TMI Blog1997 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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. - - - - - Dated:- 21-3-1997 - Judge(s) : G. B. PATTANAIK., S. C. AGRAWAL JUDGMENT The judgment of the court was delivered G. B. PATTANAIK J.--This appeal by special leave is against the judgment of the Bombay High Court in Income-tax Reference No. 86 of 1970 (see [1981] 130 ITR 534). At the instance of the Revenue, on an application being filed under section 256(1) of the Income-tax Act, 1961, the Tribunal referred the following two questions to the High Court for being answered and the High Court answered both the questions in the affirmative in favour of the assessee and against the Revenue. The two questions are : " (1) Whether, on the facts and in the circumstances of the case, income by way of any 'interest on securities' received from the Government could be excluded in the computation of chargeable profits in terms of clause (x) of rule 1 of the First Schedule to the Super Profits Tax Act, 1963 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities cannot be excluded in computing the chargeable profits for super profits tax purposes as clause (x) of rule 1 of the First Schedule does not apply to interest on Government securities. According to the Revenue, the interest on securities to be excluded from the chargeable profits has been dealt with under clause (vi) of rule 1 of the First Schedule and, therefore, the decision of the appellate authority is incorrect. The Tribunal, however, rejected the contention of the Revenue and held that interest received by a non-resident company from whatever source and from the Government or local authority or any Indian concern would be deductible under clause (x) of rule 1 of the First Schedule and, therefore, the appellate authority came to the correct conclusion in law. It, therefore, dismissed the appeal filed by the Revenue and on these facts the first question was referred to the High Court which the High Court also answered in favour of the assessee and against the Revenue. The assessee during the relevant period had also received a sum of Rs. 12,93,828 by way of interest on advances given to Indian concerns. The total amount of interest which the assessee received from v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t question is concerned, contended that under section 4 of the Super Profits Tax Act, a super profits tax is to be charged on every company on the amount on which the chargeable profits of the previous year exceeds the standard deduction at the rate specified in the Third Schedule. "Chargeable profits" has been defined under section 2(5) to mean the total income of an assessee computed under the Income-tax Act, 1961, for any previous year and adjusted in accordance with the provisions of the First Schedule. The First Schedule provides the rules for computing the chargeable profits and in making such computation it stipulates that while computing the total income for the year in question under the Income-tax Act, certain amounts as indicated in different clauses of rule 1 are to be excluded. Rule 1, therefore, provides : Income, profits and gains and other sums falling within the following clauses shall be excluded from such total income... " Since clause (vi) indicates that the income chargeable under the Income-tax Act under the head "Interest on securities" it is that clause which is applicable and not clause (x) as has been applied by the appellate authority and confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (x) it would not be permissible for the court to interpret the said clause (x) by inserting the words "other than the interest" on securities derived from any security of the Central Government or State Government after the expression "any interest" in clause (x). According to Mr. Ganesh, learned counsel, clause (x) being a specific clause dealing with the case of a non-resident company, the said clause should apply and not the general clause in clause (vi). Dr. Gauri Shanker, learned senior counsel appearing for the Revenue, on the other hand, contended, that rule 1 of Schedule I to the Super Profits Tax Act provides the method of computing the chargeable profits of an assessee of a previous year and while the total income for the previous year under the Income-tax Act is taken into account for determining the chargeable profits, certain sums falling within different clauses of rule 1 are to be excluded. When clause (vi) specifically provides that the income chargeable under the Income-tax Act under the head "Interest on securities" derived from any security of the Central Government or State Government then even in the case of a non-resident company the computation has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from the Central Government or State Government is concerned, is in accordance with clause (vi) of rule 1 of the First Schedule to the Super Profits Tax Act and clause (x) of the said rule 1 of the First Schedule has no application. Clause (x) provides for an additional deduction to be made in the case of a nonresident company if the said company has derived any income by way of interest which it received from Government or local authority or any Indian concern which is not covered by clause (vi). In the case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC), the question for consideration before this court was whether income from interest on securities would fall under section 8 or under section 10 of the Indian Income-tax Act, 1922 ? This court construed sections 8, 10 and 24(2) of the Indian Income-tax Act, 1922, and held that since the purchase and sale of securities was a business of the assessee, the assessee would be entitled to a set-off under section 24(2) of the Act. Under the Indian Income-tax Act, 1922, income from interest on securities was under section 8 and income from "profits and gains" of business was under section 10 and the question arose as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crops up, then the adjustment as provided under clause (vi) of rule 1 of the said First Schedule has to be made from the total income computed for the said year under the Income-tax Act for the purpose of levy of super tax. The Appellate Assistant Commissioner, the Tribunal and the High Court have committed error in holding that clause (x) of rule 1 of the First Schedule to the Super Profits Tax Act would apply. The income which is derived by the assessee as interest from Government securities being an income liable to tax under the head "Income from interest on securities" under section 14 of the Income-tax Act, 1961, the character and incidence of that income is not altered merely because it is earned by a non-resident company. In the aforesaid premises we are of the considered opinion 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 Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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