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PETITIONER: THE UNITED COMMERCIAL BANK LTD.,CALCUTTA

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX,WEST BENGAL

DATE OF JUDGMENT: 23/05/1957

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. BHAGWATI, NATWARLAL H. AIYYAR, T.L. VENKATARAMA

CITATION:  1957 AIR  918            1958 SCR   79

ACT: Income  Tax-Business loss of Previous  Year-Set-off  against income of the Assessment Year-Income from "interest on secu- rities"-Banking business-Securities, part of trading assets- Indian Income-tax Act, 1922 (XI Of 1922), SS.6,8,10, 24(2).

HEADNOTE: 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

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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, [1938]  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, [1951] 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.

JUDGMENT: 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 respondent. 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  adjust- ments  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  set- off  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

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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  assessment year.  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 assessment year. 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 securities. (3)  Whether in the circumstances of this case, the assessee was entitled under the first proviso to s. 8 of the  Income- tax  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  negative. 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

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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.

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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  income- tax has to be charged in respect of the "total (1)  (1955] 27 I.T.R. 63. 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

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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)  [1946] 14 I.T.R. 10. (3)  [1947] 15 I.T.R. 302, 308. (4)  [1948] 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

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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 the amount is paid and not at the rate of the assessment year. 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

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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)  [1938] 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

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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 said: 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

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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 thus: (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 stated: "  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.

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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 head.... 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) [1951] 20 I.T.R. 579, 587.  (3) (1926) 2 I.T.C. 251. (2)  [1940] 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 was- held   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).

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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 (3): 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  assets. The  language of ss. 6, 8 and 10 is destructive of any  such contention. (1)  [1935] 3 I.T.R. 114. (2)  [1931] 2 K.B. 628. (3) [1938] 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

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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  set- off  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)  [1955] 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.

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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 aggregate income. 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)  [1940] 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 not. 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. 101