COMMISSIONER OF INCOME TAX versus KERELA STATE INDUSTRIAL DEVELOPMENT

Citation: [1998] 1 S.C.R. 871 · Decided: 12-02-1998 · Supreme Court of India · Bench: B.N. KIRPAL · Disposal: Dismissed

Judgment (excerpt)

COMMISSIONER OF INCOME TAX 
A 
' 
_ _,J. 
v. 
KERELA STATE INDUSTRIAL DEVELOPMENT 
FEBRUARY 12, 1998 
[B.N. KIRPAL AND A.P. MISHRA, JJ.j 
B 
-.-
Income Tax Act, 1961, Section 36(l)(viii)-Deduction-AY 1978-79-
Held, the statutory deduction under this section should be calculated on the 
total income before deduction of the amount allowable under the section. c 
On a reference as to whether the Tribunal was right in holding that 
the statutory deduction under Section 36(1)(viii) of the Income Tax Act 
should be calculated on the total income before deduction of the amount 
allowable under the section, the Keraia High Court answered the question 
"--
in the affirmative relying upon the observation of this Court in Cam bay D 
~ 
Electric*. The view was also in consonance with the view taken by the Patna 
High Court in three decisions the Madhya Pradesh High Court in two 
decisions and the Kerela High Court in an earlier decision. Only the 
Karnataka High Court had expressed a dissenting view. Revenue has preferred 
the present appeal. 
E 
Dismissing the appeal, this Court 
HELD : The impunged decision of the High Court following its earlier 
decision in CITv. Kerela State Industrial Development Corporation Ltd,. is 
::. 
unexceptionable. Karnataka High Court has tried to work out the sub-
section on the basis of a mathematical formula and has dissented from the F 
)-' 
~·I 
decision of the Patna High Court in C/Tv. Bihar State Financial Corporation, 
It may here be mentioned that the appeal against the aforesaid judgment 
reported in Bihar State Financ!al Corporation, was dismissed by this Court 
on 20.1.1995 thereby affirming the view of the Patna High Court. It may here 
be noticed that not only the preponderance of the judicial opinion of the G 
various High Courts is in line with the view expressed by the Kerela High 
" 
Court but the relevant sub-section (viii) of Section 36(1) of the Income Tax 
~,_r 
Act has subsequently been amended so as to bring it in line with the view 
of the Patna and Kerala High Courts. The decision of the Karnataka High 
Court does not appear to be correct, being contrary to the decision of the 
Patna High Court which stands affirmed by its affirmation by this Court on H 
871 
872 
SUPREME COURT REPORTS 
[1998] 1 S.C.R. 
A 20-1-1995. The view of the other High Court is in consonance with relevant 
provisions of the Act. This Court, therefore, agrees with the decision of the 
High Court in answering the question of law in affirmative and in favour of 
the assessee. (873-C-F] 
CIT v. Kerela State Industrial Development Corporation Ltd., (1990) 
B 182 ITR 67 (Ker.); CIT v. Bihar State Financial Corporation, (1983) 142 
ITR 518 (Pat.), approved. 
Karnataka State Financial Corporation v. CIT, (1988) 174 ITR 2~6 
(Kant), oveni.Iled. 
C 
*Comboy Electric Supply Industrial Company Ltd v. CIT, (1978) 113 
ITR 84, referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 3315-16 of 
1993. 
D 
From the Judgment and Order dated 29th Sept., 1989 of the Kerala High 
E 
F 
G 
Court in ITR Nos. 571 & 572/85. 
J. Ramamurthi, Rajiv Nanda and B. Krishna Prasad for the Appellant. 
Roy Abraham and M.M. Kashyap for the Respondent. 
. The Judgment of the Court was delivered by 
KIRP AL, J. In these appeals by certificate granted by ihe Karala High 
Court, the following question of law has been referred in respect of the 
assessment year 1978-79:-
"Whether, the Tribunal was right in law in holding that the statutory 
deduction under Section 36 (i) (viii) of the LT. Act, 1961 should be 
calcnlated on the total income before deduction of the amount allowable 
under the section?" 
The Kerala High Court came to the conclusion that in computing the 
total income for the pmpose of Section 36 (1) (viii) of the Income Tax Act, 
1961, the total income has to be computed in accordance with the provisions 
of Sections 30 to 43A except Section 36 (i) (viii). In arriving at this decision, 
the High Court relied upon the observations of this Court in Cambay Electric 
H Supply Industrial Co. Ltd. v. Commissioner of Income Tax, (1978) 113 ITR 84. 
... 
r 
C.I.T. v. KERELA STATE INDUSTRIAL DEVELOPMENT [KIRPAL, JJ.] 
873 
The view which was taken by the Kerala High Court was in consonance A 
with the view taken by the Patna High Court in three decisions, Madhya 
Pradesh High Court in two decisions and Kerala High Court itself in an earlier 
decision. It is stated that sudsequent to the decision under appeal, other High 
Court

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