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TMI Blog1964 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... and State Governments (including Mysore Government). The interest on Mysore Government securities was exempt from income-tax and super-tax under the provisions of a notification issued under section 60 of the Act. It bought and sold these securities and the profits and losses on the purchase and sale of such securities were duly taken into account in computing the income of the assessee, under the head " business ". For the assessment year 1951-52 (accounting year, calendar year 1950) it claimed a deduction of Rs. 25,91,565 as interest paid to various depositors, under section 10(2)(iii) of the Act. The Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal disallowed interest amounting to Rs. 2,80,194. This amount was arrived at by calculating the proportionate interest which would be payable on money borrowed for the purchase of Mysore securities for Rs. 2,49,93,511. We need not describe the formula adopted for calculating the proportionae interest for nothing turns on it. The grounds given by the Appellate Tribunal for disallowing the deduction of the proportionate interest were two-fold : first, as " income from securities can be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve ? If there is one, can it be invoked to cut down the express language of section 10(2)(iii), which expressly allows as a deduction interest on capital borrowed for the purpose of the business ? In our opinion, in construing the Act, we must adhere closely to the language of the Act. If there is ambiguity in the terms of a provision, recourse must naturally be had to well-establisbed principles of construction but it is not permissible first to create an artificial ambiguity and then try to resolve the ambiguity by resort to some general principle. We are concerned with the interpretation of section 10. Let us then look at the language employed. Sub-section (1) directs that an assessee be taxed in respect of the profits and gains of business carried on by him. What is the business of the assessee must first be looked at. Does he carry on one business or two businesses or along with the business carried on by him some activity which is not a business ? If he is carrying on an activity which is not business, we must leave out of account the receipts of that activity. That is the first step. Secondly, we must look at section 10(2) and deduct all the allowances permissible to him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere part of the business of the respondents' trade, and that the expense connected with them was wholly and exclusively laid out for the purposes of the trade. Expenditure in course of the trade which is unremunerative is none the less a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of a receipt on the credit side to justify the deduction of an expense. " Although the Master of the Rolls found force in the argument of the Crown, he could find nothing in the language of the English Act to eliminate a part of the expenses of an indivisible trade. Similarly, Greene L. J. could find no warrant in the language of the statute to give effect to the contention of the Crown. He observed that " when the statute says that interest is to be exempt, I am quite unable to read it as meaning that in giving effect to that exemption by implication, some, repercussion is to take place on a different provision of the Act altogether .... I can find nothing in the statute which requires this interest to be treated, so to speak, as a trade within a trade. This is really what the Crown contend, that in some way this interest which is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h constituents. The question arose whether he was entitled to a deduction in respect of the interest paid by him on capital represented by the agricultural lands. The court, following Hughes v. Bank of New Zealand, held that he was entitled notwithstanding that agricultural income was not taxable under the Income-tax Act. Mr. Sastri says that this was wrongly decided and was in fact dissented from by the Rangoon High Court in Commissioner of Income-tax v. N. S. A. R. Concern. Dunkley J., in the Rangoon case, distinguished Hughes v. Bank of New Zealand because he thought that the scheme of the Burma Income Tax Act was entirely different from the scheme of the English Income Tax Act, 1918. He observed that " in England a person is assessed to income tax in respect of his income, while under the Burma Act it is the income, which is taxed. Under the English Act no class of income is outside the scope of the Act, whereas by section 4(3) of the Burma Act the Act is made inapplicable to a number of classes of income. The English Act merely confers certain exemptions on a person in respect of his income up to a certain amount or of certain kinds, similar to the exemptions conferred on cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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