1997 (3) TMI 89 - SC - Income Tax

Whether in computing the chargeable profits of the assessee of a previous year from the total income computed for the year under the Income-tax Act the adjustment would be made in the case of the assessee in accordance with clause (vi) or clause (x)? Held that - In the matter of computation of the chargeable profits of the assessee for the purpose of levy of super profits tax under the provisions of the Super Profits Tax Act 1963 from the total income of the assessee computed for the year in question under the Income-tax Act it would be entitled to the adjustment of the amount received as interest on securities derived from any security of the Central Government or the State Government as per clause (vi) of rule 1 of the First Schedule inasmuch as the said amount is chargeable under the Income-tax Act under the head Interest on securities which was in force at the relevant period and not under clause (x) of rule 1 of the First Schedule to the Super Profits Tax Act as held by the High Court. The impugned judgment of the High Court is accordingly set aside and the first question posed by the Tribunal is answered in favour of the Revenue and against the assessee. The appeal is accordingly allowed.

Summary

Issues Involved:
1. Exclusion of income by way of 'interest on securities' from chargeable profits under clause (x) of rule 1 of the First Schedule to the Super Profits Tax Act, 1963.
2. Deduction of proportionate interest on borrowings from the interest amount received by the assessee from Indian concerns for computing net interest income.

Issue-Wise Detailed Analysis:

1. Exclusion of Income by Way of 'Interest on Securities' from Chargeable Profits:
The primary issue was whether the income by way of interest on securities received from the Government could be excluded in the computation of chargeable profits under clause (x) of rule 1 of the First Schedule to the Super Profits Tax Act, 1963. The assessee, a non-resident company, argued that the interest amount received from the Government should be excluded under clause (x). The Revenue contended that such interest should be excluded under clause (vi) instead. The Tribunal and the High Court had ruled in favor of the assessee, applying clause (x).

The Supreme Court, however, held that the correct provision applicable was clause (vi) of rule 1 of the First Schedule, which specifically deals with income chargeable under the head "Interest on securities" derived from any security of the Central Government or State Government. The Court emphasized that the categorization of income under specific heads as per the Income-tax Act should be strictly followed, and clause (vi) was applicable irrespective of the non-resident status of the company. The Court concluded that clause (x) provides for additional deductions for non-resident companies but does not override the specific provisions of clause (vi).

2. Deduction of Proportionate Interest on Borrowings:
The second issue involved the correct method of deducting interest paid by the assessee from the interest received from Indian concerns to determine the net interest income for exclusion from chargeable profits. The Appellate Assistant Commissioner had adopted a proportionate method, which was upheld by the Tribunal. The Revenue's appeal against this method was not pressed by its counsel during the Supreme Court hearing, and thus, the Court did not address this issue in its judgment.

Conclusion:
The Supreme Court set aside the High Court's judgment, ruling that the interest on securities received from the Government should be excluded under clause (vi) of rule 1 of the First Schedule to the Super Profits Tax Act, 1963, and not under clause (x). The appeal was allowed in favor of the Revenue, and the first question was answered against the assessee. The second question was not pressed and hence not dealt with by the Supreme Court.