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Issues: Whether, for the purpose of deduction for special reserve under section 36(1)(viii) of the Income-tax Act, 1961, the prescribed percentage is to be computed on the total income before allowing the deduction itself.
Analysis: The question turned on the meaning of the expression "total income" in section 36(1)(viii), especially after the amendments inserting the words "computed before making any deduction under Chapter VI-A". The Court followed its earlier decision on the same provision and held that the amendment did not alter the basis of computation against the assessee. For this purpose, the figure of total income has to be taken before making the deduction for special reserve, because the legislative intent was to preserve the benefit available to financial corporations and not to reduce it by first subtracting the deduction itself.
Conclusion: The special reserve deduction under section 36(1)(viii) is to be calculated at the prescribed percentage of the total income computed before allowing the deduction for special reserve. The question was answered in favour of the assessee and against the Revenue.
Ratio Decidendi: Where a provision grants deduction at a prescribed percentage of "total income computed before making any deduction under Chapter VI-A", the deduction must be calculated on the pre-deduction total income and not on income reduced by the deduction itself.
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