1967 (10) TMI 17 - HC - Income Tax

Interest received on securities issued by the Mysore Darbar (State Securities) by reason of a notification under s. 60 of the IT Act, 1922 - held that, it is exempt from taxation

Summary

Issues Involved:

1. Exemption from taxation of interest received on Mysore Darbar Securities.
2. Limitation period for the order passed under section 33B by the Commissioner of Income-tax.

Issue-wise Detailed Analysis:

1. Exemption from Taxation of Interest on Mysore Darbar Securities:

The primary issue was whether the interest of Rs. 3,40,065 received on the securities issued by the Mysore Darbar for the assessment years 1951-52 and 1952-53 is exempt from taxation. The assessee contended that by virtue of a notification under section 60 of the Indian Income-tax Act, 1922, this interest was exempt from tax and should not be included in the taxable surplus. The Income-tax Officer initially accepted this view, but the Commissioner of Income-tax later directed that the amount should be included in the taxable surplus, arguing that life insurance business profits are computed according to the Schedule to the Income-tax Act and that the exemption under section 60 does not apply in this context.

The Tribunal upheld the Commissioner's view, stating that the computation of life insurance business income is based on a notional income as per rule 2(b) of the Schedule, leaving no room for adjustments other than those provided in the Schedule itself. The Tribunal relied on the decision in Commissioner of Income-tax v. Crown Life Insurance Co.

The court, however, disagreed with this interpretation. It emphasized that section 60(1) allows the Central Government to make exemptions in respect of income-tax in favour of any class of income. The notification under section 60 explicitly exempted interest on Mysore Darbar Securities from income-tax. The court held that this exemption overrides the provisions of the Schedule to the Act, meaning the interest on Mysore Darbar Securities should not be included in the taxable surplus. The court referred to the legal reasoning in Commissioner of Income-tax v. B. B. & C. I. Railway Co-operative Mutual Death Benefit Society and other relevant cases, concluding that the exemption under section 60 is an overarching one that applies to all provisions of the Act, including those in the Schedule.

2. Limitation Period for the Order Passed under Section 33B by the Commissioner of Income-tax:

The second issue was whether the order under section 33B passed by the Commissioner of Income-tax was barred by limitation. The order of assessment by the Income-tax Officer was made on December 30, 1954, and the order by the Commissioner was passed on December 29, 1956, but communicated to the assessee on December 31, 1956. Section 33B(2)(b) stipulates that no order can be made under sub-section (1) by the Commissioner after the expiry of two years from the date of the order sought to be revised.

The court clarified that the period of limitation is computed from the date of the order sought to be revised, not from the date of its communication to the assessee. The court rejected the assessee's contention that the order should be deemed to have been passed only on the date of its communication. The court referred to the Supreme Court's observation in Bachhittar Singh v. State of Punjab, distinguishing it from the present context. The court concluded that the order of the Commissioner was passed within the period of limitation, as it was made within two years from the date of the Income-tax Officer's order.

Conclusion:

- The interest of Rs. 3,40,065 received on the securities issued by the Mysore Darbar for both the years is exempt from taxation.
- The order under section 33B passed by the Commissioner of Income-tax was not barred by limitation.

Reference answered accordingly.