2005 (4) TMI 44 - HC - Income Tax

Interest earned on securities - exemption within the meaning of section 10(15)(iv)(h) - Assessing Officer denied the exemption for part of the interest. The Commissioner of Income-tax (Appeals) allowed the entire claim of exemption of interest on such bonds - it is clear that on a plain reading of item (h) of section 10(15)(iv) of the Act, the assessee is entitled to the benefit of the said provision as his case clearly falls within the plain words used in clause (h). - This appeal is allowed. - The order of the Commissioner of Income-tax (Appeals) is restored.

Summary

Issues:
1. Exemption of interest earned from specified securities under section 10(15)(iv)(h) of the Income-tax Act, 1961.
2. Interpretation of relevant notifications and conditions for exemption.
3. Application of strict construction principle in tax law interpretation.

Detailed Analysis:
1. The appeal concerned the exemption of interest earned by an appellant company from securities purchased during the assessment year 1990-91, specifically HUDCO Shelter Bonds Series II and III, Rural Electrification Corporation Bonds, under section 10(15)(iv)(h) of the Income-tax Act, 1961. The Assessing Officer initially denied part of the interest exemption, but the Commissioner of Income-tax (Appeals) allowed the entire exemption. The Tribunal, while inclined to allow the exemption, remanded the matter to examine if the bonds were purchased from the market, citing a Supreme Court decision. The appellant argued that the interest income should be exempt based on the conditions specified in the relevant notifications (S.O. 258 (E) and S.O. 284 (E)) and section 10(15)(iv)(h) of the Act.

2. The notifications issued by the Central Government specified the conditions for exemption of interest earned from the mentioned securities. The Tribunal relied on a Supreme Court decision regarding the nature of securities purchase, but the High Court found this reliance irrelevant to the present case. The Court emphasized that the language of section 10(15)(iv)(h) was clear, entitling the assessee to exemption if all specified conditions were met, regardless of whether the bonds were subscribed for or purchased from the market. The Court highlighted the importance of strict construction in tax law interpretation, focusing on the wording of the statute and the fulfillment of conditions as specified in the law and notifications.

3. The judgment underscored the principle of strict construction in interpreting taxing statutes, citing various legal precedents to support this approach. It emphasized that the application of equity or considerations of what is just and expedient should not influence the interpretation of tax laws. Referring to established legal principles, the Court reiterated that the plain language of the law and notifications should guide the determination of tax liabilities and exemptions. Based on these principles, the Court allowed the appeal, setting aside the Tribunal's decision and restoring the order of the Commissioner of Income-tax (Appeals) in favor of the appellant company.