Section 36(1)(viii) deduction base must be total income before Chapter VI-A deductions, with revision under section 263 unsustainable.

Deduction under section 36(1)(viii) was to be computed on total income before any Chapter VI-A deductions, because the statutory language then in force used that pre-deduction base and the later Finance Act, 1985 amendment confirmed that the deduction itself was not to be reduced from the figure. On that interpretation, reading the provision otherwise would make the amendment redundant and conflict with the scheme of total income computation. The Tribunal was therefore right in holding the Commissioner's revision under section 263 unsustainable, and the assessee's computation method was upheld.

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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 assessee's total income before making any deduction under Chapter VI-A, and whether the Tribunal was justified in setting aside the Commissioner's order under section 263.

Analysis: The provision, as it stood at the relevant time, allowed deduction of an amount not exceeding forty per cent of the total income computed before making any deduction under Chapter VI-A and carried to the special reserve. The later amendment made by the Finance Act, 1985 showed that the earlier language did not require the deduction under section 36(1)(viii) itself to be reduced from the base. Reading the provision otherwise would make the amendment redundant and would be inconsistent with the statutory scheme defining total income and Chapter VI-A deductions.

Conclusion: The deduction had to be worked out on the total income as it stood before deduction under Chapter VI-A, and the Tribunal was correct in holding the Commissioner's revision under section 263 to be unsustainable.

Final Conclusion: The reference was answered in favour of the assessee, and the Tribunal's view on the computation of deduction under section 36(1)(viii) was upheld.

Ratio Decidendi: Where a provision allows deduction on total income computed before making any deduction under Chapter VI-A, the deduction base is the income before Chapter VI-A deductions and not an amount further reduced by the deduction itself.

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