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Issues Involved:
1. Whether interest received on securities held by the assessee formed part of the assessee's business income for the purpose of claiming relief under section 25(3) of the Indian Income Tax Act. Issue-wise Detailed Analysis: 1. Whether interest received on securities held by the assessee formed part of the assessee's business income for the purpose of claiming relief under section 25(3) of the Indian Income Tax Act: Facts and Background: - The assessee, a dealer in securities, received interest on these securities in the assessment years 1947-48 and 1948-49. - The Income Tax authorities held that the assessee was entitled to the benefit of section 25(3) if the interest on securities was within its scope. - The Tribunal had differing views on whether the interest was taxable under section 10 or section 8, leading to a reference to the High Court. Tribunal's Decision: - The Tribunal's majority held that interest on securities was taxable under section 10 and exempt under section 25(3). Supreme Court's Precedent: - In United Commercial Bank Ltd. v. Commissioner of Income Tax, the Supreme Court held that income from interest on securities held as stock-in-trade is taxable under section 8, not section 10. Reframed Question: - The High Court reframed the question to: "Whether the assessee is entitled to the benefit of section 25(3) in respect of the interest on securities?" Section 25(3) Analysis: - Section 25(3) provides relief from double taxation for businesses taxed under the Indian Income Tax Act, 1918, and discontinued under the 1922 Act. - The section exempts the income, profits, and gains of the business from tax for the period between the end of the previous year and the date of discontinuance. Arguments: - Department's Argument: The benefit under section 25(3) should only apply to income taxed under the head "Profits and gains of business, profession or vocation" (section 10), not to interest on securities (section 8). - Assessee's Argument: The income, profits, and gains of a business should include all income derived from the business, regardless of the head under which it is taxed, if the securities are stock-in-trade. Court's Reasoning: - The term "business" in section 25(3) refers to the activity of the business, not limited to income under section 10. - The exemption under section 25(3) applies to the total income, profits, and gains derived from the business activity, including interest on securities if they are part of the stock-in-trade. - The historical context of section 25(3) aimed to mitigate double taxation, not to restrict the relief to specific heads of income. Judgment: - Justice Tendolkar: Held that the assessee was not entitled to the benefit of section 25(3) for interest on securities, interpreting "income, profits and gains" as limited to section 10. - Justice S.T. Desai: Disagreed, holding that the benefit under section 25(3) should extend to all income derived from the business, including interest on securities. - Justice K.T. Desai: Agreed with Justice S.T. Desai, emphasizing that the term "business" in section 25(3) includes all income derived from the business activity, not just income under section 10. Final Decision: - The majority decision (Justice S.T. Desai and Justice K.T. Desai) held that the assessee is entitled to the benefit of section 25(3) in respect of the interest on securities. - The question was answered in the affirmative, and the assessee was granted relief under section 25(3) for the interest on securities.
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