 1971, with effect from April 1, 1968. By the amendment brought about by the Finance (No. 2) Act, 1967, effective from April 1, 1968, only after the term " total income " has been inserted " (computed before making any deduction under Chapter VI-A) ". This is neither here nor there. The following Explanation was inserted by the Finance Act, 1970, with effect from 1st April, 1966, which was omitted by the Finance Act, 1974, with effect from 1st April, 1975. The Explanation reads thus: "Explanation.-For the removal of doubts, it is hereby declared that in the case of a financial corporation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1967, omitting the main portion of sub-section (1) of section 36 of the Act, the amended clause (viii), without the two provisos, the relevant portion reads as follows: "(viii) in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for industrial development in India, an amount not exceeding: (a) in the case of a financial corporation whose paid-up share capital does not exceed three crores of rupees, twenty five per cent., (b) in the case of any other financial corporation, ten per cent., of the total income (computed before making any deduction under Chapter VI-A) carried to such reserve account." This amendment has already been taken into consideration in our prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 judgment of this court squarely covers the point and the submission made by Mr. Rajgarhia, learned counsel for the Revenue, is rejected in view of our decision in that case. Thus, the question referred to us is answered in the negative, in favour of the assessee and against the Revenue. In the circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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