TMI Blog1993 (12) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9(1)(v) and should not have been brought to tax under section 9(1)(i) of the Income-tax Act. 2. The assessee is a non-resident company. It derives income from the manufacture and sale of tea in India. While completing the assessment, it was noticed by the Income-tax Officer that the assessee had not included the interest income of Rs. 3,86,734 earned by it on the deposit with a bank in U.K. He took the view that the interest was includible in the assessment under the head "Other sources". According to him, the interest was earned on the funds which flowed from India to the assessee's Headquarters in England and therefore the interest was taxable under section 9(1)(v) of the I.T. Act. Accordingly, he brought the same to tax in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome was not taxable even under section 9(1)(v) since the conditions specified for the taxability of the interest in sub-clause (c) of that section were not present in the assessee's case. In the alternative and without prejudice to the above contentions, it was submitted that even if section 9(1)(i) is considered applicable, the interest income did not arise out of any business connection in India and for this submission, the judgments of the Madras High Court in CIT v. Bosotto Bros. Ltd. [1940] 8 ITR 41 and in H. C. Kothari v. CIT, as well as ITO v. Hindustan Latex Ltd. [1992] 42 ITD 325 (Coch.). 4. The Ld. Departmental Representative, however, pointed out that the provisions of section 9(1)(v) are not applicable. According to him, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed as "source rule" in the Circular No. 202, dated 5-7-1976 issued by the CBDT explaining the provisions of the Finance Act, 1976, was introduced in section 9. This simple and comprehensive 'source rule' was incorporated in clause (v) of section 9(1) which was introduced on 1-6-1976. The circular referred to above recognises the fact (see para 14.2 of the circular) that the earlier provision for deeming the interest income as having accrued or arisen in India in section 9(1)(i) of the Act has been replaced by section 9(1)(v) of the Act. Under section 9(1)(v) of the Act, only the following types of interest income will be deemed to accrue or arise in India: (i) Interest payable by the Central Govt. or State Govt. (ii) Interest payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of the well-known principle that the special excludes the general. This is the ratio laid down by the Gujarat High Court in Meteor Satellite Ltd.'s case and the Madras High Court in Copes Vulcan Inc.'s case. It is not possible to postulate that notwithstanding a specific treatment meted out to the interest income, the general provisions of section 9(1)(i) will continue to apply even after 1-6-1976. That would lead to the anomalous situation where two statutory provisions would simultaneously govern the same type of income. Such a result is inconceivable. We are therefore in agreement with the argument of the Ld. representative for the assessee that the interest income should be dealt with in accordance with section 9(1)(v) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is against the plain construction of the provision. The sub-clause lays down certain conditions for taking the receipt of interest by the non-resident. The condition is that the non-resident who pays the interest must have paid the same in respect of any debt incurred or money borrowed and used for the business carried on by him in India. The reference in the provision to "such person" is only to the non-resident who is liable to pay the interest and cannot in the setting in which it is used refer to the person who is in receipt of the interest. The interpretation suggested by the D. R. apart from being against the plain literal construction of the sub-clause, would also be against the "source rule" enacted by the Legislature. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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