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TMI Blog1957 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ee (who is the appellant before us) claims that in the computation of its profits for the assessment year under review (1945-46), it is entitled to set off the carried over loss of the previous year against the profits of the year of assessment under section 24(2) of the Act. The assessee is a bank carrying on banking business. For the assessment year its assessable income was computed by the Income-tax Officer at Rs. 14,95,826 "by splitting up" its income into 2 heads "interest on securities" and "business income". "Interest on securities" in the year of assessment was Rs. 23,62,815 and under the head "business income " there was a loss of Rs. 8,86,972. After making the necessary adjustments and deducting the business loss from "Interest on securities", the net income was determined at Rs. 14,95,826. In the previous year there was a loss of Rs. 3,21,929 which was computed by setting off the business loss against "interest on securities". Before the Income-tax Officer the assessee made its claim on the basis that it was a part of "the business of the bank to deal in securities" and "that no distinction should be made between income from securities and income from business for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year could be set off under section 24(2) of the Act. The Tribunal stated the case and sought the opinion of the High Court on the following three questions : "(1) Whether on the facts and in the circumstances of this case, the assessee was entitled to set off the business loss of Rs. 3,21,929, brought forward from the preceding year against this year's income from interest on securities held by the assessee. (2) Whether on the facts and in the circumstances of this case, the assessee was entitled under section 8 to deduct any part of the administrative expenses out of the income from interest on securities. (3) Whether in the circumstances of this case, the assessee was entitled under the first proviso to section 8 of the Income-tax Act to deduct any interest on money borrowed and utilised for investment in tax-free securities." The High Court answered all the questions in the negative. The learned Chief Justice during the course of his judgment said : "It appears to me, therefore, that both because the several heads under section 6 in the Indian Act are mutually exclusive and because under any income-tax law, an item coming under an exclusive head cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :--- (i) Salaries. (ii) Interest on securities. (iii) Income from property. (iv) Profits and gains of business, profession or vocation. (v) Income from other sources. (vi) Capital gains." The two relevant heads for the purpose of this appeal are (ii) and (iv), i. e., "interest on securities" and "profits and gains of business" which are dealt with under sections 8 and 10 of the Act respectively. Section 8 provides that "the tax shall be payable by an assessee under the head 'interest on securities' in respect of the interest receivable by him on any security of the Central Government ...... and in the provisos to this section are given the allowable deductions. The amendment made in the proviso by the Act of 1955 is very relevant for the purpose of this appeal and we shall advert to it at a later stage." Section 10 provides : "The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him." The assessee contends that securities are a part of its trading assets and this position has throughout been accepted by the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll income, profits and gains from whatever source derived subject to certain exemptions. Chapter 3 which is entitled "Taxable income" comprises sections 6 to 17 (both sections inclusive). Section 6 enumerates the various heads of income, profits and gains which are chargeable to income-tax. Each of these heads of income, profits and gains is dealt with under a separate section and these sections also give the details of allowances and exemptions in regard to each different head. The argument raised by counsel for the Revenue is that according to the decision of the Privy Council in Probhat Chandra Barua v. King Emperor section 6 is the charging section and that the words of sections 7 to 12 show that the various heads of income are mutually exclusive and items which specifically fall under these various heads have to be charged under only that head and would fall under one of these several but appropriately specific sections. It is true that the Privy Council in Probhat Chandra Barua v. King Emperor did point out that section 6 was a charging section, but this was because sections 3 and 4 were then differently worded as pointed out by Kania, J., in B. M. Kamdar, In re at page 43 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Full particulars (in a separate statement if necessary) should be given of any deduction claimed." This is a statutory form and it gives what is meant by "interest on securities", what documents are to accompany the return in order to entitle an assessee to claim refund and what deductions are to be made. The mandatory character of section 6 is indicated by the language employed in that section and the phraseology of all the sections following, i. e., 7 to 12, employing the words "the tax shall be payable under the head ........ in respect of" the different and distinct heads of income, profits and gains, "salaries," "interest on securities" and "property", "business" etc. is indicative of the intention of the legislature making the various heads of income, profits and gains mutually exclusive. So every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of income-tax the particular section dealing with that head will have to be looked at. The various sources of income, profits and gains have been so classified that the items falling under those heads become chargeable under sections 7 to 12 accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and computed in the manner given in sections 7 to 12 which are not charging sections but are provisions for the computation of "total income". In the words of Viscount Dunedin in Salisbury House Estate v. Fry : "Now, the cardinal consideration in my judgment is that the income-tax is only one tax, a tax on the income of the person whom it is sought to assess, and that the different Schedules are modes in which the statute directs this to be levied." As has been pointed out in that judgment there are no separate taxes under the various schedules but only one tax. But in order to arrive at the total income on which tax is to be charged "you have to consider the nature, the constituent parts, of his (assessee's) income to see which schedule you are to apply." If these words may be used with reference to the language of the Indian Act, we have to look at the source of "income, profits and gains" and then see under what head it appropriately and specifically falls and if it falls under one particular head then computation is to be made under the section which covers that particular head of income. We cannot treat any one of the sections from sections 7 to 10 to be general or speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a limited company which was formed for the express purpose of acquiring Salisbury House and utilising it. In this building there were 800 rooms which were let to tenants. The company also maintained a staff of servants to render various kinds of services to the occupants of the rooms. The company was assessed to income-tax under Schedule A upon gross valuation of the premises and as the actual rent received was higher the Revenue wanted to assess income again under Schedule D. The company contended that so far as the proceeds of the property were concerned they had already been taxed under Schedule A and could not again be brought in computo under Schedule D. Viscount Dunedin at page 306 observed : "Now, if the income of the assessee consists in part of real property you are, under the statute, bound to apply Schedule A." Lord Atkin at page 319 said : "....... the dominance of each Schedule A, B, C, and E over its own subject matter is confirmed by reference to the sections and rules which respectively regulate them in the Act of 1842. They afford a complete code for each class of income, dealing with allowances and exemptions, with the mode of assessment, and with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be under Case 5 of Schedule D and not Case 4. It was held that the Crown had the right to tax under Case 4 but even if the assessee satisfies that Case 5 is also applicable it was still for the Crown to decide and tax under Case 4 provided both cases applied equally. Rowlatt, J., said : "...... a banker could never ask to be repaid the tax which had been deducted from the Government securities which be held, because he held them as a banker, the point being that when you have once got a security (we will say) the interest on which is taxed by the Act, you cannot get out of it because you say that you look a little further and see this is only embedded in a business." It means in terms of the Indian statute that in the case of interest on securities if chargeable under a specific section, the assessee even though he is a banker cannot claim that they be treated as "business income". In Thompson v. Trust and Loan Company of Canada the respondent company carried on business as a loan and finance company. During the material years the company bought treasury bonds-cum-coupons and on the same day sold bonds of the same nominal value retaining the coupons and received on encashment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owning such property, therefore, the income derived from 'property' must be regarded as income derived from 'business'. In my judgment, income derived from 'property' is a more specific category applicable to the present case." The decision in this case shows that the ownership of the house property was not considered as "business" and that the income derived from such source would more specifically and appropriately fall within the head "property". The applicability of section 8 directly arose and was discussed in H. C. Kothari v. Commissioner of Income-tax, Madras. The assessees in that case had several sources of income, one of which was interest on securities. The business of the assessees showed a loss but the assessees claimed earned income relief in respect of interest on securities on the ground that securities which they had purchased and sold as part of their business, formed their stock-in-trade and the interest therefrom should be treated as "business" profits. But section 8 of the Act was held applicable to the facts of that case. Satyanarayana Rao, J., said : "It seems to us obvious that section 8 of the Act which deals with interest on securities is a separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eless and performing for gramophone companies. These were held to fall under Schedule D and not E as whatever contracts she made were nothing but incidents in the conduct of her professional career. The use of the following words by Sir George Rankin in Commissioner of Income-tax v. Chunilal B. Mehta : "But the list of 'heads' in section 6 is a list of sources not in the sense of attributing the income to...... one business rather than another, but only in the sense of attributing it to...... business as distinct from investment........ is no surer foundation for saying that "interest on securities" is severable into income from securities held as a capital investment and income from those held as trading assets. The language of sections 6, 8, and 10 is destructive of any such contention. Thus on a true construction of the various sections of the Act the income of an assessee is one and the various sections 7 to 12 are modes in which the statute directs that income-tax is to be levied and these sections are mutually exclusive. The head of income of which the source is "interest on securities" has its characteristics for income-tax purposes and falls under the specific head covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Tribunal for being referred to the High Court nor was it raised before the High Court. How the question was specifically raised before the Income-tax Officer and the Appellate Assistant Commissioner and also before the Income-tax Appellate Tribunal has already been mentioned. In its application to the Tribunal for stating the case to the High Court the assessee specifically raised in two suggested questions its right to set off the business loss of Rs. 3,21,929 brought forward from the previous year against the income of the assessee in the assessment year. It does not appear from the judgment of the High Court that the question was argued in the manner it has been debated in this Court. The appellant seems to have rested his case on the applicability of section 10 to the profits under the head "interest on securities" because of the securities being trading assets, but this contention was repelled and the same question has been raised before us but the assessee now supports his case on an alternative argument that even if the securities fall under section 8 still the profits from that source are from an item of the assessee's business and, therefore, the loss of the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the securities are realised to meet withdrawals by depositors, this is clearly a normal step in carrying on the banking business. It is an act done in what is truly the carrying on of the banking business. In view of the order we propose to make, we do not find it necessary to express any opinion on the respective contentions raised by counsel for the parties. In Punjab Co-operative Bank's case a finding had been given that the purchase and sale of securities was as much the assessee's business as receiving deposits from clients and withdrawals by them. In the case before us no such finding has been given and in the absence of such finding no opinion can be given as to whether the holding of securities but of which interest was derived formed part of same business within section 24(2) or not. The appeal would, therefore, 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. The costs of this appeal will be costs in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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