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PETITIONER: COMMISSIONER OF INCOME-TAX, KERALA

       Vs.

RESPONDENT: SOUTH INDIAN BANK LTD. TRICHUR

DATE OF JUDGMENT: 23/11/1965

BENCH: SUBBARAO, K. BENCH: 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

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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]

JUDGMENT:      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

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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

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             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.                                    Appeal dismissed., L3Sup.CI/66-13 678