1973 (9) TMI 22 - HC - Income Tax

Carrying On Business Income Tax Interest On Securities Jurisdiction Of High Court Writ Jurisdiction

Issues Involved:
1. Jurisdiction and alternative remedies under Article 226 of the Constitution.
2. Classification of income from government securities as business income under Section 81(i) of the Income-tax Act.
3. Determination of whether the petitioner was a dealer in securities.
4. Error of law apparent on the face of the record.
5. Issuance of a writ of certiorari.

Issue-wise Detailed Analysis:

1. Jurisdiction and Alternative Remedies under Article 226 of the Constitution:
The learned standing counsel for the department argued that the applications under Article 226 should not lie because the petitioner had not exhausted alternative remedies available under the Income-tax Act, which is a self-contained Act. Reference was made to the Supreme Court decision in Champalal Binani v. Commissioner of Income-tax, where it was held that a party feeling aggrieved by an order of an authority under the Income-tax Act must first resort to the remedies provided within the Act before approaching the High Court. However, the court held that since no appeal, revision, or review lies against the Commissioner's order under the Income-tax Act, the application under Article 226 could not be dismissed on this ground.

2. Classification of Income from Government Securities as Business Income under Section 81(i) of the Income-tax Act:
The petitioner's case was that it is a co-operative bank and its business income, including interest from government securities, should be exempt from income tax under Section 81(i) of the Income-tax Act. The petitioner argued that the securities were part of its trading assets and circulating capital, thus the interest received should be considered business income and exempt from tax.

3. Determination of Whether the Petitioner was a Dealer in Securities:
The Commissioner had held that to claim that securities are part of trading assets, the petitioner must show that it deals in securities as an integral part of its business operations and not merely as an investment for idle funds. The Commissioner concluded that the petitioner was not a dealer in securities and thus the interest income could not be considered business income. However, the court found this reasoning to be legally incorrect. Citing various Supreme Court decisions, it was held that it is not necessary for a co-operative bank to be a dealer in securities to qualify for exemption under Section 81. What is required is that the securities be part of the bank's circulating capital.

4. Error of Law Apparent on the Face of the Record:
The court determined that the Commissioner's order was based on an erroneous interpretation of Section 81 of the Income-tax Act. The Commissioner incorrectly held that only a dealer in securities could claim the exemption. The court noted that this was an error of law apparent on the face of the record, as the correct legal position is that a co-operative bank need not be a dealer in securities to claim the exemption; it only needs to show that the securities are part of its trading assets.

5. Issuance of a Writ of Certiorari:
The court referred to the Supreme Court decision in Syed Yakoob v. K. S. Radhakrishnan, which laid down the circumstances under which a writ of certiorari can be issued. It was held that if an inferior tribunal comes to a finding in disregard of relevant statutory provisions or if its decision is based on reasons wrong in law, such a decision can be corrected by a writ of certiorari. The court found that the Commissioner's decision was based on a wrong legal premise and thus amenable to correction by a writ of certiorari.

Conclusion:
The court quashed the Commissioner's order dated April 19, 1969, and set aside the demand notices issued by the Income-tax Officer, A-Ward, Shillong, for the assessment years in question. The applications were allowed, and the rules were made absolute, with no order as to costs.

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