Loading judgment…
Facts
The revenue preferred an appeal against the order of the CIT(A) concerning AY 2005-06. The assessee, a non-banking company, had claimed a deduction under Section 36(1)(viia) of the Act. The Assessing Officer (AO) rectified the assessment, stating the deduction was claimed in excess.
Held
The Tribunal held that 'total income' for the purpose of computing deduction under Section 36(1)(viia) includes all heads of income, not just business income. Capital gains should not be excluded from total income for this calculation.
Key Issues
Whether capital gains should be excluded from total income when computing the deduction under Section 36(1)(viia) of the Income Tax Act.
Sections Cited
143(3), 154, 36(1)(viia), Chapter VIA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the revenue is preferred against the order of the ld. CIT(A)-14, Bangalore, [hereinafter ‘the ld. CIT(A)’] dated 20/02/2015, pertaining to AY 2005-06 .
The solitary grievance of the revenue reads as under:- “2. The ld. CIT(A) has erred in holding that income under head Capital gains should not be excluded from total income for the purpose of computing deduction u/s 36(1)(viia).” 3. Briefly stated the facts of the case are that, the assessee is a well- known non-banking company and is engaged in banking operations since last several years with registered office at KG Road, Bengaluru. The return for the year under consideration was selected for scrutiny assessment and accordingly, vide order dated 31/05/2007, assessment order was framed u/s 143(3) of the Act.
2 4. The AO suo moto assumed jurisdiction u/s 154 of the Act and rectified the assessment observing that deduction u/s 36(1)(viia) of the Act was given in excess by an amount of Rs. 3,56,01,972/- and accordingly, rectification order was passed on 18/11/2009.
The assessee challenged the order before the ld. CIT(A). It was strongly contended that the AO has nowhere mentioned the working for arriving at the alleged excess amount of deduction u/s 36(1)(viia) of the Act and strongly contended that the assessee has never claimed any excess deduction. On the instructions of the ld. CIT(A), the AO provided the basis for calculation of excess tax u/s 36(1)(viia) of the Act, which is as under:-
5.1. It was brought to the notice of the ld. CIT(A) that the AO has computed by taking the total income as total income before deduction u/s 36(1)(viia) of the Act and excluding income under the head capital gains. Attention was drawn to the provisions of Section 36(1)(viia) of the Act which provides for provision for bad and doubtful debts in the case of a schedule bank not being a bank incorporated by or under the law of a country outside India and amount not exceeding 7 ½ % of the total income computed by making any deduction under the clauses and 3 Chapter VIA. Attention was also drawn to the Instruction No. 17/2008 issued by the CBDT dated 26/11/2008.
After considering the facts and the submissions made by the assessee and drawing support from the aforementioned instructions by the CBDT, the ld. CIT(A) observed as under:- “3.4. On consideration of the appellant's submission as above, I am in agreement with the appellant that the IT Act and the Board's Instruction nowhere require exclusion of Income under the head 'Capital Gain' from Total Income for the purposes of computing deduction under sec 36(1)(viia) of the Act. Section 2(45) defines Total Income as "the Total amount of Income referred in section 5, computed in the manner laid down in this Act." Section 5 provides the scope of Total Income of a resident assessee like the appellant) to include all income, from whatever source derived, which is received / deemed to be received in India or accrues or arises/deemed to have accrued or arisen in India as well as the global income of the assessee. The AO's interpretation of Total Income for purposes of calculating the deduction u/s 36(1)(viia), hence, is not in harmony with the above provisions of the IT Act. The appellant's grounds are, therefore, allowed and the excess deduction withdrawn by the AO in the impugned order is directed to be restored.”
Before us, the ld. D/R strongly contended that the meaning of “total income” has to be read in the context of business income and therefore, for computation of any deduction u/s 36(1)(viia) of the Act, only business income should be considered. Per contra, the ld. Counsel for the assessee relied upon the order of the ld. CIT(A).
We have given a thoughtful consideration to the orders of the authorities below. The contention of the ld. D/R is not acceptable for the reason that the total income means the total income computed before any deduction under Chapter VIA of the Act which means all the income in all the heads of income have to be considered. This has further been clarified by the CBDT in the Instruction No. 17/2008, dated 26/11/2008. The relevant clause of the Instruction reads as under:-