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PETITIONER: COMMISSIONER OF INCOME TAX, BOMBAY

       Vs.

RESPONDENT: M/S. BANQUE NATIONALE DE-PARIS

DATE OF JUDGMENT:       21/03/1997

BENCH: S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                        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

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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

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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.

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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

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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 Clause VI.  In the  case of  United Commercial Bank Ltd. Vs. 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

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    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.