1989 (6) TMI 44

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....uction under section 36(1)(viii) of the Income-tax Act. The total income computed by him before the allowance of this deduction and the deduction under section 80G of the Act was Rs. 30,41,567. The Income-tax Officer held that the assessee is entitled to 10% of the total income of Rs. 30,41,567 by way of deduction under section 36(1)(viii) of the Act, before the allowance of relief under Chapter-VIA. The Commissioner of Income-tax took the view that the order of assessment so passed by the Income-tax Officer dated August 22, 1979, is prejudicial to the interests of the Revenue. According to the Commissioner, section 36(1)(viii) of the Income-tax Act clearly directed computation of the allowance before making any deduction under Chapter VI-A....

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.... the deduction envisaged in section 36(1)(viii) is on the total income computed before making any deduction under Chapter VI-A and before making any deduction under section 36(1)(viii) is not binding on the subordinate authorities as an instruction under section 119 of the Act ?" We heard counsel for the applicant/assessee, Mr. K. P. Balasubramonian, as also counsel for the Revenue, Mr. P. K. R. Menon. Section 36 (1) (viii) of the Income-tax Act runs as follows: "36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 ... (viii) in respect of any special reserve created by a financial corporation which is engaged in ....

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....soning and conclusion in the said decisions. In the light of the above, we hold that the Income-tax Appellate Tribunal erred in law in holding that the deduction contemplated under section 36(1)(viii) of the Act is a percentage of the total income arrived at after making the deduction under the said section. Therefore, we answer question No. 1 in the negative-against the Revenue and in favour of the assessee. We hold that the deduction should be allowed on the total income before deduction of the amount allowable under section 36(1)(viii) of the Act. Before the Tribunal, the assessee had relied on the circular letter written by the Assistant Chief Officer of the Industrial Finance Department of the Reserve Bank of India to the State F....