JUDGMENT M.C. Agarwal, J.
1. The Income-tax Appellate Tribunal, Allahabad, has referred the following questions of law arising out of its order dated December 9, 1977, passed in Income-tax Appeals Nos. 976 and 1954/(Alld.) of 1977-78 and 1976-77, respectively, for the assessment years 1974-75 and 1971-72 for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest due on the interest bearing loans did not accrue or arise to the assessee during the accounting year because the suits were pending for the recovery of the loans ?
2. Whether, the Tribunal was justified in putting off the facts of accrual of the interest in spite of the fact that the assessee followed the mercantile system of accounting and the loans were interest bearing ?
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the amount of Rs. 42,942 as interest accrued was not includible in the total income of the assessee in the assessment year 1974-75 ?
4. Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal is correct in holding that deduction under Section 56(1)(viii) should be regulated with reference to the total income computed before making any deduction under Section 36(1)(viii) of the Income-tax Act, 1961 ?"
2. We have heard learned standing counsel for the Commissioner of Income-tax at whose instance the reference in question has been made as well as learned counsel for the assessee-respondent.
3. As regards questions Nos. 1 to 3, it was conceded before us that this court, vide judgment dated March 14, 1991, in Income-tax References Nos. 1063 of 1973 (1083 of 1978 ?) and 105 (106 ?) of 1979 in CIT v. Uttar Pradesh Financial Corporation [1992] 194 ITR 282, in the assessee's own case, has answered all the three questions in the affirmative, i.e., in favour of the assessee and against the Revenue. Admittedly, the facts and circumstances during the year under consideration were similar and, therefore, following the aforesaid judgment of this court dated March 14, 1991, and for the reasons stated therein, we answer questions Nos. 1, 2 and 3, as reproduced above, in the affirmative, in favour of the assessee and against the Revenue.
4. The fourth question relates to the quantification of the amount of deduction allowable under Section 36(1)(viii) of the Income-tax Act. The relevant provisions as they stood during the assessment year in question are as follows:
"36. Other deductions.--(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28--. . .
(viii) in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for industrial development in India, an amount not exceeding-
(a) in the case of a financial corporation whose paid-up share capital does not exceed three crores of rupees, twenty-five per cent.,
(b) in the case of any other financial corporation, ten per cent.
of the total income (computed before making any deduction under Chapter VI-A) carried to such reserve account."
5. The Assessing Officer took the view that the amount of deduction permissible in terms of Section 36(1)(viii) is to be determined with reference to the total income as it stood after deduction under Section 36(1)(viii). The assessee's case was that such deduction has to be allowed on the basis of the income as it stood prior to such deduction. The Appellate Assistant Commissioner upheld the view taken by the Assessing Officer but on appeal the Income-tax Appellate Tribunal took the view that such deduction is to be granted on the basis of the total income as it stood prior to deduction under Section 36(1)(viii).
6. Learned counsel for the Revenue placed reliance on the definition of total income as contained in Section 2(45) of the Act which says that total income means the total amount of income referred to in Section 5, computed in the manner laid down in this Act. It is, therefore, contended that Section 36(1)(viii) is also a part of the manner in which the total income of an assessee is to be computed and, therefore, the deduction under Section 36(1)(viii) has to be a percentage of the total income which is arrived at after making the said deduction. On the other hand, learned counsel for the assessee placed reliance on CIT v. Bihar State Financial Corporation [1983] 142 ITR 518 (Patna), CIT v. Andhra Pradesh State Financial Corporation [1989] 175 ITR 87 (AP) and CIT v. M. P. Audyogik Vikas Nigam Ltd (No. 1) [1989] 178 ITR 177 (MP). In all these cases it has been held that deduction under Section 36(1)(viii) has to be granted with reference to the total income as it stood before the deduction allowable under Section 36(1)(viii). The contention that the deduction has to be restricted with reference to the net total income as defined in Section 2(45) of the Act has not been accepted in any of the cases referred to above. Section 36(1)(viii) itself created an exception in this regard by providing that the total income with reference to which deduction is to be computed is the total income computed before making any deduction under Chapter VI-A. Later, by an amendment by the Finance Act, 1985, it was clarified that the total income on which deduction is to be computed is the total income computed before making any deduction under this clause and Chapter VI-A. Thus, the intention of the Legislature never seems to have been that the deduction under Section 36(1)(viii) is to be calculated with reference to the net total income arrived at after allowing such deduction. We, therefore, agree with the view taken by the various High Courts in the aforesaid judgments and answer question No. 4 also in the affirmative, in favour of the assessee and against the Revenue. We further direct that the assessee-respondent will get the costs of this reference from the Commissioner of Income-tax which we assess at Rs. 1,500.
7. Let a certified copy of this judgment be sent to the Registrar of the Tribunal in accordance with Section 260 of the Income-tax Act.