TMI Blog1962 (9) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 10 year Treasury Savings Certificates. Such part of the interest payment to the depositors on the sum of ₹ 50,000 invested in the purchase of these savings certificates worked out to ₹ 904 and a like proportion of allowable expenses in this regard was computed at ₹ 815. The department took the view that, in so far as the income received from these certificates is concerned, since it is exempt from tax, no portion of either the interest on the deposits or the expenses relevant thereto would be admissible. Accordingly, the total of the above two sums of ₹ 1,719 was disallowed. When the matter was taken up in appeal to the Appellate Assistant Commissioner challenging the propriety of the disallowance, the appellate authority took the view that section 10 had no direct application so far as the income from the source which is not chargeable to income-tax is concerned. He thought the allowance would amount to double exemption, based on the ground that the income in question was claimed to fall under section 4(3) of the Act and also under section 10(2). He relied upon certain decisions which had special reference to co-operative banks in reaching t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this quantum of expenses should be divided between the gross receipt from interest on securities chargeable to tax and the gross receipt from other sources. The part of the expenses bearing the same proportion as the gross receipt from interest on securities chargeable to tax bears to the gross receipts from all sources shall within the meaning of the section be deemed to be the sum reasonably expended by it for the purpose of realising such interest. The last sentence of this part of the explanation reads: ... and the amount for which allowance is admissible under sub-section (2) of section 10 shall be reduced correspondingly. The effect of this explanation clearly appears to be that where a banking company doing banking business incurs expenditure which would be admissible under section 10(2), a proportion of those expenses should be brought within the ambit of section 8. Expenses dealt with under section 10(2) would be expenses incurred by the assessee in the conduct of his business, and would represent expenses attributable to the carrying on of the business. But, where the income receipt is an item which falls under the head interest on securities , on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich a part of it is directed to be brought under section 8. Mr. Ramamani, learned counsel for the assessee, is in our opinion right in his contention that what is contemplated by the amendment and effectuated thereby is only to bring an allowance, such as payment of interest on money borrowed or sum expended for the purpose of realising interest on the securities, in so far as such payment or expenditure might be incurred by the bank in the course of its businesses is concerned, and to the extent to which such expenditure related to the income from securities, under section 8 as an allowance allowable in the computation of the interest on securities, and not to deny to the assessee, the banking company, the totality of the expenses which would be allowable to it under section 10(2) of the Act. What is lawfully allowable under section 10(2) of the Act under the relevant heads is by means of this section split up into two parts, one to be dealt with under section 8 and the other under section 10. The principle underlying such re-classification of the interest payment or of expenditure appears to be that otherwise the entire expenditure on these heads would form part of the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not subject to tax, an expenditure proportionate thereto could not be denied deduction. The Explanation to our minds has not altered the position in any way and so long as the bank purchased these securities as part of its normal trading activity, both the interest payment to its depositors and the expenditure which it had to incur in the normal course of its business, would under the law be allowable, the only variation effected by the Explanation being that the allowance was brought partly under section 10 and partly under section 8. As pointed out, the phraseology used in the Explanation does not support the view that that part other than that described in the Explanation was intended to be disallowed. The view taken by the Tribunal and the department that where an item of income comes within the scope of section 4(3)(xvii) the exemption is operative only to the extent of the income less any allowances which would otherwise be available under section 10 or under section 8, as the case may be, wholly fails to impress us. Section 4(3) states that any income, profits or gains falling within the following classes shall not be included in the total income of the person re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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