Commissioner
of Income Tax, Bombay Vs. M/S. Banque Nationale De-Paris
[1997] INSC 332 (21 March 1997)
S.C.
AGRAWAL, G.B. PATTANAIK
ACT:
HEADNOTE:
J U D
G M E NT PATTANAIK, J.
This
appeal by special leave is against the judgment of the Bombay High Court in
Income Tax Reference No. 86 of 1970. At the instance of the Revenue on an
application being filed under Section 256(1) of the Income Tax Act, 1961, the
Tribunal referred the following two questions to the High court for being
answered and the High Court answered both the questions in the affirmative in favour
of the assessee and against the Revenue.
The
two questions are:- "(1) Whether, on the facts and in the circumstances of
the case, Income by way of any "interest on securities" received from
Government could be excluded in the computation of chargeable profits in terms
of Clause (x) of Rule 1 of the First schedule too the super profits Tax Act,
1963.
(2)
Whether , on the fact and in the Circumstances of the case , the Tribunal was
right in holding that only the proportionate interest of Rs. 5,19,804/- on
borrowings should be deducted from the interest amount of Rs. 12,93,828/-
received by the assessee from the Indian concerns, and not the whole of the
interest amount of Rs. 10,12,252/- paid by the assessee to various parties, in
order to determine the net interest income for the purposes of exclusion from
the chargeable profits in terms of Clause(X) of Rule 1 of the First Schedule to
the super profits Tax Act, 1963." The short facts leading to the questions
being referred are that the assessee M/s. Banque Nationale De-Paris is a
non-resident company and admittedly it had not made any arrangement for
declaration of payment of dividends in India during the calendar year 1961. A sum of Rs. 2,18,802/- which the assessee
had received towards interest on securities had been included in the assessee's
total income for the purpose of assessment. The assessee's contention was that
the super profits Tax assessment made by the Departmental Authority is
erroneous as the assessee was entitled to exclusion of the aforesaid interest
amount in computing the chargeable profits in accordance with Clause(X) Rule I
of the First Schedule of the super Profits Tax Act, 1963, as the entire
interest amount had been received from the Government. Since the super profits
Tax officer did not exclude the aforesaid amount as contended by the assessee
the matter was carried in appeal to the Appellate Assistant Commissioner. The
said Appellate Authority was of the opinion that the interest on security
received from the Government was to be excluded from the chargeable profits for
the purpose of super profits Tax assessment in accordance with clause X Of Rule
I of the First Schedule of the super profits Tax Act but the said Assistant
Commissioner Came to the Conclusion that the figure of income from interest on
security which the assessee claimed to be deducted in computing the chargeable
profits is not correct and it accordingly reduced the same to Rs. 18,904/- in
respect of interest on borrowings and Rs. 19,333/- in respect of other
expenses. According to the Appellate Authority the net amount of interest on
securities is Rs. 37,683/- which should be excluded from the chargeable
profits. The Department filed the appeal before the Tribunal against the
aforesaid order to the Authority contending that the interest on security can
not be excluded in computing chargeable profits for super Profits Tax purposes
as Clause X of Rule I of the First Schedule does not apply to the interest on
government securities. According to Revenue the interest in securities to be
excluded from the Chargeable profits has been dealt with under Clause VI of
Rule I of First Schedule and, there fore, the decision of the Appellate
Authority is incorrect. The Tribunal , however, rejected the contention of the
revenue and held that interest received by non-resident company from whatever
source and from the Government or Local Authority or any Indian concern would
be deductable under Clause X of Rule I of First schedule and, therefore, the
Appellate Authority came to the correct conclusion law. It, therefore ,
dismissed the appeal filed by the Revenue and on these facts the first question
was referred to the High Court which the High Court also answered in favour of
the assessee and against the Revenue.
The assessee
during the relevant period had also received a sum of Rs. 12,93,822/- by way of
interest on advances given to Indian concerns. The total amount of interest
which the assessee received from various sources was Rs. 25,19,560/- The assessee
before the super profits Tax officer had claimed the deduction of entire Rs. 12,93,822/-
which it had received by way of interest on advances given to Indian concerns.
The super profits Tax officer in computing the income the income by way of
income from Indian concerns arrived at the figure of Rs. 1,16,617/- . The super
profits Tax officer was of the view that the interest to be excluded from the
chargeable profits is the net amount of interest after deducting the interest
which the assessee paid to its depositors and creditors as well as after
deducting other proportionate expanses and thus the said super profits Tax
officer determined that the net income by way of interest to be excluded from
the chargeable profits on this head is Rs. 1,61,617/-. The assessee then
carried the matter in appeal to the Appellate Assistant Commissioner who came
to the conclusion that the interest which the asessee received from Indian
concerns to the extent of Rs. 12,93,828/- should be reduced by that proportion
of the interest which the assessee himself had received from Indian concerns
bears to the total interest receipt of the assessee. According to the Appellate
Authority such proportion would work out at Rs. 5,19,804/- and the
proportionate expenses is Rs. 5,51,207/- which together would work out at Rs.
10,71,011 /- and this amount should be deducted from the gross interest
receipts of Rs. 12,93,828/- and therefore , the Appellate Authority worked out
the net amount of interest received by the assessee from Indian concerns at Rs.
2,22,817/- which amount should be excluded from the chargeable profits. Against
the aforesaid decision the Revenue felt aggrieved and carried the matter the
second appeal. The Tribunal came to the conclusion that the formula adopted by
the Appellate Assistant Commissioner was extremely fair and no exception could
b taken to it and ultimately did not interfere with the order of the Tribunal
and on these set of facts and conclusions the second question was referred by
the Tribunal and on these set of facts and conclusions the second questions was
referred by the Tribunal.
After
arguing for considerable period Dr. Gauri Shanker, Learned senior counsel
appearing for the appellant did not press the second question and, therefore we
are not required to deal with the said question in this appeal. Dr. Gauri shanker,
learned senior counsel appearing for the Revenue, however, so far as the first
question is concerned, contended that under section 4 of the super profits Tax
Act, a super profit Tax is to be charged on every company on the amount on
which the chargeable profits of the previous Year exceeds the standard
deduction at the rate specified in the IIIrd schedule. The Chargeable profit
has been defined under section 2(5) to mean the total income of an assessee
computed under the Income Tax Act. 1961 for any Previous year and adjusted in
accordance with the provisions of the First Schedule. First Schedule Provides
the rules for computing the chargeable profits and in making such computation
it stipulates that while computing the total income for the year in question
under Income Tax Act certain amount as indicated in different clauses of Rule I
are to be Excluded. Rule I therefore provides :
"Income,
profits and gains and other sums falling within the following clauses shall be
excluded from such total income"...........
Since
Clause VI indicates that the income chargeable under the Income Tax Act Under
the head "interest on Security" it is that clause which is applicable
and not clause X as has been applied by the Appellate Authority and confirmed
by the Tribunal and even the High court has answered the question framed in favour
of the assessee.
Mr. Ganesh.
learned counsel appearing for the assessee on the other hand contended that the
assessee being a non- resident company and clause X having made it clear that
income by way of any interest which the company and clause X having made it
clear that income by way of any interest which the company receives from any
Government or local authority or Indian concern, it is Clause X that would
apply and , therefore, the High court has not committed any error in answering
the question posed in favour of the assessee.
For
better appreciation of point in issue it will be appropriate to extract Clauses
VI and X in extenso;- "(VI) income chargeable under the Income -Tax Act
under the head "interest on securities" derived from any security of
the Central Government issued or declared to be income-Tax free or from any
security of a state Government issued income-tax free, the income -tax whereon
is payable by the state Government issued income-tax free, the income-tax
whereon is payable by the state Government:
(X) in
the case of a non-resident company which has not made the prescribed
arrangements for the declaration and payment of dividends within India, its
income by way of any interest or fees for rendering technical services received
from Government or a local authority or any Indian concern;" The question
that arises for consideration, therefore , is that in computing the chargeable
profits of the assessee of a previous year from the total income computed for
the year under the Income Tax Act the adjustment would be made in the case of
the assessee in accordance with Clause VI or Clause X. According to Mr. Ganesh,
the learned counsel appearing for the respondent the expression "any
interest" in clause X is of widest ambit and cover every type of income by
way of interest of a non-resident company and in that view of the matter there
is no justification to give a restrictive meaning to the aforesaid expression
"any Interest" to mean interest other than those covered under Clause
VI. The learned counsel also urged that the court in interpreting a particular
provisions of a statute need not add or subtract words into it if the meaning
of the Provision is clear and it is only when there is any ambiguity or
absurdity in giving plain meaning of a word of statute it will be Permissible
for a court to add words into it. This being the principle of interpretation and
there being no ambiguity in clause X it would not be permissible for the court
to interpret the said Clause X by inserting the words "other than the
interest " on securities derived from any security of the central
Government or state Government after the expression "any interest" in
Clause X. According to Mr. Ganesh, learned counsel Clause X being a specific
clause dealing with the case of a non-resident company the said Clause should
apply and not the general clause in clause VI. Dr. Gauri Shanker , Learned
senior counsel appearing for the Revenue on the other hand contended, that the
rule Of schedule II of super Profits Tax Act provides the method of computing
the chargeable profits of an assessee of a previous year an while the total
income for the previous year under the Income Tax Act is taken into account for
determining the chargeable profits certain sums falling within different
clauses of Rule I are to be excluded. When Clause VI specifically provides that
the income chargeable under the head "Interest on security" derived
from any security of the Central Government or state Government then even in
case of a Non-resident Company the Computation has to be made in accordance
with the said Clause , so far as the interest received on Government securities
are concerned and Clause X would apply only in respect of other income by way
of interest for the non resident company not covered under Clause VI .
According to Dr. Gauri Shanker, the learned senior counsel appearing for the
appellant, the emphasis is on the head from which the income is derived and not
on the status of the assessee.
Having
considered the rival submissions we find considerable force in the argument
advanced by the learned counsel appearing for the Revenue. Under Chapter IV of
the Income Tax Act the total income of an assessee is computed and under
section 14 there are only five heads of income , namely:- A. Salaries B.
Interest on securities;
C.
Income from house property;
D.
Profits and gains of Business or Profession;
E.
Capital gains ;and F. Income from other sources Head B has been omitted by
Finance Act 1988 with effect from 1.4.89 but was there during the relevant
period with which we are concerned in the present case . Section 18, as it stood
, deals with "interest on securities" and it provided that the
amounts due to assessee in the previous year shall be chargeable to income-tax
under the head "interest on securities" are :
(i) interest
on a security of a Central or State Government;
(ii)
interest on debentures or other securities for money issued by or on behalf of
the local authority or company or corporation established by the Central, State
or Provincial Act.
When
Clause VI of Rule I of the First Schedule of super Profits Tax Act Stipulates
that the Income Chargeable Under the Income Tax Act under the Head
"Interest on securities" derived from any Security of the central
Government or a State Government , it is therefore , Necessarily referable to
section 14(b) so far as the head of income is concerned, and section 18 so far
as the type of securities , interest from which has to be computed in arriving
at the income of the assessee. It does not make any distinction between a
non-resident company or any other individual assessee. That being the position
in allowing adjustment in computing the chargeable profits of a previous year
of an assessee from the total income computed for the year under the Income Tax
Act what would be deducted so far as interest on security derived from the
Central Government or state Government is concerned in accordance with Clause
VI of Rule I of First Schedule has no application . Clause X Provides for an
additional deduction to be made in case of a non-resident company if the said
company has derived any income by way of interest which it received from
government or local authority or any Indian concern which is not covered by
Commissioner of Income-Tax, West Bengal 32 Income Tax Reports 1957 page 688,
the question for consideration before this court was whether income from
interest on security Would fall under section 8 or under section 10 of the
Income Tax Act, 1922? This court construed sections 8, 10 and 24(2)of versa,
and therefore no question of the applicability of the principle generalia speciialibus
non derogant arises. This finds support from the decided cases which have been
discussed above. Thus both the precedent and on a proper construction , the
source of income "Interest on Securities" would fall under section 8
and not under section 10 as it is specifically made chargeable under the distinct
head "interest on securities" falling under section 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." Though this
case is not a direct authority on the question of interpretation of Rule I of
the First schedule to the super profits Tax Act, 1963 , but the principles
there would apply with full force and, therefore, the income under the head
"interest on security" derived from security of the Central or State
Government having fallen under the head under section 14(B) of the Income Tax
Act as it stood then , as well as under section 18(B) of the said Income Tax
Act as it stood at the relevant point of time, when the question of Computation
of Chargeable profits of a previous year under the super profits Tax Act crops
up, then the adjustment as provided under clause VI of Rule I of the said First
Schedule has to be made from the total income Computed for the said year under
the Income Tax Act for the purpose of levy of super tax. The Appellate
Assistant Commissioner, the Tribunal and the High Court have committed error in
holding that Clause X of Rule I of the First Schedule to the super profits Tax
Act would apply. The income which is derived by the assessee as interest from
the government securities being an income liable for tax under the head
"income from the interest on securities" under section 14 of the
Indian Income Tax Act, the Character and incidence of that income is not
altered merely because it is earned By a Non-resident company.
In the
aforesaid premises we are of the considered opinion that in the matter of
computation of the chargeable profits of the assessee for the purpose of levy
of super profits tax under provisions of the super profits Tax Act, 1963 from
the total income of the assessee computed for the year in question under the
Income Tax Act he would be entitled to the adjustment of the amount received as
interest on securities derived from any security of the Central Government or
the State Government as per Clause VI of Rule I of the First schedule inasmuch
the said amount is chargeable under the Income Tax Act under the head
"interest on securities" which was in force at the relevant period
and not under Clause X of Rule I of the First Schedule of the super profits Tax
Act as held by the High Court. The impugned Judgment of the High Court is
accordingly set aside and the first question posed by the Tribunal is answered
in favour of the Revenue and against the assessee. The appeal is accordingly
allowed.
Back
Pages: 1 2