COMMISSIONER OF INCOME TAX Vs. CARBORANDUM UNIVERSAL LIMITED

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following common question for the asst. yrs. 1972-73, 1973-74 and 1974-75, for the opinion of this Court, under s. 256 (1) of the IT Act, 1961, (hereinafter referred to as the "act"), r/w s. 18 of the Companies (Profits) Surtax Act, 1964 : "whether, on the facts and in the circumstances of the case, in computing the chargeable profits, deduction at 50 per cent should be made on the entire amounts of donations made by the assessee of Rs. 2, 29, 100, Rs. 2, 51, 800 and Rs. 2, 28, 100 respectively and should not be restricted to Rs. 1, 00, 000 for each of the above years for which relief under s. 80g of the IT Act, 1961, was given, while computing the total income for purposes of Income-tax "" *

(2.) FOR the asst. yrs. 1972-73, 1973-74 and 1974-75 the assessee-company made donations of Rs. 2, 29, 100, Rs. 2, 51, 800 and Rs. 2, 28, 100 respectively. FOR the purpose of s. 80g of the IT Act, 1961, the ITO gave the assessee relief of rupees one lakh for each of the above assessment years. In computing the taxable profits under the Surtax Act, the assessee claimed that half of the total amount donated should be reduced under the provision of r. 1 of the First Schedule. The ITO however, restricted the reduction to the sum of rupees one lakh, the sum for which relief under s. 80g of the Act was given, while computing the total income for Income-tax purpose. On appeal, the AAC confirmed the order passed by the ITO.

(3.) SUB-cl. (vii) of r. 1 of the First Schedule states that an amount equal to 50 per cent of the sum with reference to which a deduction is allowable to the company under the provisions of s. 80g of the IT act, 1961 (sic ). While determining the chargeable profits under the First schedule, in the matter of donation made by the assessee, deduction is allowable of an amount equal to 50 per cent of the sum with reference to which a deduction is allowable to the company under the provisions of s. 80g of the it Act, 1961. What is to be taken into consideration while determining the chargeable profit under the First Schedule is the sum with reference to which deduction is allowable under the provisions of s. 80g of the IT Act. With regard to the application of sub-cl. (vii) of r. 1 of the First Schedule, there is a decision of the Bombay High Court reported in CIT vs. Echjay Industries (P) Ltd. 1995 (214) ITR 27, 1995 (128) CTR 276, 1995 (83) TAXMAN 450 (Bom), wherein the Bombay High Court held that "a conjoint reading of cl. (vii)of r. 1 of the First Schedule to the Companies (Profits) Surtax Act, 1964 and s. 80g of the IT Act, 1961, the amount eligible for deduction under cl. (vii)of r. 1 of the Sch. I, has to be computed not with reference to the total amount of donations, but with reference to the sums specified in sub-s. (2) of s. 80g, subject to the conditions and restrictions contained in sub-s. (3) and (4) thereof. The amount specified in cl. (vii) of r. 1 of Sch. I is an amount equal to 50 per cent of the sum'with reference to which a deduction is allowable to the company under the provisions of s. 80g'. The deduction is allowable under sub-s. (1) of s. 80g of a sum equal to 50 per cent of the sums specified in sub-s. (2), which again is subject to the restrictions contained in sub-s. (4) thereof. The Andhra Pradesh High Court in cited supra also had an occasion to consider sub-cl. (vii) of r. 1 of the First Schedule, and held as under : A reading of r. 1 of the First Schedule to the Companies (Profits) Surtax Act would show that the chargeable profits for the previous year, for the purpose of this Act, are not the same as the total income computed for that year under the IT Act. The total income computed under the IT act for the said year has to be adjusted in accordance with the rules in the said Schedule. Rule 1 of the First Schedule provides for exclusion of several items which, no doubt, were included while computing the total income under the it Act. For example, the income chargeable under the head'capital gains'which would be included in the total income for purpose of the IT Act, is directed to be excluded under this Act. The language in which cl. (vii) of r. 1 is couched, deserves notice. It says, an amount equal to 50 per cent of the sum with reference to which a deduction is allowable to the company under the provisions of s. 80g of the IT Act, 1961, shall be excluded from the total income. The proper method to be followed in applying s. 80g of the IT Act, is this : The ito must first ascertain the aggregate amount donated for the purposes mentioned in sub-s. (2) of s. 80g. He must then grant deduction of an amount equal to 50 per cent of the said aggregate sum. This is what is required by sub-s. (1 ). The next stage is to see whether the ceiling prescribed in sub-s. (4) is attracted. If the ITO finds that the amount to be allowed as deduction under sub-s. (1) exceeds 10 per cent of the gross total income, or Rs. 2 lakhs, and if the deductions are for purposes mentioned in the clauses aforesaid, the deduction shall be cut down and limited to either 10 per cent of the gross total income, or Rs. 2 lakhs, whichever is less. Rule 1 (vii) of the First schedule to the Companies (Profits Surtax Act does not provide for the exclusion of the amount actually allowed as deduction. If that were the intention of the Rule, it would have run in this fashion : "an amount equal to 50 per cent of the sum allowed as deduction to the company under the provisions of s. 80g of the IT Act'. But this is not the language actually used. The words to be borne in mind are 'fifty per cent, of the sum with reference to which a deduction is allowable'. Under sub-s. (1) of s. 80g of the IT Act, deduction is granted, with reference to the total amount (on the aggregate sum) donated for the recognised purposes. SUB-s. (4) of s. 80g merely imposes a ceiling upon the amount of deduction. Therefore, the amount prescribed in sub-s. (4) cannot be treated or understood as the sum with reference to which deduction is allowable. Those words refer to the amount which is relevant for the purposes of sub-s. (1) of s. 80g. Under the Companies (Profits) Surtax Act, the idea is to tax the true or real profits as exceed the prescribed limit. It is but appropriate in this context that 50 per cent of the amount actually donated for purposes mentioned in sub-s. (2) of s. 80g - all of which are undoubtedly of a charitable, religious or public nature-should be allowed. Therefore, the amount to be excluded from the total income under cl. (vii) of r. 1 of the First Schedule to the Companies (Profits)Surtax Act is 50 per cent of the amount actually donated for the purposes mentioned in s. 80g (2) of the IT Act" * . According to Andhra Pradesh High Court, sub-s. (4) of s. 80g merely imposes a ceiling upon the amount of deduction. Therefore, the amount prescribed in sub-s. (4) cannot be treated or understood as the sum with reference to which deduction is allowable. So far as this finding is concerned, we are of the opinion that the Andhra Pradesh High Court is prepared to ignore the provisions of sub-s. (4) of s. 80g of the Act. When sub-cl. (vii) of r. 1 of the First Schedule says that 50 per cent of the sum with reference to which a deduction is allowable, it refers to the deduction allowable under s. 80g of the IT Act, 1961. It is not possible for us to read something which is not in the provision, viz. , sub-cl. (vii) of r. 1 of the First Schedule to Companies (Profits)Surtax Act, 1964 cited supra and hold that the Tribunal was not correct in coming to the conclusion that 50 per cent of the donation made, should be allowed as a deduction while computing the profit under the Companies (Profits)Surtax Act, 1964. In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. No costs. .