Commissioner of Income Tax vs Himachal Pradesh Financial Corporation

M. Srinivasan, C.J.—The Tribunal has referred the following question :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the deduction u/s 36(1)(viii) of the Income Tax Act, 1961, be allowed at the prescribed percentage of the total income computed before allowing deduction under Chapter VI-A and also before taking into account the deduction allowable u/s 36(1)(viii) itself ?"

The assessee claimed deduction u/s 36(1)(viii) of the Income Tax Act, at the prescribed percentage of the total income computed before allowing any deduction under Chapter VI-A and also before considering deduction allowable u/s 36(1)(viii) itself. The claim of the assessee was, thus, not accepted. That was challenged before the Appellate Assistant Commissioner, who upheld the order of the Assessing Officer. The matter was taken to the Tribunal. The Tribunal dealt with the matter as follows :

"The second ground is that the Commissioner of Income Tax (Appeals) has erred in not computing the deduction allowable u/s 36(1)(viii) of the Act correctly inasmuch as deduction has not been computed without deduction to be allowed under the above provisions. This issue also came up for consideration before the Tribunal in the case of the assessee for the assessment year 1979-80 and vide its order dated September 19, 1984, in ITA No. 726 of 1982, the issue was resolved in favour of the assessee. This was in view of the circular of the Central Board of Direct Taxes giving such benefit to the assessees and also relying on the decision of the Patna High Court in the case of Commissioner of Income Tax Vs. Bihar State Financial Corporation, , where it is held that the statutory deduction u/s 36(1)(viii) of the Act was available to a financial corporation fulfilling the requisite conditions before deduction of the amount allowable u/s 36(1)(viii). In view of the above decision of the Tribunal, we are unable to sustain the order of the authorities below. The same are reversed. The Assessing Officer is directed to recompute the deduction and allow the same in the light of the directions given by the Tribunal in its order referred to above."

Thus, the Tribunal allowed the contention of the assessee and reversed the order of the Appellate Assistant Commissioner as well as the Income Tax Officer.

No doubt, the Tribunal has referred only to the judgment of the Patna High Court in the case of Commissioner of Income Tax Vs. Bihar State Financial Corporation, , but there are other judgments also of other High Courts. It is seen that excepting the Karnataka High Court, all other High Courts have taken the same view on this question. In Commissioner of Income Tax Vs. M.P. Audyogik Vikas Nigam Ltd. (No. 1), the Madhya Pradesh High Court has held that it would not be permissible for the assessing authority to find out what would be the total income after making the deduction admissible u/s 36(1)(viii) of the Act and limit the amount of deduction to 40 per cent. of the total income as reduced by the deduction u/s 36(1)(viii) of the Act. Hence, the court held that the deduction permissible u/s 36(1)(viii) had to be calculated on the basis of the total income of the assessee as it stood before the deduction allowable u/s 36(1)(viii) of the Act.

A similar view is expressed by the Calcutta High Court in Commissioner of Income Tax Vs. West Bengal Industrial Development Corporation Ltd., . The Calcutta High Court has not only referred to the history of the legislation but also referred to judgments of other High Courts including that of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Andhra Pradesh State Financial Corporation, . The Calcutta High Court has dissented from the view expressed by the Karnataka High Court in Karnataka State Financial Corporation Vs. Commissioner of Income Tax, . Ultimately, the Calcutta High Court has taken note of the fact that the view taken by the different High Courts that total income as computed before making deductions under the said clause had then received the statutory recognition by the Amendment Act in 1985 introduced by Section 10 of the Finance Act, 1985,

Hence, we have no hesitation to answer the question referred to us in the affirmative by holding that the Tribunal was right in law in deciding that the deduction u/s 36(1)(viii) of the Income Tax Act be allowed at the prescribed percentage of the total income computed before making deduction under Chapter VI-A and also before taking into account the deduction allowable u/s 36(1)(viii) itself. The reference is answered accordingly.