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Supreme Court asks Madras High Court to check legality and validity of Section 40(a)(iib) of Income Tax Act,1961

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Supreme Court Bench of Justices Ashok Bhushan, R Subhash Reddy and MR Shah in writ Petition filed by Tamil Nadu State Marketing Corporation Limited (TASMAC) against the order of Madras High Court directs High Court to decide the Constitutional validity of Section 40(a)(iib) of Income Tax Act, 1961.

Petitioner submitted before Supreme Court Bench that the said provision is discriminatory and violative of Article 14 of the Constitution   of   India,   inasmuch   as   there   are   many   Central Government undertakings which have not been subjected to any such computation of income tax and are enjoying exemption.

Supreme Court stated, at this stage it is required to be noted that a show cause notice was issued by the assessing officer for the Assessment Year 2017­18 stating that the VAT   expense levied on thevappellant is an exclusive levy by the State Government and therefore squarely covered by Section 40(a)(iib) of the Income Tax Act and therefore VAT expenditure is not allowable as deduction in accordance with Section 40(a)(iib) of the Income Tax Act, while computing the income of the appellant.  

That the assessing officer finalised the assessment and passed the assessment order for the Assessment Year 2017­-18 vide order dated 30.12.2019.

Supreme Court in its order said, “We are of the firm opinion that the impugned judgment and order passed by the High Court is not sustainable at all. The High Court ought to have decided the issue with regard to vires of Section 40(a)(iib) on merits, irrespective of the fact whether the matter was sub -judice before the Income Tax Authority,”.