Circular No. 341

Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120

What this is

Circular No. 341 was issued by the Central Board of Direct Taxes on 10 May 1982. Its subject is Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120.

What it does

Fixes the cut-off year for the gross income basis of the section 80MM deduction. The Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT had observed that the deduction under section 80MM is to be worked out on gross income. Section 80AB, inserted by Finance (No. 2) Act, 1980, requires it to be worked out on net income, and was made effective from 1 April 1981 and not retrospectively. The Board therefore clarifies that the Supreme Court's judgment applies to assessments up to and including assessment year 1980-81.

Why it was issued

To tell officers how the judgment and the new section 80AB fit together, the section having been given prospective effect only.

Who it reaches

Assessees claiming deduction under section 80MM for assessment year 1980-81 and earlier
Assessees claiming it for assessment year 1981-82 onwards, who are on the net income basis
Assessing Officers computing Chapter VI-A deductions across the change
Appellate authorities with pending matters straddling the two positions

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80AB	s.122
s.80MM	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Effect of decision of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120

Reference is invited to the judgment of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243/[1979] 1 Taxman 335, where it was observed that the amount of deduction under section 80MM should be worked out with reference to gross income. Section 80AB, inserted by the Finance (No. 2) Act, 1980, provides that the deduction under section 80MM should be worked out with reference to net income. Section 80AB has been made effective from April 1, 1981, and not retrospectively. It is, therefore, clarified that the judgment of the Supreme Court applies to assessments up to and inclusive of the assessment year 1980-81.
Circular : No. 341 [F. No. 167/231/74-IT(A-I)], dated 10-5-1982.

What to watch

The dividing line is assessment year 1980-81: gross income basis up to and including it, net income basis from assessment year 1981-82 on the strength of section 80AB.
Section 80AB was not made retrospective, which is the whole reason the earlier years keep the gross basis.
The circular speaks to section 80MM; section 80AB by its terms reaches the other deductions in that Chapter as well.
The published heading on this record cites a later Supreme Court decision that the circular's own text does not mention; the case the circular names is Cloth Traders (P.) Ltd.

Where you meet it

In an old assessment or appeal on a Chapter VI-A deduction where the department computes it on net income for a year before assessment year 1981-82.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 360 — Clarification 1 16 May 1983
Circular No. 140 — Section 80MM l Royalties, ETC., Received from ANY Concern in INDIA 6 July 1974
Circular No. 124 — Section 80MM l Royalties, ETC., Received from ANY Concern in INDIA 13 November 1973

← Circular No. 342 · Circular No. 339 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.