Deduction base under section 36(1)(viii) must be computed before Chapter VI-A deductions, with later amendment treated as clarificatory.

Section 36(1)(viii) was construed to require the prescribed percentage deduction to be calculated on total income computed before Chapter VI-A deductions, and the later Finance Act, 1985 amendment was treated as clarificatory rather than a change in law. On that basis, the Board circular dated 12 November 1973 was consistent with the statutory scheme for the relevant period and supported the assessee's method of computation. The Tribunal's view that the circular was inapplicable or contrary to the Act was therefore incorrect.

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Issues: Whether the deduction under section 36(1)(viii) of the Income-tax Act, 1961, was to be computed on the total income before making any deduction under Chapter VI-A and without first reducing it by the deduction under section 36(1)(viii); and whether the circular dated 12 November 1973 was in consonance with the Act.

Analysis: Section 36(1)(viii), as it then stood, required the specified percentage to be applied to the total income computed before making any deduction under Chapter VI-A. The Court preferred the view taken by the Calcutta and other High Courts over the Karnataka view and held that the later legislative amendment by section 10 of the Finance Act, 1985, only clarified the position by expressly providing that the deduction under section 36(1)(viii) itself was also to be excluded in computing the base. On that construction, the Board's circular supporting the assessee's method of computation was consistent with the statutory scheme for the relevant period.

Conclusion: The deduction under section 36(1)(viii) was to be allowed on the total income computed before making any deduction under Chapter VI-A, and the Tribunal was wrong in holding the circular dated 12 November 1973 to be inapplicable or contrary to the Act.

Ratio Decidendi: For the relevant period, the base for deduction under section 36(1)(viii) was the total income computed before Chapter VI-A deductions, and the later amendment confirmed rather than changed that construction.

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