Commissioner of Income-Tax, Kerala Vs.
South Indian Bank Ltd. Trichur [1965] INSC 257 (23 November 1965)
23/11/1965 SUBBARAO, K.
SUBBARAO, K.
SHAH, J.C.
SIKRI, S.M.
CITATION: 1966 AIR 1541 1966 SCR (2) 674
CITATOR INFO:
R 1979 SC1691 (9) E&D 1985 SC1585 (5)
ACT:
Indian Income-tax Act, 1972, s. 8--Interest
on securities--Claim of rebate under notification issued under s. 6OA--Rebate
whether to be allowed after deduction of amount spent in earning the interest.
HEADNOTE:
The respondent was a banking company. During
the accounting year for the assessment year 1956-57 the Bank received a certain
sum towards interest in respect of tax free securities, and claimed rebate for
the whole amount under the notification issued by the Central Government in exercise
of its power under s. 60-A of the Indian Income-tax Act, 1922. The Income-tax
Officer however, while completing the assessment allowed rebate only on the
amount of interest that remained after deduction of sums expended by the
assessee in realising the said interest and the interest payable on the money
borrowed for the purpose of investment.
The Appellate Assistant Commissioner upheld
the order of the Income-tax Officer but the Tribunal held that the respondent
was entitled to rebate on the gross amount of interest. In reference, a
Division Bench of the High Court upheld the Tribunal's view; the Commissioner
of Income-tax appealed to this Court.
It was contended for the Revenue that the
exemption under the third proviso to s. 8 was only in regard to that part of
the interest which was taxable but for the exemption. The further contention
was that the notification issued by the Central Government under s. 60-A of the
Income-tax Act did not enlarge the scope of the exemption but that the said
notification must be construed only in terms of s. 8 of the Income-tax Act.
HELD : The notification had to be construed
on its own terms in its application to the question of rebate raised in the
present case. It is not intended to cover the same ground occupied by s. 8, and
there is no scope for controlling the provisions of the notification with
reference to s. 8. The expression 'interest receivable on income-tax free
loans' in the notification is clear and unambiguous, and can only mean the
amount of interest calculated as per the terms of the securities. It cannot
obviously mean interest receivable minus the amount spent in receiving the
same. No income-tax was therefore payable in respect of the interest by the
assessee from the securities in question. [677 E-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 842 of 1964.
Appeal by special leave from the judgment and
order dated February 19, 1963 of the Kerala High Court in Income- tax Referred
Case No. 23 of 1962.
R. Ganapathy Iyer and B.R.G.K. Achar and R. N.
Sachthey, for the appellant.
675 A. V. Viswanatha Sastri and R.
Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by
Subba Rao, J. The respondent, the South India Bank Limited, Trichur, is a
banking company. This appeal is concerned with the assessment year 1956-57,
corresponding previous year being the calendar year 1955. During the accounting
year the Bank received a sum of Rs. 44,720/- towards interest in respect of
taxfree Cochin and Travancore Securities. During the course of the assessment
of its income to tax, it claimed that rebate should be allowed on the entire
sum of Rs. 44,720/- received as interest from the said securities. But, the
Income-tax Officer, while completing the assessment, arrived at the figure of
Rs.
33,444/- as the sum representing two items,
viz., (i) reasonable sum expended by the assessee in realizing the said
interest; and (ii) the interest payable on the money borrowed for the purpose
of investment. After deducting the said sum from the interest receivable from
the said securities, he granted only a sum of Rs. 7,276/- as rebate for
income-tax. On appeal, the Appellate Assistant Commissioner upheld the view of
the Income-tax Officer. On a further appeal, the Income-tax Appellate Tribunal,
Madras Bench, held that the Bank was entitled to a, rebate on the gross amount
of interest amounting to Rs. 44,720/-. At the instance of the Department, the
Tribunal referred the following question to the High Court of Kerala for its
decision :
"Whether, on the facts and circumstances
of the case, the Tribunal was right in holding that Explanation to section 8 is
not applicable in this case and that the entire interest of Rs. 44,720/- earned
by the assessee from securities issued by the former Native States, etc. is
entitled to rebate of income-tax." A Division Bench of the High Court
expressed the opinion that the entire interest of Rs. 44,720/- was entitled to
rebate for income-tax under the notification issued by the Central Government
in exercise of its powers under s. 60-A of the Indian Income-tax Act, 1922.
Hence the appeal.
Mr. R. Ganapathy Iyer, learned counsel for
the Revenue, argued that under s. 8 of the Indian Income-tax Act, income- tax
was computed under the head "interest on securities" in respect of the
interest received by an assessee on any government securities minus the
expenditure incurred by him to realise the same in 676 terms of the first
proviso and the Explanation thereto, that when under the third proviso the
assessee was exempted from paying tax on the interest receivable on any
securities of State Government issued income-tax free, he was only exempted
from such tax payable by him if it was not so exempted. To put it differently,
his argument was that the exemption under the third proviso was only in regard
to that part of the interest which was taxable but for the exemption. His
further contention was that the notification issued by the Central Government
under s. 60A of the Income- tax Act did not enlarge the scope of the exemption
but that the said notification must be construed only in terms of S. 8 of the
Income-tax Act.
Mr. A. V. Viswanatha Sastri, learned counsel
for the respondent, argued that the substantive part of S. 8, read with the
first proviso and the Explanation thereto, had no application to securities
issued income-tax free and that the interest from the State Government
securities was governed by the third proviso which did not provide for any
deduction from the interest receivable from such securities for the purpose of income-tax.
Further he sought to sustain the order of the High Court on the ground that the
interest in question was solely governed by the notification issued by the
Central Government whereunder the entire interest receivable from such
securities was exempted from income- tax.
As we agree with the High Court on the
construction of the notification issued by the Central Government, we do not
propose to express our opinion on the rival contentions of the parties based
upon the provisions of s. 8 of the Income- tax Act.
Section 8 of the Income-tax Act provides for
the computation of income and deductions therefrom under the head
"interest on securities". Section 60 of the Act confers a power on
the Central Government to make an exemption, reduction in rate, or other
modifications in respect of income-tax in favour of any class of income or in
regard to the whole or any part of any income of any class of persons. This
power is conferred on the Government to meet special situations de hors s. 8.
If s. 8 of the Income- tax Act makes an exemption in respect of a particular
income, there is no scope or occasion for invoking the special power conferred
on the Central Government under S.
60A of the Income-tax Act. Unless we accept
the contention that the notification under S. 60A was issued by the Central
Government in superabundant caution to cover the same ground occupied by s.
8-we need not attribute any such redundancy to the Central Government-we do not
see any reason why the notification should not be construed on its own 677
terms in its application to the question of rebate raised in this, case. The
said notification reads :
"No income-tax shall be payable by an
assessee on the interest receivable on the following income-tax free loans
issued by the former Government of Travancore or by the former Government of
Cochin, provided that such interest is received within the territories of the
State of Travancore-Cochin and is not brought into any other part of the
taxable territories to which the said Act applies.
Such interest shall, however, be included in
the total income of the assessee for the purposes of Section 16 of the Indian
Income- tax Act, 1922 It is common case that this notification applies to the
securities in question. It will be noticed that this notification does not
refer to the provisions of s. 8 of the Income-tax Act at all. It gives a total
exemption from income-tax to an assessee in respect of the interest receivable
on Income-tax ' free loans mentioned therein. It gives that exemption subject
to two conditions, namely, (i) that the interest is received within the
territories of the State of Tranvancore-Cochin, and (ii) that it is not brought
into any other part of the taxable territories. It includes the said exempted
interest in the total income of the assessee for the purpose of s. 16 of the
Income-tax Act.
Shortly stated, the notification is a
self-contained one; it provides an exemption from income-tax payable by an
assessee on a particular class of income subject to specified conditions.
Therefore, there is no scope for controlling the provisions of the notification
with reference to s. 8 of the Income-tax Act. The expression "interest
receivable on income-tax free loans"' is clear and unambiguous. Though the
point of time from which the exemption works is when it is received within the
territories of the State of Travancore-Cochin, what is exempted is the interest
receivable. "Interest receivable" can only mean the amount of
interest calculated as per the terms of the securities.
It cannot Jr obviously mean interest
receivable minus the amount spent in receiving the same. We, therefore, hold,
agreeing with the High Court, that no income-tax is payable in respect of the
entire interest of Rs. 44,720/- earned by the assessee from securities issued
by the former native States.
In the result, the appeal fails and is
dismissed with costs.
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