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Issues Involved:
1. Interpretation of "interest on securities" under rule 1(x) of the First Schedule to the Companies (Profits) Surtax Act, 1964. 2. Whether the entire gross amount of interest on securities is deductible without reducing it by proportionate expenses. 3. Whether the entire gross amount of interest received from Indian concerns is deductible without reducing it by proportionate expenses. Issue-Wise Analysis: 1. Interpretation of "interest on securities" under rule 1(x) of the First Schedule to the Companies (Profits) Surtax Act, 1964: The court addressed whether the income derived from securities of the Central Government constitutes income by way of any interest from the Government under rule 1(x). The court affirmed that this question is already covered by a previous decision in CIT v. Banque Nationale de Paris [1981] 130 ITR 534. The court held that rule 1(x) is broad enough to encompass income by way of interest received from taxable Government securities. Therefore, the court answered this question in the affirmative and in favor of the assessee. 2. Whether the entire gross amount of interest on securities is deductible without reducing it by proportionate expenses: The court examined whether under rule 1(x), the gross interest received by the assessee should be deducted from the total income or if the net interest, after deducting proportionate expenses, should be deducted. The court analyzed the provisions of the Companies (Profits) Surtax Act, 1964, and the First Schedule, emphasizing that adjustments to the total income computed under the Income-tax Act must be made to determine chargeable profits. The court referred to several precedents, including CIT v. South Indian Bank Ltd. [1966] 59 ITR 763 and CIT v. Industrial Investment Trust Co. Ltd. [1968] 67 ITR 436, which interpreted similar provisions in other taxing statutes. However, the court noted that the Supreme Court's decision in Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120 emphasized that each provision must be interpreted in its own context and language. The court concluded that the exclusion under rule 1(x) must refer to the net income by way of interest, which forms part of the total income after making permissible deductions. Therefore, the court answered this question in the negative and in favor of the Revenue. 3. Whether the entire gross amount of interest received from Indian concerns is deductible without reducing it by proportionate expenses: Similar to the second issue, the court considered whether the gross interest received from Indian concerns should be deducted from the total income or if the net interest, after deducting proportionate expenses, should be deducted. The court reiterated the need to interpret rule 1(x) in the context of the Companies (Profits) Surtax Act, 1964, and the First Schedule. The court emphasized that the starting point for determining chargeable profits is the total income computed under the Income-tax Act, and adjustments must be made to exclude certain incomes, including net interest received from Indian concerns. The court concluded that the exclusion under rule 1(x) must refer to the net interest, which forms part of the total income after making permissible deductions. Therefore, the court answered this question in the negative and in favor of the Revenue. Conclusion: - Question No. 1: Answered in the affirmative and in favor of the assessee. - Question No. 2: Answered in the negative and in favor of the Revenue. - Question No. 3: Answered in the negative and in favor of the Revenue. There will be no order as to costs.
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