Book profit computation allows reduction of tax-free interest income under section 115JB where exempt income is credited to profit and loss account.

Tax-free interest income covered by section 10(15)(i) was treated as exempt income and, under clause (ii) of Explanation 1 to section 115JB, could be reduced from book profit when credited to the profit and loss account. The Tribunal accepted the legal permissibility of the reduction and rejected the revenue's objection on computation. It remitted the matter to the Assessing Officer only to place the revised Form 29B on record and recompute book profit after giving the assessee a reasonable opportunity of hearing.

---

---

Issues: Whether tax-free interest income under section 10(15)(i) of the Income-tax Act, 1961 was liable to be reduced while computing book profit under section 115JB.

Analysis: The interest income had already been held to be non-taxable, and clause (ii) of Explanation 1 to section 115JB permits reduction of income to which the provisions of section 10 apply, where such amount is credited to the profit and loss account. The objection taken by the revenue related to the computation and the absence of a revised Form 29B. The Tribunal held that the reduction was legally permissible, but for completeness of the record the matter was sent back to the Assessing Officer to place the revised form on record and compute the book profit accordingly, after giving reasonable opportunity of hearing.

Conclusion: The reduction of the tax-free interest income from book profit was allowable, and the assessee succeeded on the issue, subject to remand for compliance with the statutory formality.

---