R.M.LODHA,J. - (1.) IN the case of CIT v. Rajasthan Financial Corporation , the Division Bench of this Court took the view that the allowance under Section 36(1)(viii) of the IT Act, 1961 is to be computed before making any deduction under Chapter VI -A as well as any deduction under Section 36(1)(viii) of the Act.
(2.) THE Tribunal Jaipur Bench, Jaipur for the asst. yr. 1983 -84, in relation to assessment of the respondent -Rajasthan Financial Corporation (for short, 'the Corporation') referred the following question of law for answer by this Court: Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the CIT(A)'s view that deduction under Section 36(1)(viii) @ 40 per cent was to be worked out on the gross total income before making deduction under this section as well as under Chapter VI -A of the IT Act, 1961? When the aforesaid question of law came up for consideration before the Division Bench on 14th Aug., 2003, the Division Bench presided over by the then Chief Justice opined that the view of this Court in the case of CIT v. Rajasthan Financial Corporation (cited supra) requires reconsideration. This is how the matter has come up before this Full Bench.
(3.) SECTION 36 of the IT Act ,1961. (for short, 'the IT Act') provides for certain deductions while computing the income referred to in Section 28, Clause (viii) thereof as was obtaining prior to 1st; April, 1985 and applicable for the asst, yr. 1983 -84 reads thus 36 Other deductions.(1) ... (i) to (vii) ... (viii) in respect of any special Reserve created (and maintained), by a financial corporation which is engaged in providing long -term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long -term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long -term finance computed under the head profits and gains of business or profession' [before making any deduction under this clause] carried to such reserve account: Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds [twice the amount of the paid -up share capital [and of the general reserves] of the corporation [or, as the case may be, the company]1, no allowance under this - clause shall be made in respect of such excess. Explanation -In this clause, - (a) 'financial corporation' shall include a public company and a Government company; (b) 'public company' shall have the meaning assigned to It in Section 3 of the Companies Act,: 1956(1 of -1956); ;