Madhya Pradesh High Court
Commissioner Of Income-Tax vs M.P. Audyogik Vikas Nigam Ltd. (No. 1) on 9 February, 1989
Equivalent citations: [1989]178ITR177(MP)
JUDGMENT
G.G. Sohani, Actg. C.J.
1. The judgment in this case will also govern the disposal of M. C. C. No. 256 of 1985 (infra p. 179) as a common question of law arises in these cases.
2. By these references under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the deduction permissible under Section 36(1)(viii) of the Income-tax Act was to be calculated on the assessee's total income as it stood before the deduction allowable under Section 36(1)(viii) of the Income-tax Act, 1961 ?"
3. The material facts giving rise to this reference, briefly, are as follows : The assessee is a financial corporation. For the assessment years in question, the assessee claimed exemption of a portion of its income under the provisions of Section 36(1)(viii) of the Act. The Income-tax Officer allowed the deduction on the basis of the total income as reduced by the deduction under Section 36(1)(viii) of the Act. On appeal, the Commissioner of Income-tax (Appeals) held that the assessee was entitled to deduction under Section 36(1)(viii) of the Act on the basis of total income arrived at before making any deduction under Section 36(1)(viii) of the Act. Aggrieved by the order passed by the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Tribunal. The Tribunal dismissed the appeal. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.
4. Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and against the Revenue Clause (viii) of Section 36(1) of the Act provides for deduction on the basis of total income computed before making any deduction under Chapter VI-A of the Act. "Total income" as defined by Section 2(45) of the Act means the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Chapter III of the Act refers to income which do not form part of total income. Chapter VI-A provides for certain deductions which are required to be made in computing total income. However, Section 36(1)(viii) of the Act provides that deduction admissible under that provision has to be calculated on the basis of total income computed before making any deduction under Chapter VI-A of the Act In view of this provision, it would not be permissible for the assessing authority, as held in CIT v. Bihar State Financial Corporation [1983] 142 ITR 518 (Pat), to find out what would be the total income after making the deduction admissible under Section 36(1)(viii) of the Act and then limit the amount of deduction to 40% of the total Income, as reduced by the deduction under Section 36(1)(viii) of the Act. In our opinion, the Tribunal was right in holding that the deduction permissible under Section 36(1)(viii) of the Act had to be calculated on the basis of the total income of the assessee as it stood before the deduction allowable under Section 36(1)(viii) of the Act.
5. Our answer to the question referred to this court is, therefore, in the affirmative and against and Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.