1957 (5) TMI 11 - SC - Income Tax

Whether interest on securities was a part of bank s income from business carried on by it? Whether the assessee was entitled to set off the carried over loss of the previous year against income during the assessment year? Held that - The appeal would be allowed and the case remitted to the High Court for a fresh decision of the reference after getting from the Tribunal a fuller statement of facts about this part of the case, whether the securities in question were a part of the trading assets held by the assessee in the course of its business as a banker. Appeal allowed. Case remanded.

Issues Involved:
1. Whether interest on securities was a part of the bank's income from business carried on by it.
2. Whether the assessee was entitled to set off the carried over loss of the previous year against income during the assessment year.
3. Whether the assessee was entitled under section 8 to deduct any part of the administrative expenses out of the income from interest on securities.
4. Whether the assessee was entitled under the first proviso to section 8 of the Income-tax Act to deduct any interest on money borrowed and utilized for investment in tax-free securities.

Issue-wise Detailed Analysis:

1. Interest on Securities as Part of Bank's Income from Business:
The assessee, a bank, claimed that its income from securities should be considered as part of its business income. The Income-tax Officer, Assistant Commissioner of Income-tax, and the Income-tax Appellate Tribunal all rejected this claim, holding that the income from securities and business income should be treated separately. The Tribunal stated that the legislature intended to keep the income from the two sources separate, citing sections 6, 8, and 10 of the Act. The High Court also rejected the assessee's contention, emphasizing that the several heads under section 6 are mutually exclusive and that interest on securities cannot be treated as business income.

2. Entitlement to Set Off Carried Over Loss:
The assessee sought to set off a loss of Rs. 3,21,929 from the previous year against the income of the assessment year. The High Court answered this question in the negative. The Supreme Court, however, noted that the question of whether the loss from the previous year could be set off against the income of the assessment year within the provisions of section 24(2) was wide enough to be considered. The Court remanded the case to the High Court for a fresh decision after obtaining a fuller statement of facts from the Tribunal about whether the securities in question were a part of the trading assets held by the assessee in the course of its business as a banker.

3. Deduction of Administrative Expenses:
The High Court answered in the negative the question of whether the assessee was entitled under section 8 to deduct any part of the administrative expenses out of the income from interest on securities. The Supreme Court did not specifically address this issue in its judgment, focusing instead on the broader questions of the classification of income and the set-off of losses.

4. Deduction of Interest on Borrowed Money:
The High Court also answered in the negative the question of whether the assessee was entitled under the first proviso to section 8 of the Income-tax Act to deduct any interest on money borrowed and utilized for investment in tax-free securities. The Supreme Court did not specifically address this issue in its judgment, focusing on the broader issues of income classification and loss set-off.

Conclusion:
The Supreme Court allowed the appeal and remanded the case to the High Court for a fresh decision after obtaining additional facts from the Tribunal. The Court emphasized that the various heads of income under sections 6, 8, and 10 are mutually exclusive, and income from interest on securities must be taxed under section 8, not section 10. The Court also noted that the question of whether the loss from the previous year could be set off against the income of the assessment year was open to be considered. The costs of the appeal were to be costs in the reference before the High Court.

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