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TMI Blog1966 (2) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and 1959-60, it received ₹ 1,81,569 and ₹ 1,97,198 respectively as interest on the securities and claimed that it was exempted from the liability to pay income-tax on them by section 14(3)(i) of the Income-tax Act. The case of the Commissioner of Income-tax was that the income was chargeable under section 8 of the Act and that, since its total income exceeds ₹ 20,000 and it was not a housing society or urban consumers' society or a society carrying on transport business, it was not entitled to the benefit of clause (iv) of section 14(3) and that clause (i) is not applicable to income from interest on securities. The Tribunal accepted the contentions of the Commissioner, held that the assessee was not entitled to the exemption from tax and then at its instance stated the case. Income-tax is chargeable by section 3 on the total income of every association of persons. Section 6 lays down that save as otherwise provided by the Act the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely: (i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r it only if it does not come under heads (i) to (iv). There is no difficulty about heads (i) and (vi); the income from either of them cannot possibly be interest on securities or income from property or profits and gains of business, profession or vocation. As regards interest on securities and income from property, it is possible for either of them to be also profits and gains of business. If an assessee carries on business in securities, the securities held by him are his stock-in-trade and interest on them is profits and gains of the business. Similarly, if an assessee deals in certain property, the property is his stock-in-trade and income from it is a part of his profits and gains of business. In such cases the income is to be computed under head (ii) or head (iii) and not under head (iv) because heads (ii) and (iii) are more specific than head (iv). Head (iv) deals with profits and gains of business and profits and gains of business may include interest on securities and income from property but since heads (ii) and (iii) deal specifically with interest on securities and income from property the taxable income must be computed as laid down in section 8 or 9 and not as laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no reason to think that the omission of the words chargeable under section 10 from clause (i) is accidental and the only reason that can exist for it is that clause (i) is not confined to the profits and gains of business computed in the manner laid down in section 10. Section 14(3) deals with exemption from taxation of certain income and not with the manner of computing particular income and is thus similar to the provisions contained in sections 24 and 25, which also deal with non-taxability of certain income and not with the manner of its computation. Just as the question of the head under which the income is chargeable is irrelevant for the purposes of sections 24 and 25, so also it is irrelevant for the purpose of section 14(3). United Commercial Bank Ltd. v. Commissioner of Income-tax ([1957] 32 I.T.R. 688, 695; [1958] S.C.R. 79) lays down that a loss in a business carried over from an earlier year can be set off against the income from interest on securities held as stock-in-trade of the banking business under section 24. Kapur J., speaking for the Supreme Court, stated as follows*: ... the phraseology of all the sections following, i.e., 7 to 12, empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds mentioned in section 6: section 6 is not a charging section, and income computed under each distinct head is not separately chargeable to tax. But income which is chargeable under a specific head cannot be brought to tax under another head either in lieu of or in addition to that head... ...even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head 'profits and gains of business' within the meaning of section 10 read with section 6(iv). If securities constitute stock-in-trade of the business of an assessee, interest received from those securities will for the purpose of determining the taxable income be shown under the head 'interest on securities' under section 8.... ...there is no reason to restrict the condition of the applicability of the exemption only to income on which the tax was payable under the head 'profits and gains of business, profession or vocation.' The legislature has made no such express reservation and there is no warrant for reading into sub-section (3) such a restricted meaning. Sub-section (3) it may be noticed does not refer to chargeability of income to tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst it under section 24. The provisions of section 14(3) being similar to those of sections 24 and 25, the ratio decidendi of the decisions in Chugandas Co. [1965] 55 I.T.R. 17 (S.C.) and Cocanada Radhaswami Bank Ltd. [1965] 57 I.T.R. 306 (S.C.) is applicable in the instant case and it must be held that clause (i) of section 14(3) is applicable to income from interest on securities held as stockin-trade in spite of its being chargeable under section 8. Clauses (i) to (iv) of section 14(3) enumerate the exempted sources of income of a banking co-operative society. All the four sources are exempted; if an income is derived from one of the sources it is exempted even though it cannot be said to have been derived from another of the sources. The securities in the instant case have been held by the assessee as its stock-in-trade and interest on them is chargeable to the tax under section 8, but the assessee's total income exceeds ₹ 20,000 and consequently the income is not exempt under clause (iv). But it does not follow that it is not exempt under another clause even if that clause applies. If it can be said to be income from the profits and gains of the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from interest on securities is within the scope of clause (i). The Supreme Court has rejected this argument in respect of set-off and exemption under sections 24 and 25 and it must be rejected in respect of exemption under section 14(3). Clause (i) is applicable to all profits and gains of business without any exception and the other clauses are in respect of certain other sources of income; therefore, no repugnancy exists between clause (i) and clause (iv) and it cannot be said that allowing exemption under clause (i) would be repugnant to its not being allowed under clause (iv) or would defeat the provision of clause (iv) not allowing it. Clause (iv) allows exemption in respect of certain income earned by a small banking co-operative society (by small I mean one, the total income of which does not exceed ₹ 20,000) and leaves untouched the question of exemption of income of a large banking co-operative society which remains governed by other clauses (so far as they are applicable). It does not lay down that such income earned by a large banking co-operative society shall not be exempt. The facts in Bihar State Co-operative Bank Ltd. v. Commissioner of Income-tax* ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities held as stock-in-trade is its profits and gains of business and cannot be interest on securities chargeable under section 8. Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax [1960] 39 I.T.R. 114; [1960] 3 S.C.R. 58 is an authority for the proposition that a profit made by a banking society by sale of shares and securities held by it was its profits and gains from business assessable to tax. The reason was that the purchase and sale of shares and securities are so much linked with the deposits and withdrawals of clients that with the existing articles of association the purchase and sale of shares and securities are as much part of the assessee's business as receiving deposits from clients and paying them off are (page 645, Viscount Maugham, quoting the Assistant Commissioner). My answer to the question, therefore, is that the two amounts are exempt from tax under section 14(3)(i). A copy of this judgment should be sent under the seal of the court and the signature of the Registrar to the Income-tax Appellate Tribunal as required by section 66(5) of the Act. The assessee should get its costs of the reference which may be assessed at ₹ 300 from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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