Commissioner of Income Tax vs Bihar State Financial Corporation

At the instance of the Commissioner of Income Tax, a reference u/s 256(1) of the I.T. Act has been made and the following question of law has been referred for the opinion of this court:

"Whether on the facts and in the circumstances of the case, the deduction referred to in Section 36(1)(viii) of the Act envisages 25 per cent. of the total income before deduction of the amount so allowed or of the total assessed income ?"

The assessee is the Bihar State Financial Corporation. The total income of the assessee determined by the ITO from all sources is Rs. 7,95,471. The assessee claim that u/s 36(1)(viii) of the I.T. Act, the assessee is entitled to deduction under the aforesaid provision on the total income as assessed. The ITO was of the view that the percentage of reserve is to be taken on the income calculated under the head " Income from business " and deduction should be allowed at the given percentage on the total income after allowing reserve. The AAC as well as the Tribunal has accepted "the stand of the assessee. Thereafter, as already stated, at the instance of the Commissioner, a reference has been made u/s 256(1) of the I.T. Act.

Similar question was referred to this court and decided in Tax Case No. 96 of 1971. [CIT v. Bihar State Financial Corporation--see below]. The only difference was that in the assessment year is question the percentage of reserve deductible u/s 36(1)(viii) was 10 per cent. instead of 25 per cent. For the reasons given in the aforesaid decision, we answer the question in favour of the assessee and against the Revenue. There will be no order as to costs.