Deduction to be allowed on the basis of total income and not on the income chargeable to tax: HC

Issue  

Petition filed before Bombay HC against the impugned notice dated 30th November, 2000 issued by the Additional Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961 on the grounds that it is not justified to reopen the assessment for Year 1994-95. Petitioner also stated that in any event there has been no income chargeable that has escaped assessment within the meaning of Section 147 of the Act.  

Facts  

• For the Assessment Year 1994-95 petitioner had filed the return of income which was completed on 31st March, 1997 wherein petitioner’s total income was assessed at Rs.1,07,75,57,235/- before allowing deduction under Section 33AC of the Act. 
• Subsequently, the total income was revised at NIL wherein deduction under Section 33AC of the Act was allowed to the extent of Rs.1,07,59,92,027/-.   
• On 19th October, 2000 petitioner was called upon by the respondent to explain why the items mentioned in the said communication should not be treated as income chargeable from other sources and deduction under Section 33AC of the Act. 
• On 30th October, 2002 petitioner replied and explained that the deduction under Section 33AC of the Act for Assessment Year 1994-95 was chargeable to the extent of total income provided, the amount was credited to a reserve account and is utilized for the purchase of new ship within the specified period. Also, explained the amendment made in under Section 33AC of the Act to restrict deduction to 50% of the income derived from the business of operation of ships only which takes out the purview of deduction of any income arrived from the business other than shipping business or from the sources other than shipping business. Also, stated that the amendment will take effect from 1st April 1996. 
• Thereafter a notice dated 30th November, 2000, was issued under Section 148 of the Act which is impugned in this petition. 

Findings  

Section 33AC of the Act provides that in the case of assessee being a public company formed and registered in India with the main object of carrying on business of operation of ships, it would be allowed a deduction of an amount not exceeding the total income (computed before making deduction under Section 33AC and Chapter VIA) as is debited to the Profit and Loss Account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilized in the manner laid down in Sub-Section (2).  

Section 33AC of the Act makes it clear that the deduction was to be allowed on the basis of total income and not on the income chargeable to tax under the head “Profits and gains of business or profession”. Therefore, the reasons stated by the respondent that excess deduction has been allowed to petitioner under Section 33AC of the Act in respect of the dividend income, the long-term capital gains and interest income is not valid.  

Judgement  

The Bombay HC held that to issue a writ of Certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner’ case and after examining the legality and validity thereof to quash and set aside the impugned notice dated 30th November 2000 being Exhibit “E” hereto.  

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