High Court Of Madras
CIT vs. Tamil Nadu Mercantile Bank Ltd.
Asst. Year 1987-88, 1988-89
R. Jayasimha Babu & A.K. Rajan, JJ.
TC Nos. 112 & 113 of 1996
15th October, 2001
Mrs. Chitra Venkataraman, for the Revenue : P.P.S. Janardhana Raja for M/s Subbaraya Aiyar, Padmanabhan & Ramamani, for the Assessee
A.K. RAJAN, J. :
The stand of the Revenue is wholly unsupported by the provision, which is required to be applied or by anything held under the Act.
The question referred to us for consideration, at the instance of the Revenue, is as follows : “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the deduction under s. 32AB of the IT Act, 1961, is to be allowed at 20 per cent. of the book profit of the undertaking as a whole computed in accordance with Sch. VI of the Companies Act, and not on the business income computed as per the provisions of the IT Act ?” The assessment years are 1987-88 and 1988-89.
2. The assessee, which is engaged in the business of banking, claimed the benefit of s. 32AB(1) and for that purpose, it relied upon the calculation of the profits of its business, which was made in accordance with sub-s. (3) of s. 32AB. That sub-section, as it stood, during the relevant year, is as under : “(3) The profits of business or profession of an assessee for the purposes of sub-s. (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-s. (1) of s. 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956), as increased by the aggregate ofâ (i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision therefor; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ; (iv) the amounts carried to any reserves, by whatever name called ; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; (vi) the amount by way of provision for losses of subsidiary companies ; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the P&L a/c; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the P&L a/c.” The claim so made was not accepted by the AO, who took the view that the limit of 20 per cent. of the profits of the business or profession as computed in the accounts of the assessee audited in accordance with sub-s. (5) of s. 32AB, as prescribed in s. 32AB(1)(ii) was to be ascertained with reference to the business income as per the provisions of the IT Act and not with reference to the computation of the profit and computed in accordance with Sch. VI to the Companies Act. His view was upheld in appeal but reversed by the Tribunal on further appeal and, in our view, rightly so. What has been done by the assessee is not strictly in accordance with the requirement of the statutory provision. Sec. 32AB(3) nowhere refers to the computation of the income under the provisions of the IT Act. No such requirement can be imported into it. The view adopted by the AO and the appellate authority would find no support whatever from any part of s. 32AB. Sec. 32AB provides a benefit to the assessee. The benefit so provided is an incentive to an assessee, who deposits any amount in a development bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier. That incentive is also available if the assessee utilises any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account with a development bank. The benefit is given by way of deduction, such deduction being allowed before the loss, if any, brought forward from earlier years, is set off under s. 72 ofâ (i) a sum equal to the amount or the aggregate of the amounts, so deposited and any amount so utilised ; or (ii) a sum equal to twenty per cent, of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-s. (5), whichever is less.
The manner in which the profits of the business should be computed is dealt with in sub-s. (3), which, as noticed earlier, requires computation to be in accordance with the requirement of Parts II and III of Sch. VI to the Companies Act. The computation so made is to be increased by the aggregate of the amounts set out in sub-cls. (i) to (vii) therein. It is thereafter to be reduced by any amount or amounts withdrawn from reserves or provisions if such amounts are credited to the P&L a/c. It is thus amply clear that it is the computation made in accordance with sub-s. (3) of s. 32AB, which is to be the basis for determining the twenty per cent, of the profits of the business for the purpose of s. 32AB(1)(ii).
The computation of income under the provisions of the IT Act is of no relevance for the purpose of determining the extent of benefit under s. 32AB(1) or (2). The computation under the IT Act is relevant after the ascertainment of the amount of the deposit and the twenty per cent, of the profits of the business calculated in accordance with s. 32AB(3), and the amount to be allowed in the computation under the IT Act is the lower of the two figures and the deduction is to be allowed in the manner provided in s. 32AB(1) of the Act.
The question referred to us is, therefore, answered against the Revenue and in favour of the assessee. The Revenue shall pay costs in the sum of Rs. 2,000 (rupees two thousand only) to the assessee.
[Citation : 255 ITR 205]