The United Commercial Bank Ltd.,
Calcutta Vs. The Commissioner of Income-Tax, West Bengal  INSC 56 (23 May
BHAGWATI, NATWARLAL H.
AIYYAR, T.L. VENKATARAMA
CITATION: 1957 AIR 918 1958 SCR 79
Income Tax-Business loss of Previous
Year-Set-off against income of the Assessment Year-Income from "interest
on securities"-Banking business-Securities, part of trading assetsIndian
Income-tax Act, 1922 (XI Of 1922), SS.6,8,10, 24(2).
For the assessment year (1945-46) the
assessable income of the appellant bank was computed by the Income-tax Officer
by splitting up its income into two heads " interest on securities "
and " business income ", and deducting the business loss from
interest on securities. In the previous year the assessment showed a loss which
was computed by setting off the " business loss against " interest on
securities The appellant claimed that in the computation of its profits for the
assessment year in question it was entitled to set off the carried over loss of
the previous year under s. 24(2) Of the Indian Income-tax Act, 1922. The
Income-tax Officer rejected the claim on the ground that the loss was under the
head " business " and so could not be set off against income from securities
under S. 24(2) of the Act. Both the Income-tax Appellate Tribunal and the High
Court, on reference, held that in view of ss. 6, 8 and 10 of the Act "
interest on securities " could not be treated as business income and
therefore the appellant could not claim a set-off under S. 24(2). On appeal to
the Supreme Court it was contended for the appellant that (1) ss. 8 and 10
should be so read that where the securities in the hands of an assessee are
trading assets, s. 8 would be excluded, being restricted to capital investments
only, and the matter would fall under the head " business " within s.
10, and (2) in any case, even if the income from securities fell under s. 8,
the appellant would be entitled to a set-off under -s. 24(2) because it carried
on only one business, namely banking, and the holding of securities by it was
part of the said business.
Held, that the scheme of the Indian
Income-tax Act, 1922, is that the various heads of income, profits and gains
enumerated in s. 6 are mutually exclusive, each head being specific to cover
the item arising from a particular source and, consequently, " interest on
securities " which is specifically made chargeable to tax under s. 8 as a
distinct head, falls under that section and cannot be brought under s. 10,
whether the securities are held as trading assets or capital asset," 80
Commissioner of Income Tax v. Chunnilal B. Mehta,  6 I.T.R. 521 Salisbury
House Estate Ltd. v. Fry, (1930) 15 T.
C. 266, Commercial Properties Ltd. v.
Commissioner of Income Tax, Bengal, (1928) 3 I.T.C. 23 and H. C. Kothari v.
Commissioner of Income Tax, Madras,  20
I. T. R. 579, relied on.
The question whether the holding of
securities by the appellant formed part of the same business within S. 24(2),
could not be decided in the absence of a finding that the securities in
question were a part of the trading assets held by the appellant in the course
of its business as a banker, and the case was remitted to the High Court for a
fresh decision on the reference after getting from the Tribunal a fuller
statement of facts.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 161 of 1954.
Appeal from the judgment and order dated, May
18, 1953, of the Calcutta High Court in Income-tax Reference No. 72 of 1951.
N. A. Palkhivala, P. D. Himatsingka, J. B.
Dadachanji, S. N. Andley Rameshwar Nath and P. L. Vohra, for the appellant.
G. N. Joshi and R. H. Dhebar, for the
1957. May 23. The Judgment of the Court was
delivered by KAPUR J.-This appeal brought on a certificate of the High Court
raises a point of far-reaching consequence as to the interpretation of ss. 8,
10 and 24(2) of the Indian Income tax Act (hereinafter termed the Act).
The assessee (who is the appellant before us)
claims that in the computation of its profits for the assessment year under
review (1945-46), it is entitled to set off the carried over loss of the
previous year against the profits of the year of assessment under s. 24(2) of
the Act. The assessee is a Bank carrying on banking business. For the
assessment year its assessable income was computed by the Income Tax Officer at
Rs. 14,95,826 "by splitting up" its income into 2 heads
..................... "interest on securities" and
.................... business income ". " Interest on
securities" in the year of assessment was Rs. 23,62,815 and under the head
" business income " there was a 81 loss of Rs. 8,86,972. After making
the necessary adjustments and deducting the business loss from " Interest
on securities ", the net income was determined at Rs.
14,95,826. In the previous year there was a
loss of Rs. 3,21,929 which was computed by setting off the business loss
against "interest on securities ".
Before the Income-tax Officer the assessee
made its claim on the basis that it was a part of " the business of the
Bank to deal in securities............................. and " that no
distinction should be made between income from securities and income from
business for the purpose of setoff under s. 24 ". It also claimed that it
carried on only one business, namely banking as defined by s. 277F of the
Indian Companies Act in the' course of which the " Bank has to receive
money on deposits and invest such deposits in securities, loans and advances
" and therefore holdings of securities by it could not be treated as its
separate business. The Income-tax Officer was of the opinion that, as there was
a loss under the head " business " its claim could; not be sustained
and hence it could not be set off under s. 24(2) of the Act.
On appeal to the Assistant Commissioner of
Income-tax it was again contended that the assessee was a dealer in securities
and that the two heads of income, " Interest on securities " and
" profits and gains " in banking business could not be treated separately
and were part of the same business of the assessee and therefore it could claim
a set-off under s. 24(2) of the Act. But this contention was repelled. The
matter was then taken to the Income-tax Appellate Tribunal where again the
contention was repeated that the business of the assessee could not be split up
into two heads under " interest on securities " and banking
business". The Tribunal, however, held:
" Reading ss. 6, 8 and 10 it appears to
us that the legislature wanted to keep the income from the two sources as separate.
We are therefore of the opinion that the Income-tax Officer was right in
splitting up the income of the appellant into two heads and in refusing the
set-off of the business loss brought forward 11 82 from last year against
income from Govt. securities earned this year." It therefore did not allow
the loss of the previous year to be set off against the computed profits of the
The assessee thereupon asked for a case to be
stated to the High Court and inter alia raised two questions;
(1) Whether interest on securities was a part
of Bank's income from business carried on by it.
(2) Whether the assessee was entitled to set
off the carried over loss of the previous year against income during the
The assessee contended that it was carrying
on banking business in various towns in India, that " in the usual course
of its business it invests moneys in Securities and receives interest thereon
" and therefore it claimed that the loss of Rs. 3,21,929, carried forward
from the previous year could be set off under s. 24(2) of the Act.
The Tribunal stated the case and sought the
opinion of the High Court on the following three questions;
(1) " Whether on the facts and in the
circumstances of this case, the assessee was entitled to set off the business
loss of Rs. 3,21,929 brought forward from the preceding year against this
year's income from interest on securities held by the assessee.
(2) Whether on the facts and in the
circumstances of this case the assessee was entitled under s. 8 to deduct any
part of the administrative expenses out of the income from interest on
(3) Whether in the circumstances of this
case, the assessee was entitled under the first proviso to s. 8 of the Incometax
Act to deduct any interest on money borrowed and utilised for investment in
tax-free securities." The High Court answered all the questions in the
The learned Chief Justice during the course
of his judgment said:
83 " It appears to me, therefore, that
because the several heads under s. 6 in the Indian Act are mutually exclusive
and because under any Income-tax Law, an item coming under an exclusive head
cannot in any circumstances be charged under another head and also because the
interest on securities in the hands of a banker cannot be treated as business
income on the principles explained by Mr. Justice Rowlatt, I must hold that the
contention of the asesssee.................................. must be
rejected." We had the benefit of a full and able argument from counsel on
both sides. Counsel for the appellant has raised three points:
(1)That ss. 8 and 10 of the Act should be so
read that "interest on securities", in cases where the true nature
and character of the securities in the hands of an assessee is one of trading
assets, would be excluded from the scope of s. 8 and would fall under the head
"business" within s. 10 of the Act and alternatively even if ss. 8
and 10 are read as specific heads then s. 10, being more appropriate, should be
applied to the facts of the present case ;
(2)If ss. 8 and 10 are equally applicable the
assessee has the option to be taxed under that head which imposes a lighter
burden on him; and (3)Lastly he contended that even if the heads of income were
to be taken as mutually exclusive so that the "interest on
securities" falls under s. 8 and "business" under s. 10 of the
Act, the assessee would be entitled to a set-off under s. 24 (2) because
"interest on securities" and "profits and gains" from business
result from different operations of the same business, the two being different
forms of the same business of the assessee.
We may now turn to the scheme of the Act.
Section 2(15) defines "total income" to mean "total amount of
income, profits and gains.................computed in the manner laid down in
the Act." Chapter I of the Act deals with "Charge of
income-tax". It consists of two sections-3 & 4.
Section 3 provides that "income-tax
shall be charged for any year at any rate or rates in 84 accordance with and
subject -to the provisions of this Act." Section 4 provides' that
"the total income of any previous year of any person includes all income,
profits and gains from whatever sources derived".
Chapter 3 deals with "Taxable
income". Section 6 enumerates the heads of income chargeable to incometax.
It says as under :
S. 6 "Save as otherwise provided by this
Act, the following heads of income, profits and gains, shall be chargeable to
income-tax in the manner hereinafter appearing namely (i) Salaries.
(ii) Interest on securities.
(iii) Income from property.
(iv) Profits and gains of business,
profession or vocation.
(v) Income from other sources.
(vi) Capital gains." The two relevant
heads for the purpose of this appeal are (ii) & (iv), i.e., " interest
on securities " and " profits and gains of business" which are
dealt with under ss. 8 and 10 of the Act respectively. Section 8 provides that
" the tax shall be payable by an assessee under the head " interest
on securities " in respect of interest receivable by him on any security
of the Central Government................. and in the provisos to this section
are given the allowable deductions. The amendment made in the proviso by the
Act of 1955 is very relevant for the purpose of this appeal and we &hall
advert to it at a later stage.
Section 10 provides:
" The tax shall be payable by an
assessee under the head " profits and gains of business, profession or
vocation" in respect of the profits or gains of any business, profession
or vocation carried on by him "... The assessee contends that securities
are a part of its trading assets and this position has throughout been accepted
by the Department, and any income which accrues in respect of these assets in
the form of interest 85 has the same characteristics as profits or gains of "
business " and therefore must be treated as income falling under the head
" business " under s. 10 of the Act. In other words the income of the
assessee from its banking business which includes dealing insecurities
is,really income from the same source and whatever accrues in the form of
interest whether from securities or from any other source of investment would
fall under s. 10 and not s. 8 because all the interest accrues from the
business carried on by the assessee and this business is only one business. The
argument thus is that ss. 8 & 10 have to be so construed as to harmonise
with each other and the only way they can be harmonised is that income accruing
in the form of "interest on securities" should be taken to be
accruing from the business of the assessee because securities form part of its
trading assets and thus fall within s. 10 and not s. 8, which must be
restricted to capital investments only. It is further contended that if the
object of the legislature was to give a separate and exclusive identity to the
income from " interest on securities", it would have made the
language of s. 8 of the Act as specific as it has made in the case of income
from dividends from shares, which income by the addition of sub-s. (I-A) to s.
12 has come to have a specific place under the head "other sources"
and is no longer within the head "business" under s. 10 of the Act
and thus by statute its nature and character have undergone a change. Reference
is in this connection made to Commissioner of Income-tax v. Ahmuty & co.
Ltd. (1) where it was held by the High Court of Bombay that dividend income
received by a dealer in shares is chargeable under s. 10 and not under s. 12 of
the Act. It is thus contended that in order to preserve the unity and oneness
of the business of the assessee and to maintain the unity of its business
income the applicability of s. 8 should be circumscribed to "interest on
securities" when they are -not trading assets of the assessee.
According to the scheme of the Act discussed
above incometax has to be charged in respect of the "total (1) (1955] 27
86 income" of the previous year of every
assessee and "total income" is defined under s. 2(15) to comprise all
income, profits and gains from whatever source derived subject to certain
exemptions. Chapter 3 which is entitled "Taxable income" comprises
ss. 6 to 17 (both sections inclusive ).
Section 6 enumerates the various heads of
income, profits and gains which are chargeable to income-tax. Each of these
heads of income, profits and gains is dealt with under a separate section and
these sections also give the details of allowances and exemptions in regard to
each different head.
The argument raised by counsel for the
Revenue is that according to the decision of the Privy Council in Probhat
Chandra Barua v. The King Emperor (1) s. 6 is the charging section and that the
words of ss. 7 to 12 show that the various heads of income are mutually
exclusive and items which specifically fall under these various heads have to
be charged under only that head and would fall under one of these several but
appropriately specific sections. It is true that the Privy Council in Probhat
Chandra Barua v. The King Emperor (supra) did point out that s. 6 was a
charging section, but this was because ss. 3 and 4 were then differently worded
as pointed out by Kania, J., in B.M.
Kamdar, In re (2 ) at p. 43 and by Chagla,
J., in the, same case at p. 57. The Federal Court in Chatturam and others v.
Commissioner of Income-tax, Bihar(3) said:
The liability to pay the tax is founded on
ss. 3 and 4 of the Income-tax Act which are the charging sections".
The judgment of the Privy Council in Wallace
Brothers & Co. Ltd. v. Commissioner of Income-tax (4) also shows s. 3 to be
the charging section.
It is then argued that s. 6 of the Act being
mandatory all items of income, from whatever source they arise, would fall only
under one of the heads enumerated under s. 6 and therefore one of the ss. 7 to
12 would specifically apply and s. 8 which relates to " interest on securities"
must be held to apply to income from that source. It is also contended by
counsel for the (1) (1930) L.R. 57 I.A. 228, 238.
(2)  14 I.T.R. 10.
(3)  15 I.T.R. 302, 308.
(4)  16 I.T.R. 240.
87 Revenue that even if there is any overlapping
between ss. 8 and 10 "interest on securities" whether accruing from
securities held as a capital asset or trading assets falls under s. 8 alone and
s. 10 should be so read as to altogether exclude the income from "
interest on securities".
Counsel for the Revenue has referred us to
the form of the Return, prescribed under s. 22(1) of the Act at the relevant
time of the assessment under review. The heads there shown are (1) Salary, (2)
Interest on securities, (3) Property, (4) Business, profession or vocation, (5)
other sources, and income from each source is to be shown in a separate column,
in each one of which reference is made to a particular note relevant to that
head of income. In the column under the head "interest on securities"
reference is made to note 9 which is in the following words:
"Interest on securities" means
interest on promissory notes or bonds issued by the Government of India or any
other State Government or the interest on debentures or other securities issued
by or on behalf of a local authority or company. The gross amount before
deduction of income-tax should be entered.
Entries under this head should be accompanied
by persons paying the interest under section 18(9) of the Act.
Deductions are allowable in respect of(a)
Commission charged by a banker for collecting the interest.
(b) Interest payable on money borrowed for
the purpose of investment in the securities except certain interest payable to
persons abroad from which tax has not been deducted (see section 8 of the Act
for details). Full particulars (in a separate statement if necessary) should be
given of any deduction claimed." This is a statutory form and it gives
what is meant by " interest on securities ", what documents are to
accompany the Return in order to entitle an assessee to claim refund and what
deductions are to be made." The mandatory character of s. 6 is indicated
by the language employed in that section and the phraseology of all the
sections following, i.e., 7 to 12, employing the words " the tax shall be
payable under 88 the head................... in respect of " the different
and distinct heads of income, profits and gains, salaries " Interest on
securities ", and "property ", business etc. is indicative of
the intention of the legislature making the various heads of income, profits
and gains mutually exclusive. So every item of income, whatever its source,
would fall under one particular head and for the purpose of computing the
income for charging of income-tax the particular section dealing with that head
will have to be looked at. The various sources of income, profits and gains
have been so classified that the items falling under those heads become
chargeable under ss. 7 to 12 according as they are income of which the source
is "salaries') " interest on securities property business, profession
or vocation ", " other sources or " capital gains ". Looked
at thus the contention of counsel for the Revenue that under the scheme of the
Act and on a true construction of these relevant sections" interest on
securities " by whomsoever and for whatever purpose held has to be taxed
under s. 8 and under no other section is well founded and must be sustained. It
being a specific head of chargeability of tax, income from " interest on
securities " whether held as a trading asset or capital asset would have
to be taxed under s. 8 and not under s. 10 of the Act.
The amendment made in the proviso to s. 8 in
the year 1955 allowing a deduction in respect of any remuneration paid to any
person other than the banker for realising interest on behalf of the assessee,
supports this interpretation. Thus this proviso now provides that reasonable
amount can be deducted by an assessee for commission paid to a Bank or
remuneration paid to anybody else for realising interest on its behalf which
clearly indicates the intention of the legislature that interest on securities
specifically falls under s. 8 and under no other section. This amendment shows
that even a Bank, if it buys securities as a part of its trading assets, is entitled
to make a deduction for remuneration paid by it to any person for realising
interest which postulates that "interest on securities" would fall
under s, 8 of the Act, 89 This interpretation receives further support from the
language of s. 18 which deals with payment after deduction at source. Section
18(3) requires a person responsible for paying " interest on securities
" to deduct income tax on the amount of the interest payable at the
maximum rate and the person so responsible is required, after deduction of the
income-tax, to pay to the account of the Central Government within 7 days of
the deduction, the sum so deducted and under s. 18(5) the maximum rate is to be
charged for the year in which the amount is paid and not at the rate of the assessment
A combined reading of ss. 3,4,6, 8,10,18 and
refund section, s. 48, shows that income-tax is to be charged at the rate or
rates prescribed in the Finance Act on the total income of the assessee as
defined in s. 2(15) of the Act and computed in the manner given in as. 7 to 12
which are not charging sections but are provisions for the computation of
" total income ". In the words of Viscount Dunedin in Salisbury House
Estate v. Fry(1):
" Now, the cardinal consideration in my
judgment is that the income tax is only one tax, a tax on the income of the
person whom it is sought to assess, and that the different schedules are modes
in which the Statute directs this to be levied ".
As has been pointed out in that judgment
there are no separate taxes under the various schedules but only one tax.
But in order to arrive at the total income on
which tax is to be charged " you have to consider the nature, the
constituent parts, of his (assessee's) income to see which schedule you are to
apply." If these words may be used with reference to the language of the
Indian Act, we have to look at the source of " income, profits and
gains" and then see under what head it appropriately and specifically
falls and if it falls under one particular head then computation is to be made
under the section which covers that particular head of income. We cannot treat
any one of the sections from ss. 7 to 10 to be general or specific for the
purpose of any one particular source of income. The (1) (1930)15 T.C.266,306.
90 language shows that they are all specific
and deal with the various heads in which the item of income, profits and gains
in the case of an assessee falls.
Sir George Rankin in Commissioner of Income
Tax v. Chunilal B. Mehta(l) said:
" The effect of s. 6 is to classify
profits and gains, under different heads for the purpose of providing for each
appropriate rules for computing the amount; its language is " shall be
chargeable in the manner hereinafter appearing." One of the heads is
" business ", which as a head of income stands alongside salaries,
interest on securities, professional earnings and other sources. True, the
classification of income is according to the character of the source But the
list of " heads in s. 6 is a list of sources not in the sense of
attributing the income to one property rather than another, one business rather
than another, but only in the sense of attributing it to property as distinct
from employment, or business as distinct from investment............ What is to
be learnt from an examination of the language of sub-s. (1) of s. 4-income,
profits and gains, described or comprised in s. 6 from whatever source
derived-is that s. 6 is intended as describing different kinds of profits In
that case the question for decision was whether a resident carrying on business
in India and controlling transactions abroad in the course of such business was
liable to income tax on such transactions, it was held that the profits arising
under such transactions do not arise or accrue in India merely because of
control by the assessee in India. The judgment of the Privy Council shows what
s. 6 of the Act means-each head refers to income, profits and gains
attributable to the source-salary, interest on securities, property, business,
profession etc. This supports the contention of each head being separate,
exclusive and specific.
Decided cases all support the contention of
counsel for the Revenue that the various heads of income enumerated in s. 6 of
the Act and more particularly (1)  6 I.T.R. 521, 529.
91 dealt with in ss. 7 to 12 are exclusive
heads and if an item of income falls under one of these heads then it has to be
treated for the purpose of income tax under that head and no other. In
Salisbury House Estate Ltd. v. Fry (1) the assessee was a limited company which
was formed for the express purpose of acquiring Salisbury House and utilising
it. In this building there were 800 rooms which were let to tenants. The
company also maintained a staff of servants to render various kinds of services
to the occupants of the rooms. The company was assessed to income tax under
Sch. A upon gross valuation of the premises and as the actual rent received was
higher, the Revenue wanted to assess income again under Sch. D. The company
contended that so far as the proceeds of the property were concerned they had
already been taxed under Sch. A and could not again be brought "in
computo" under Sch. D. Viscount Dunedin at p. 306 observed:
" Now, if the income of the assessee
consists in part of real property you are, under the Statute, bound to apply
Sch. A ".
Lord Atkin at p. 319 said:
" the dominance of each Sch. A, B, C
& E over its 'own subject matter is confirmed by reference to the Sections
and Rules which respectively regulate them in the Act of 1842.
They afford a complete code for each class of
income, dealing with allowances and exemptions, with the mode of assessment,
and with the officials whose duty it is to make the assessments. ............
.....................I find no ground for assessing the taxpayer under Sch. D
for any property or gains which are the subject matter of the other specific
Schedules." At p. 320, he pointed out that Sch. D is a residuary Schedule
and all Schedules are mutually exclusive.
Referring to investments in securities he
Income derived by a trading company from
investments of its funds, whether temporary or permanent, in government
securities must be taxed under (1) (1930) 15 T.C. 266.
92 Sch. C, and cannot for the purposes of
assessment under Sch. D be brought into account." This shows that even
though Sch. D is residual all Schedules are mutually exclusive and if income
falls under one Schedule, it must be assessed under that Schedule because the
Schedules are a complete code for each class of income, dealing with,
allowances and exemptions and with the mode of assessment. A significant
passage in the judgment of Lord Atkin (at p. 321) is:
" I find it difficult to say that
companies which acquire and let houses for the purposes of their trade, such as
breweries in respect of their tied tenants, and collieries and other large
employers of labour in respect of their employees, do not let the premises as
part of their operation of trading. Personally I prefer to say that even if
they do trade in letting houses their income so far as it is derived from that
part of their trading must be taxed under Sch. A and not Sch. D." Thus
even though the assessee was a company carrying on business or trade, income
from the head " property " was taxed under Sch. A and not Sch. D.
This case supports the contention that different Schedules being distinctly
applicable to each individual head of income would exclude the applicability of
any other head.
In Butler v. The Mortgage Company of Egypt
Ltd. (1), a British company controlled in Egypt was carrying on business of
lending money on mortgage of land in Egypt or on the security of debentures by
mortgage of land. In case of default the bank could take action in the Egyptian
Courts either to sell the property or to take possession with a view to future
sale. The General Commissioners held that the acceptance of ,securities for
money lent was only an incident of the company's business and that income was
not assessable under Case 4 of Sch. D. The company claimed that the assessment
should be under Case 5 of Sch. D and not Case 4. It was held that the Crown had
the right to tax under Case 4 but even if the assessee satisfies (1) (1928) 13
T.C. 803, 809, 810.
93 that Case 5 is also applicable it was
still for the Crown to decide and tax under Case 4 provided both cases applied
equally. Rowlatt J. said:
"A banker could never ask to be repaid
the tax which had been deducted from the Government securities which he held,
because he held them as a banker, the point being that when you have once got a
security (we will say) the interest on which is taxed by the Act, you cannot
get out of it because you say that you look a little further and see this is
only embedded in a business." It means in terms of the Indian Statute that
in the case of interest on securities if chargeable under a specific section,
the assessee even though he is a banker cannot claim that they be treated as
"business income." in Thompson v. The Trust and Loan Company of
Canada (1), the respondent company carried on business as a loan and finance
company. During the material years the company bought treasury bonds
cum-coupons and on the same day sold bonds of the same nominal value retaining
the coupons and received on encashment a half year's interest under deduction
of income tax. The Crown contended that in computing the Company's profits for
assessment to income tax under Case I of Sch. D there, should be included, as
receipts, the amounts realised by the sale of bonds ex-coupons and the net
proceeds of the coupons and, as disbursements, the amounts paid by the company
for the bonds cum-coupons. But it was held that the interest received by the
company was income of the company taxed by deduction under Sch. C and that no
part of the proceeds of the coupons should be included in the computation of
the company's liability under Sch. D. Rowlatt J. at p. 400 said:
" The Crown cannot treat a transaction
which has its own character for income tax purposes as if it were something of
a different character..." and Lord Hanworth M.R. at p. 406 put the matter
(1) (1932) 16 T.C. 394.
94 Now in the present case it is plain that
this subject matter of tax, government bonds and coupons payable out of the
government funds, have got to be taxed under Sch. C; they cannot be taxed anywhere
else." In Volume I of Simon's Income Tax (1948 Ed.) p. 54 the law is thus
" These Schedules are prima facie
mutually exclusive and consequently if a particular kind of income is charged
under one Schedule the Crown cannot elect to charge it under another."
This is in accord with the decisions discussed above.
The Commercial Properties Ltd. v.
Commissioner of Income tax, Bengal(1) was a case of a registered company whose
sole object was to acquire lands,, build houses and let them to tenants, the
sole business of the company being the management and collection of rents from
the properties. The assessment was made under s. 9 of the Act but the company
claimed that they were carrying on a business assessable under s. 10 and not
under s. 9. The Court held that the company was rightly assessed under s. 9,
its income being derived from its ownership of buildings.
Rankin C. J. said at p. 26:
" In my judgment the words of s. 6 and
s. 9 and s. 10 must be read so as to give some effect to the contrast that is
there made between income, profits and gains from " property " and
from " business " and I entirely refuse my assent to the proposition
that because it happens that the owner of a property is a company which has
been. incorporated for the purpose of owning such property, therefore the
income derived from " property must be regarded as income derived from
business ". In my judgment, income derived from " property is a more
specific category applicable to the present case".
The decision in this case shows that the
ownership of the house property was not considered as "business" and
that income derived from such source would more specifically and appropriately
fall within the head "property".
(1) (1928) 3 I.T.C. 23.
95 The applicability of s. 8 directly arose
and was discussed in H. C. Kothari v, Commissioner of Income-tax, Madras(1).
The assessees in that case had several
sources of income, one of which was interest on securities. The business of the
assessees showed a loss but the assessees claimed earned income relief in
respect of interest on securities on the ground that securities, which they had
purchased and sold as part of their business, formed their stock-in-trade and
the interest therefrom should be treated as "business" profits.
But s. 8 of the Act was held applicable to
the facts of that case.
Satyanarayana Rao, J. said " of the Act
which deals with interest on securities is a separate and distinct head, and if
an income is chargeable under that head, it is not open either to the assessee
or to the department to change the head and claim to tax it under a different
It was also pointed out in this judgment
following Commissioner of Income_tax v. Bosotto Bros. (2) that if income falls
under more than one head the assessee has the option to choose the head which
makes the burden on his shoulders lighter.
The following two cases were relied upon by
the assessee:(1) Mangalagiri Sri Umamaheshwara Gin and Rice Factory Ltd. v.
Guntur Merchants Gin and Rice Factory Ltd. (3) where a limited company
incorporated for the purpose of milling rice leased out the buildings, plant,
machinery etc., to another company for a fixed annual rent. The lessees were to
do the necessary repairs to keep the mill in good working condition and the
lessors were to bear the loss of depreciation. The assessee company claimed the
allowances for depreciation under s. 10(2) (vi) of the Act. It was held that
the company was carrying on the business of letting a rice mill and as such was
entitled to a deduction for depreciation.
The judgment of Krishnan, J., shows that it
was clear from the facts of the case that the company was carrying on business
(1)  20 I.T.R. 579, 587. (3) (1926) 2 I.T.C. 251.
(2)  8 I.T.R. 41.
96 of letting the mill for the purpose of
being worked by lessees and it was under these circumstances that s. 10 washeld
applicable. The other case is Sadhucharan Roy Chowdhry, In re (1) the facts of
which were similar to the facts of Mangalagiri Sri Umamaheshwara Gin and Rice
Factory Ltd. v. Guntur Merchants Gin and Rice Factory Ltd. (supra).
It was held that letting of a Jute Press at
rent was as much a business as the letting of a ship to freight or letting of
motor-car or any other kind of machines or machinery for hire, and therefore
allowances for depreciation were allowed like in Mangalagiri's case (supra).
Neither of these cases throws any light on the question now before us.
The appellant's contention that looking at
the real nature and character of the source of income arising from
"interest on securities" in the case of the present assessee, the
Bank, s. 10 of the Act would apply and not s. 8 can receive no support from the
decision in Davies v. Braithwaite (2).
That was a case where an actress earned her
living by accepting and fulfilling professional engagements, her activities
being acting in stage-plays in England and America, performing for the films
and on the wireless and performing for gramophone companies. These were held to
fall under Sch. D and not E as whatever contracts she made were nothing but
incidents in the conduct of her professional career. The use of the following
words by Sir George Rankin in Commissioner of Income-tax v. Chunilal B. Metha
But the list of "heads" in s. 6 is
a list of sources not in the sense of attributing the income to .............
one business rather than another but only in the sense of attributing it to
business as distinct from investment." is no surer foundation for saying
that " interest on securities " is severable into income from
securities held as a capital investment and income from those held as trading
The language of ss. 6, 8 and 10 is
destructive of any such contention.
(1)  3 I.T.R. 114.
(2)  2 K.B. 628.
(3)  6I.T.R. 521, 529.
97 Thus on a true construction of the various
sections of the Act the income of an assessee is one and the various ss. 7 to
12 are modes in which the Statute directs that income-tax is to be levied and
these sections are mutually exclusive.
The head of income of which the source is
" interest on securities " has its' characteristics for income-tax
purposes and falls under the specific head covered by s. 8 of the Act, and
where an item falls specifically under one head it has to be charged under that
head and no other.
This interpretation follows from the words
used in ss. 6, 8 and 10 which must be read so as to give effect to the contrast
between " income, profits and gains " chargeable under the head
" interest on securities " and income, profits and gains " chargeable
under the head business ".
Thus on this construction the various heads
of " income, profits and gains " must be held to be mutually
exclusive, each head being specific to cover the item arising from a particular
source. It cannot, therefore, be said that qua the assessee in the present case
and for the purpose of securities held by it, s. 8 is more specific and s. 10
general or vice-versa, and therefore no question of the applicability of the
principle " generalia specialibus non derogant " arises. This finds
support from the decided cases which have been discussed above. Thus both on
precedent and on a proper construction, the source of income " interest on
securities " would fall under s. 8 and not under s. 10 as it is
specifically made chargeable under the distinct head " interest on
securities " falling under s. 8 of the Act and cannot be brought under a
different head even though the securities are held as a trading asset in the
course of its business by a banker. In this view of the matter no question of
exercise of option by the assessee or the Revenue arises. Consequently Lord
Shaw's observation in The Liverpool and Land Globe Insurance v. Bennett (1):
" It appears to me that this selection
is not only justified in law but is founded upon the soundest and most
elementary principles of business," (1) (1913) 6 T.C. 327, 376.
98 will be inapplicable to the facts of the
present case, and so also the rule as to choosing the head which imposes on the
assessee's shoulders burden which is highter as given in Commissioner of
Income-tax v. Bosotto Bros., (supra) and reiterated in H. C. Kothari v.
Commissioner of Income-tax, Madras (supra).
To the third point raised by counsel for the
assessee that even if interest on securities falls under s. 8 of the Act and
not under s. 10 the assessee is entitled to 'Yet a setoff under s. 24(2) of the
Act, counsel for the Revenue has taken the objection that this plea is not
available to the appellant because it was not placed before the Income Tax
Appellate Tribunal for being referred to the High Court nor was it raised
before the High Court. How the question was specifically raised before the
Income Tax Officer and the Appellate Assist. ant Commissioner and also before
the Income Tax Appellate Tribunal has already been mentioned.
In its application to the Tribunal for
stating the case to the High Court the assessee specifically raised in two
suggested questions its right to set off the business loss of Rs. 3,21,929
brought forward from the previous year against the income of the assessee in
the assessment year.
It does not appear from the judgment of the
High Court that the question was argued in the manner it has been debated in
this court. The appellant seems to have rested his case on the applicability of
s. 10 to the profits under the head "interest on securities" because
of the securities being trading assets but this contention was repelled and the
same question has been raised before us but the assessee now supports his case
on an alternative argument that even if the securities fall under s. 8 still
the profits from that source are from an item of the assessee's business and
therefore the loss of the previous year from the banking business of the
assessee can be set off against the profits of the assessment year whatever be
the source of that profit. The case is similar to the one in Commissioner of
Income-tax v. Messrs. Ogale Glass Works Ltd. (1). The question framed by the
Tribunal is a general one and what is to be determined is whether (1)  1
S.C.R. 185, 196, 198.
99 the loss of the previous year can be set
off against the income of the assessment year within the provisions of s. 24(2)
of the Act. The question is wide enough to cover the point raised before us. In
the circumstances of this case the third point, raised by counsel for the
assessee, is open to be canvassed before us.
Counsel for the Revenue contends that the
words used in s. 24(2) were " the same business " and therefore this
set-off would be allowable only against any profits or gains of the game
business and no other business. He further contends that the scheme of s. 24(1)
and (2) shows that profits and gains must be arising under s. 10 and not under
any other section because the expression used is profits or gains which goes
with " business " under s. 10 and cannot have reference to income,
profits and gains arising from interest on securities " which are under s.
8 of the Act.
Counsel for the assessee on the other hand
submits that the use of the word " same " signifies the identity of
the business in which the loss has occurred and has no reference to the head
under which the profits are chargeable. In other words interest does not cease
to be profits and gains of the same business merely because for the purpose of
chargeability it falls under a different head, i.e., under s. 8 and not under
s. 10. Section 24 of the Act deals with the set-off of loss in computing the
He also contends that the business which the
assessee was carrying on was the business of dealing in money and credit and
that banking and dealing in securities constitute one and the same business. He
refers to s. 277 F of the Indian Companies Act and relies on the Privy Council
decision in Punjab Co-operative Bank Ltd. v. The, Commissioner of Income-tax,
Punjab(1) in which it was pointed out that in the ordinary case 'of a bank the
business consists in its essence of dealing with money and credit. The banker
has always to keep enough cash or easily realisable securities to meet any
probable demand by depositors, and if some of the securities are realised to
meet (1)  8 I.T.R. 635.
100 withdrawals by depositors, this is
clearly a normal step in carrying on the banking business. It is an act done in
what is truly carrying on of the banking business.
In view of the order we propose to make, we
do not find it necessary to express any opinion on the respective contentions
raised by counsel for the parties. In Punjab Co-operative Bank's case (supra) a
finding had been given that the purchase and sale of securities was as much the
assessee's business as receiving deposits from clients and withdrawals by them.
In the case before us no such finding has been given and in the absence of such
finding no opinion can be given as to whether the holding of securities out of
which interest was derived formed part of the same business within s. 24(2) or
The appeal would therefore, be allowed and
the case remitted to the High Court for a fresh decision of the reference after
getting from the Tribunal a fuller statement of facts about this part of the
case, whether the securities in question were a part of the trading assets held
by the assessee in the course of its business as a banker.
The costs of this appeal will be costs in the
reference before the High Court.
Appeal allowed. Case remitted.