1936 (5) TMI 31 - HC - Income Tax

Summary

Issues:
Assessment of joint Hindu family for the year 1934-35 regarding the deductibility of computed interest from the interest actually received on securities purchased.

Analysis:
The case involved a reference by the Commissioner of Income-tax regarding the assessment of a joint Hindu family for the year 1934-35. The main issue was whether the computed interest, expressed as a capital sum plus interest, should be deductible from the interest actually received by the assessee. The assessment was made on a total income of &8377; 3,00,099, with &8377; 2,68,785 under Section 8 of the Income Tax Act. The assessee sought to deduct &8377; 9,102-1-4, claiming it was interest paid to the sellers of securities at the time of purchase in 1933, which consisted of Government securities. The Commissioner contended that the computed interest was part of the purchase price and not deductible from the interest actually received.

The court analyzed Section 8 of the Act, which makes income-tax payable on interest receivable by the holder of securities. The court referred to a decision by the Patna High Court, emphasizing that income-tax was payable on interest receivable from the government securities. The court held that the interest became receivable only on specific due dates, and since the assessee was the owner at that time, the interest was received in full by them. The court also considered various machinery sections of the Act, highlighting that tax was chargeable only on the owner of the security when the interest became receivable.

The court referenced English cases to support its decision, emphasizing that the mere quotation of estimated accrued interest in a purchase agreement did not create a separate contract for interest. The court concluded that the computed interest was part of the purchase consideration and not deductible. The court agreed with the Commissioner's opinion that the computed interest was not deductible from the interest actually received, and thus, ruled in favor of the Commissioner.

In conclusion, the court answered the question in line with the Commissioner's opinion, stating that the computed interest was not deductible from the interest received. The court made no order as to costs, and the reference was answered accordingly.