Commissioner of Income Tax vs M.P. Financial Corporation

Sohani, J.—This is an application u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

The material facts giving rise to this application, briefly, are as follows :

While framing the assessment for the assessment year 1976-77, the Income Tax Officer computed the gross income, i.e., income before giving deduction u/s 36(1)(viii) of the Act, at Rs. 14,12,191 and the total income at Rs. 10,09,422. The Income Tax Officer allowed the deduction u/s 36(1)(viii) of the Act at 40% of the total income of Rs. 10,09,422. The assessee thereupon preferred an appeal before the Commissioner of Income Tax (Appeals) and contended that the deduction should have been computed at 40% of the gross income and not at 40% of the total income. The Commissioner of Income Tax (Appeals) referred to the decision of the Income Tax Appellate Tribunal in an earlier case, wherein reliance was placed by the Tribunal on the circular issued by the Central Board of Direct Taxes and it was held that deduction should be allowed at 40% of the total income computed before making deduction under Chapter VI-A and before making deduction u/s 36(1)(viii) of the Act. Following that decision of the Tribunal, the Commissioner of Income Tax (Appeals) allowed the appeal and directed the Income Tax Officer to recompute the deduction u/s 36(1)(viii) of the Act. Aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the Department preferred an appeal before the Tribunal. The Tribunal held that the circular letter issued by the Central Board of Direct Taxes, which was relied upon by the Commissioner of Income Tax (Appeals), was applicable and the appeal was, therefore, dismissed. Aggrieved by the order passed by the Tribunal, the Department submitted an application seeking reference but that application was rejected. Hence, the Department has filed this application u/s 256(2) of the Act praying that the Tribunal be directed to refer the following question of law to this court for its opinion ;

"On a true interpretation of the provisions of Section 36(1)(viii) of the Income Tax Act, 1961, whether the Appellate Tribunal was right in law in holding that the percentage of deduction specified therein would be applied to the total income before making any deduction under Chapter VI-A as well as u/s 36(1)(viii) of the Income Tax Act, 1961?"

Having heard learned counsel for the parties, we have come to the conclusion that this application deserves to be rejected. In dismissing the appeal preferred by the Department, the Tribunal has not proceeded to construe the provisions of Section 36(1)(viii) of the Act. The Tribunal has merely relied on the circular issued by the Central Board of Direct Taxes. The Department has not sought reference of the question as to whether the circular issued by the Central Board of Direct Taxes was or was not attracted in the circumstances of the case. The question which is sought to be referred does not arise out of the order passed by the Tribunal. The application, therefore, deserves to be rejected.

The application is, accordingly, rejected. No order as to costs.