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TMI Blog1949 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... viso 1 to Section 8, Income-tax Act to the extent that it is applicable to the facts of this case. Now, Section 8 deals with one of the heads which are chargeable to income-tax and that head is interest on securities. and the section provides that the tax shall be payable by an assessee on interest on securities, in respect of the interest receivable by him on any security of the Central or Provincial Government. The rest of the section is not material. Then we come to proviso 1, and to the extent that it is material, it provides that no income-tax shall be payable in respect of any interest payable on money borrowed for the purpose of investment in the securities by the assessee. Now, I might straightaway point out that this part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and still claim a deduction in respect of the interest which he has paid on the moneys borrowed by him ? Sir Jamshedji contends that Section 8 must be construed in the light of proviso 1 and that provisos 2 and 3 must be given effect to after due effect has been given to proviso 1. He says that the Legislature has put in these provisos in their due and proper order and they must be construed and given effect to in that order. Therefore, according to Sir Jamshedji, proviso 1 is in essence absolute and it gives an absolute right to the assessee to deduct interest provided he utilizes the moneys borrowed by him on which interest is payable in the investment of securities. Whether those securities are tax-free or tax-bearing is immaterial. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true construction, then it is clear that proviso 1 only applies to securities which are not tax-free and, therefore, the only right of the assessee is to claim deduction with regard to interest on moneys borrowed by him when he utilizes those moneys in investing them in securities on which he has got to pay tax, but if he uses moneys borrowed by him in investment of tax-free securities, then he cannot claim deduction given to him under proviso 1. 3. There are two decisions of two High Courts which have taken conflicting views on this point. There is the decision of the Madras High Court reported in Commissioner of Income-tax, Madras v. Madras Provincial Co-operative Bank Ltd. I. L. R. (1943) Mad. 390 : (A.I.R. (30) 1943 Mad. 152). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that we must draw a presumption that the bank would rather invest moneys out of its deposits than out of its capital; and what is urged by Sir Jamshedji is that the bank's primary business is to lend moneys and, therefore, for its primary business it would utilize its capital, and as far as its deposits are concerned, it would invest them both to earn interest and as security in case the depositors suddenly make a demand against the bank for the return of the deposits. I am afraid it is not possible to say that any such presumption can arise in the case of a co-operative bank. Sir Jamshedji has not drawn our attention to any banking practice which makes it incumbent on a bank to use its capital for a particular purpose and to use its d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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