1972 (9) TMI 35 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the relief under section 86 was only with reference to the net amount of interest and not on the gross amount - Whether the method of computation of net interest from tax-free securities adopted by the Income-tax Officer was correct - Whether the notification issued under Indian Income-tax Act, 1922 is applicable after the repeal of that act and whether the rebate is available on gross interest or on the interest after deduction of expenses

Summary

Issues:
1. Interpretation of section 86(i) of the Income-tax Act, 1961 regarding rebate on interest received on tax-free securities.
2. Correct method of computation of net interest from tax-free securities.
3. Applicability of notification issued by the Central Government under section 60(1) of the Indian Income-tax Act, 1922.

Analysis:

The petitioner-bank claimed rebate on the interest received on tax-free securities under section 86(i) of the Income-tax Act, 1961. The Income-tax Officer, however, deducted a proportionate amount for expenses related to the investment and arrived at the net income. The Appellate Assistant Commissioner dismissed the appeal, stating that the law under the new Act had changed. The Tribunal held that relief under section 86 was in respect of income-tax that would be payable if the interest was not tax-free. The Tribunal also considered the method of computation adopted by the Income-tax Officer. The High Court was asked to decide whether the relief under section 86 was only on the net amount of interest and if the computation method used by the Income-tax Officer was correct.

The counsel for the assessee contended that the interest on tax-free securities was governed by section 86 and not sections 18, 19, and 20. Alternatively, it was argued that the taxability of interest should be considered based on the notification issued by the Central Government. Citing the Supreme Court's decision in Commissioner of Income-tax v. South Indian Bank Ltd., the High Court agreed that the notification should be construed on its own terms for granting rebates on the entire interest amount. The High Court ruled in favor of the assessee based on the notification's wording and the Supreme Court's interpretation.

The High Court directed the Tribunal to determine if any of the securities became chargeable to income-tax during the relevant accounting period. The Tribunal was instructed to provide relief accordingly. The High Court emphasized that the assessee would be entitled to costs and specified the counsel's fee. The judgment highlighted the importance of considering the notification issued by the Central Government under section 60(1) of the Indian Income-tax Act, 1922, for claiming rebates on interest received from tax-free securities.