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2012 (7) TMI 591 - HC - Income TaxDisallowance u/s 14A - Revenue contented that once deduction stands allowed, the "income" in view of the deduction ceases to be a part of the total income - Section 14A applicable in respect of deduction allowed under chapter VI-A? - Held that:- Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words "do not form part of the total income under this Act" is significant and important - Before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced. Incomes in Chapter III are not chargeable to tax and, therefore, fall outside the ambit of Sections 4 and 5 but while computing the taxable income, deductions are allowed to the extent stipulated in Sections 80C to 80U. The distinction between the two, has been accepted and recognized by the Supreme Court in Second Income Tax Officer and Another v. Stumpp Schuele and Somappa Private Limited [1990 (9) TMI 69 - SUPREME COURT] - deduction if allowed does not mean that the said income ceases to be part of the total income - the income on which the deduction is allowed forms a part of the total income, though not included in the amount or quantum on which tax is paid - in favour of assessee.
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