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Issues:
1. Taxability of amortized interest on Zamindari Abolition Bonds for assessment years 1967-68 and 1968-69. Analysis: The High Court of Karnataka addressed the issue of taxability of amortized interest on Zamindari Abolition Bonds for two different assessment years. The assessee, a bank, held a significant amount of U.P. Zamindari Abolition Bonds purchased at a low price. The bank amortized the entire investment to spread future profits over a longer period and for equitable taxation purposes. The surplus amount resulting from this amortization was claimed as not taxable by the bank. The court referred to a previous case to determine the treatment of annual payments received by the assessee. The court concluded that the annual payments should be considered as a mix of capital and interest, with income tax payable only on the portion representing interest. Therefore, the court held that the amortized interest of the Zamindari Abolition Bonds was not taxable income, but the portion of annual repayment representing interest was assessable under the Income-tax Act, while the portion representing capital was not taxable. The court's decision in I.T.R.C. No. 162 of 1975 for the assessment year 1967-68 was that the Tribunal was right in holding that the amortized interest of Rs. 20,39,036 of the Zamindari Abolition Bonds was not income liable for income tax. However, the court clarified that the portion of annual repayment representing interest was taxable under the Income-tax Act, while the portion representing capital was not taxable. In I.T.R.C. No. 163 of 1975 for the assessment year 1968-69, the court similarly held that the amortized interest of Rs. 16,24,030 of the Zamindari Abolition Bonds was not income liable for income tax. Again, the court emphasized that the portion of annual repayment representing interest was subject to tax, while the portion representing capital was not taxable. The court directed the parties to bear their own costs in these references, concluding the judgment.
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