Full Judgment Text
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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.