TMI Blog1964 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits, either under section 10(2)(iii) or10(2)(xv) ? " The relevant facts and circumstances are these : The respondent, the Indian Bank Ltd., Madras, hereinafter referred to as the assessee, carried on the business of banking. In the normal course of its business, it received deposits from constituents and paid interest to them. It invested a large sum in securities both of the Central 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 proport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in the assessment. Therefore, the tax-free securities are capable of producing profits and losses. There is force in the contention of Mr. Venkatram, and the appeal must fail on this ground alone. But as the question has been debated before the High Court, and before us, we do not desire to rest our decision on this narrow ground. Then is there such a principle as has been formulated above ? 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, whereas the respondents find full justification for their resistance in the provisions of rule 3 of the rules applicable to Cases I and II of Schedule D .... " This rule is similar to section 10(2)(xv) of the Indian Income-tax Act. After setting out the rule and noticing its effect, he says : " . . . it seems to me to be incontrovertible that, in the present case, the investments in question were 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court divided the business into two separate businesses. But the business of the present assessee cannot be divided into two separate businesses. It is one and indivisible. In Chellapa Chettiar v. Commissioner of Income-tax, the assessee carrying on business as a money-lender had borrowed money and lent it out to constituents. He was obliged to receive agricultural lands in repayment of his debts from such 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, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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