K.S. Paripoornan, J.
1. The applicant, Kerala State Industrial Development Corporation Ltd., Trivandrum, is an assessee to income-tax. The respondent is the Revenue. We'are concerned with the assessment year 1976-77. The assessee is a wholly State-owned company. For the assessment year 1976-77, the Income-tax Officer allowed a sum of Rs. 3,04,156 as a deduction under Section 36(1)(viii) of the Income-tax Act. The total income computed by him before the allowance of this deduction and the deduction under Section 80G of the Act was Rs, 30,41,567. The Income-tax Officer held that the assessee is entitled to 10% of the total income of Rs. 30,41,567 by way of deduction under Section 36(1)(viii) of the Act, before the allowance of relief under Chapter-VIA. The Commissioner of Income-tax took the view that the order of assessment so passed by the Income-tax Officer dated August 22, 1979, is prejudicial to the interests of the Revenue. According to the Commissioner, Section 36(1)(viii) of the Income-tax Act clearly directed computation of the allowance before making any deduction under Chapter VI-A and so this necessarily implied that whatever deduction was intended by the Legislature was expressly specified therein and the intention of the Legislature not to make the deduction under Section 36(1)(viii) also, as in the case of the allowance under Chapter VI-A, clearly showed that the allowance under Section 36(1)(viii) had to be deducted while computing the allowance envisaged thereunder. In other words, the deduction to be allowed under Section 36(1)(viii) of the Act was after reckoning the allowance permissible under Section 36(1)(viii) of the Act and deducting the same also. This was so said on the basis that the only specification made was that the deduction should be computed before making any deduction under Chapter VI-A of the Act. On appeal by the assessee, the Income-tax Appellate Tribunal upheld the said order passed by the Commissioner of Income-tax in revision. Thereafter, on a motion by the assessee, the Appellate Tribunal has referred the following questions of law for the decision of this court:
'1. Whether, on the facts and in the circumstances of the case, the deduction referred to in Section 36(1)(viii) of the Act envisages 10% of the total income after deduction of the amount as allowed
2. Whether, on the facts and in the circumstances of the case, the clarification/opinion given by the Central Board of Direct Taxes in their letter F.No. 204/35/73/ITA-II, dated 12th November, 1973, to the Ministry of Finance of the Government of India that the deduction envisaged in Section 36(1)(viii) is on the total income computed before making any deduction under Chapter VI-A and before making any deduction under Section 36(1)(viii) is not binding on the subordinate authorities as an instruction under Section 119 of the Act ?'
2. We heard counsel for the applicant/assessee, Mr. K.P. Balasubramonian, as also counsel for the Revenue, Mr. P. K. R. Menon. Section 36(1)(viii) of the Income-tax Act runs as follows :
'36. (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 or agricultural development in India,
an amount not exceeding-
(a) in the case of a Financial Corporation or a Joint Financial Corporation established under the State Financial Corporations Act, 1951 (63 of 1951), or an institution deemed under Section 46 of that Act to be a Financial Corporation established by the State Government for the State within the meaning of that Act, forty per cent.,
(b) in the case of any other financial corporation,--
(i) where the paid-up share capital of the corporation does not exceed three crores of rupees, twenty-five per cent.,
(ii) where the paid-up share capital of the corporation exceeds three crores of rupees, ten per cent.,
of the total income (computed before making any deduction under Chapter VI-A) carried to such reserve account; Provided that the corporation is for the time being approved by the Central Government for the purposes of this clause ;'
3. The Patna and Madhya Pradesh High Courts have held that the statutory deduction under Section 36(1)(viii) of the Income-tax Act, 1961, available to certain financial corporations providing long-term finance is to be calculated on the total income before deduction of the amount allowable under Section 36(1)(viii). It has been held that the deduction referred to in Section 36(1)(viii) of the Act envisages 10% of the total income, and not 10% of the total assessed income, before deduction of the amount so allowed. (See CIT v. Bihar State Financial Corporation : [1983]142ITR518(Patna) ; CIT v. Bihar State Financial Corporation : [1983]142ITR519(Patna) ; CIT v. Bihar State Financial Corporation : [1986]159ITR275(Patna) and CIT v. M. P. Financial Corporation : [1989]180ITR327(MP) ). We concur with the reasoning and conclusion in the said decisions.
4. In the light of the above, we hold that the Income-tax Appellate Tribunal erred in law in holding that the deduction contemplated under Section 36(1)(viii) of the Act is a percentage of the total income arrived at after making the deduction under the said section. Therefore, we answer question No. 1 in the negative--against the Revenue and in favour of the asses-see. We hold that the deduction should be allowed on the total income before deduction of the amount allowable under Section 36(1)(viii) of the Act.
5. Before the Tribunal, the assessee had relied on the circular letter written by the Assistant Chief Officer of the Industrial Finance Department of the Reserve Bank of India to the State Financial Corporations, wherein reference has been made to a communication of the Central Board of Direct Taxes dated November 12, 1973, to substantiate its plea that it is entitled to deduction of 10% of the total income and not of the total assessed income. The Appellate Tribunal adverted to a portion of the said communication of the Central Board of Direct Taxes and also referred to the plea of the Revenue that the above instructions have been withdrawn subsequently and at the time of making the assessment, the original instructions were not in force. The Appellate Tribunal also held that the said communication of the Central Board of Direct Taxes will not have the force of a circular issued by the Central Board of Direct Taxes under Section 119 of the Act and so cannot be said to be binding on the income-tax authorities. Question No. 2 relates to the said aspect that was argued before the Appellate Tribunal. We are not in a position to adjudicate or pronounce upon the question for more reasons than one. The clarification or opinion given by the Central Board of Direct Taxes in their letter dated November 12, 1973, does not form part of the paper book. A copy of the said letter was not placed before us. The Appellate Tribunal has only referred to a portion of the said communication. Only if the full text of the said communication is part of the paper book or is made available to us, on consent of both parties, it will be possible for us to say whether the said communication can be considered to be a circular issued by the Central Board of Direct Taxes under Section 119 of the Income-tax Act and its legal effect orimpact. In the absence of basic materials on that score, we decline to answer question No. 2 referred to us by the Appellate Tribunal.
6. Question No. 1 is answered in favour of the assessee and against theRevenue.
7. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarde to the Income-tax Appellate Tribunal, Cochin Bench.