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TMI Blog2008 (3) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... d for by the assessee on accrual basis in his books of account and the amount actually offered for taxation in computation of income submitted by the assessee should be the subject-matter of adjustment under section 143(1)(a) for raising a demand of tax and additional tax on that basis ?" 2. While the other three appeals have been admitted, vide order dated December 13, 2005, by framing the following three substantial questions of law: "(i) Whether since sections 18 to 21 have been deleted from the Income-tax Act, 1961, the interest on securities, that becomes part of the transaction price of sale purchase of securities is taxable as income from profits and gains of business ? (ii) Whether taxability of such interest on securities subject of transaction price on sale of security continues to be governed by the ratio of the Supreme Court decision in Vijaya Bank Ltd. v. Addl. CIT [1991] 187 ITR 541, for the periods subsequent to the amendment in the Income-tax Act ? (iii) Whether the Tribunal was justified in holding that the Commissioner was in error in holding the assessment of such income made by the Assessing Officer to be erroneous and prejudicial to the interests of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the aspect of effect of the deletion of these sections, we think it appropriate to quote the provisions of sections 18 to 21, as they stood earlier, and they read as under: "18. Interest on securities. - (1) The following amounts due to an assessee in the previous year shall be chargeable to income-tax under the head 'Interest on securities' - (i) interest on any security of the Central or State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act. (2) Nothing contained in sub-section (1) shall be construed as precluding an assessee from being charged to income-tax in respect of any interest on securities received by him in a previous year if such interest had not been charged to income-tax for any earlier previous year. 19. Deductions from interest on securities - Subject to the provisions of section 21, the income chargeable under the head 'Interest on securities' shall be computed after making the following deduction- (i) any reasonable sum expended by the assessee for the purpose of realising such interest; (ii) any interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of business or profession". Then, a look at section 36(1)(iii) does show that the deduction in pari materia in terms of erstwhile section 19 is admissible under this clause. For the present purpose, sections 20 and 21, as they earlier existed, are not relevant for the present controversy. 6. It is in this background, that the learned Tribunal has set aside the order of the Commissioner passed in revision under section 263 by holding that the Deputy Commissioner of Income-tax has thoroughly examined the case of the bank and after discussion on various points the Assessing Officer had allowed the claim of the assessee. It was found that the Assessing Officer had examined the facts of the case and he has applied mind. Then, it was considered that the judgment in Vijaya Bank Ltd's case [1991] 187 ITR 541 (SC) is not applicable in this case as that judgment was based on the interest income assessed under sections 18 to 21 which have been omitted with effect from April 1, 1989, and therefore, these sections are not applicable for the assessment years 1990-91 onwards. Then, reference has been made to the judgment in American Express International Banking Corporation v. CIT [2002] 258 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er [1949] 31 TC 314, 332 (CA) wherein it was held that it is a well-settled principle that outlay on the purchase of an income-bearing asset is in the nature of capital outlay and no part of the capital so laid out can for income-tax purposes be set off as expenditure against income accruing from the asset in question and it was held that, in that instant case, the assessee purchased securities and the price paid for the securities was determined with reference to their actual value as well as the interest which had accrued on them till the date of purchase and it was found that the fact remains that whatever was the consideration which prompted the assessee to purchase the securities the price paid for them was in the nature of a capital outlay and no part of it can be set off as expenditure against income accruing on those securities. Subsequently, when these securities yielded income by way of interest such income attracted section 18. Thus, the claim for deduction was found to be not allowable. 8. Then, a look at the judgment in American Express International Banking Corporation's case [2002] 258 ITR 601 (Bom) shows that it does look into the judgment in Vijaya Bank Ltd.'s cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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