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TMI Blog1957 (5) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 23,62,815 and under the head "business income " there was a loss of Rs. 8,86,972. After making the necessary adjustments and deducting the business loss from "Interest on securities", the net income was determined at Rs. 14,95,826. In the previous year there was a loss of Rs. 3,21,929 which was computed by setting off the business loss against "interest on securities". Before the Income-tax Officer the assessee made its claim on the basis that it was a part of "the business of the bank to deal in securities" and "that no distinction should be made between income from securities and income from business for the purpose of set-off under section 24." It also claimed that it carried on only one business, namely banking as defined by section 277F of the Indian Companies Act in the course of which the "bank has to receive money on deposits and invest such deposits in securities, loans and advances" and, therefore, holdings of securities by it could not be treated as its separate business. The Income-tax Officer was of the opinion that as there was a loss under the head "business" its claim could not be sustained and hence it could not be set off under section 24(2) of the Act. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve expenses out of the income from interest on securities. (3) Whether in the circumstances of this case, the assessee was entitled under the first proviso to section 8 of the Income-tax Act to deduct any interest on money borrowed and utilised for investment in tax-free securities." The High Court answered all the questions in the negative. The learned Chief Justice during the course of his judgment said : "It appears to me, therefore, that both because the several heads under section 6 in the Indian Act are mutually exclusive and because under any income-tax law, an item coming under an exclusive head cannot in any circumstances be charged under another head and also because the interest on securities in the hands of a banker cannot be treated as business income on the principles explained by Mr. Justice Rowlatt, I must hold that the contention of the assessee ......... must be rejected." We had the benefit of a full and able argument from counsel on both sides. Counsel for the appellant has raised three points : (1) That sections 8 and 10 of the Act should be so read that "interest on securities" in cases, where the true nature and character of the securities in the ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the Central Government ...... and in the provisos to this section are given the allowable deductions. The amendment made in the proviso by the Act of 1955 is very relevant for the purpose of this appeal and we shall advert to it at a later stage." Section 10 provides : "The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him." The assessee contends that securities are a part of its trading assets and this position has throughout been accepted by the Department, and any income which accrues in respect of these assets in the form of interest has the same characteristics as profits or gains of "business" and, therefore, must be treated as income falling under the head "business" under section 10 of the Act. In other words the income of the assessee from its banking business which includes dealing in securities is really income from the same source and whatever accrues in the form of interest whether from securities or from any other source of investment would fall under section 10 and not section 8 because all the interest accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council in Probhat Chandra Barua v. King Emperor section 6 is the charging section and that the words of sections 7 to 12 show that the various heads of income are mutually exclusive and items which specifically fall under these various heads have to be charged under only that head and would fall under one of these several but appropriately specific sections. It is true that the Privy Council in Probhat Chandra Barua v. King Emperor did point out that section 6 was a charging section, but this was because sections 3 and 4 were then differently worded as pointed out by Kania, J., in B. M. Kamdar, In re at page 43 and by Chagla, J., in the same case at page 57. The Federal Court in Chatturam v. Commissioner of Income-tax said : "The liability to pay the tax is founded on sections 3 and 4 of the Income-tax Act, which are the charging sections." The judgment of the Privy Council in Wallace Brothers & Co. Ltd. v. Commissioner of Income-tax also shows section 3 to be the charging section. It is then argued that section 6 of the Act being mandatory all items of income, from whatever source they arise, would fall only under one of the heads enumerated under section 6 and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct heads of income, profits and gains, "salaries," "interest on securities" and "property", "business" etc. is indicative of the intention of the legislature making the various heads of income, profits and gains mutually exclusive. So every item of income, whatever its source, would fall under one particular head and for the purpose of computing the income for charging of income-tax the particular section dealing with that head will have to be looked at. The various sources of income, profits and gains have been so classified that the items falling under those heads become chargeable under sections 7 to 12 according as they are income of which the source is "salaries", "interest on securities", "property", "business, profession or vocation", "other sources" or "capital gains". Looked at thus the contention of counsel for the Revenue that under the scheme of the Act and on a true construction of these relevant sections "interest on securities" by whomsoever and for whatever purpose held has to be taxed under section 8 and under no other section is well founded and must be sustained. It being a specific head of chargeability of tax, income from "interest on securities" whether held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in order to arrive at the total income on which tax is to be charged "you have to consider the nature, the constituent parts, of his (assessee's) income to see which schedule you are to apply." If these words may be used with reference to the language of the Indian Act, we have to look at the source of "income, profits and gains" and then see under what head it appropriately and specifically falls and if it falls under one particular head then computation is to be made under the section which covers that particular head of income. We cannot treat any one of the sections from sections 7 to 10 to be general or specific for the purpose of any one particular source of income. The language shows that they are all specific and deal with the various heads in which the item of income, profits and gains in the case of an assessee falls. Sir George Rankin in Commissioner of Income-tax v. Chunilal B. Mehta said : "The effect of section 6 is to classify profits and gains under different heads for the purpose of providing for each appropriate rules for computing the amount : its language is 'shall be chargeable......... in the manner hereinafter appearing.' One of the heads is 'business', ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been taxed under Schedule A and could not again be brought in computo under Schedule D. Viscount Dunedin at page 306 observed : "Now, if the income of the assessee consists in part of real property you are, under the statute, bound to apply Schedule A." Lord Atkin at page 319 said : "....... the dominance of each Schedule A, B, C, and E over its own subject matter is confirmed by reference to the sections and rules which respectively regulate them in the Act of 1842. They afford a complete code for each class of income, dealing with allowances and exemptions, with the mode of assessment, and with the officials whose duty it is to make the assessments ... I find no ground for assessing the taxpayer under Schedule D for any property or gains which are the subject matter of the other specific Schedules." At page 320, he pointed out that Schedule D is a residuary schedule and all schedules are mutually exclusive. Referring to investments in securities he said : "...... income derived by a trading company from investment of its funds, whether temporary or permanent, in Government securities must be taxed under Schedule C, and cannot for the purposes of assessment und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of it because you say that you look a little further and see this is only embedded in a business." It means in terms of the Indian statute that in the case of interest on securities if chargeable under a specific section, the assessee even though he is a banker cannot claim that they be treated as "business income". In Thompson v. Trust and Loan Company of Canada the respondent company carried on business as a loan and finance company. During the material years the company bought treasury bonds-cum-coupons and on the same day sold bonds of the same nominal value retaining the coupons and received on encashment a half year's interest under deduction of income-tax. The Crown contended that in computing the Company's profits for assessment to income-tax under Case 1 of Schedule D there should be included, as receipts, the amounts realised by the sale of bonds ex-coupons and the net proceeds of the coupons and as, disbursements, the amounts paid by the company for the bonds-cum-coupons. But it was held that the interest received by the company was income of the company taxed by deduction under Schedule C and that no part of the proceeds of the coupons should be included in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessees in that case had several sources of income, one of which was interest on securities. The business of the assessees showed a loss but the assessees claimed earned income relief in respect of interest on securities on the ground that securities which they had purchased and sold as part of their business, formed their stock-in-trade and the interest therefrom should be treated as "business" profits. But section 8 of the Act was held applicable to the facts of that case. Satyanarayana Rao, J., said : "It seems to us obvious that section 8 of the Act which deals with interest on securities is a separate and distinct head, and if an income is chargeable under that head, it is not open either to the assessee or to the department to change the head and claim to tax it under a different head ..." It was also pointed out in this judgment following Commissioner of Income-tax v. Bosotto Bros. that if income falls under more than one head the assessee has the option to choose the head which makes the burden on his shoulders lighter. The following two cases were relied upon by the assessee : Mangalagiri Sri Umamaheshwari Gin and Rice Factory Ltd. v. Guntur Merchants Gin a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "interest on securities" is severable into income from securities held as a capital investment and income from those held as trading assets. The language of sections 6, 8, and 10 is destructive of any such contention. Thus on a true construction of the various sections of the Act the income of an assessee is one and the various sections 7 to 12 are modes in which the statute directs that income-tax is to be levied and these sections are mutually exclusive. The head of income of which the source is "interest on securities" has its characteristics for income-tax purposes and falls under the specific head covered by section 8 of the Act, and where an item falls specifically under one head it has to be charged under that head and no other. This interpretation follows from the words used in sections 6, 8 and 10 which must be read so as to give effect to the contrast between "income, profits and gains" chargeable under the head "interest on securities" and "income, profits and gains" chargeable under the head "business". Thus on this construction the various heads of "income, profits and gains" must be held to be mutually exclusive, each head being specific to cover the item arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appear from the judgment of the High Court that the question was argued in the manner it has been debated in this Court. The appellant seems to have rested his case on the applicability of section 10 to the profits under the head "interest on securities" because of the securities being trading assets, but this contention was repelled and the same question has been raised before us but the assessee now supports his case on an alternative argument that even if the securities fall under section 8 still the profits from that source are from an item of the assessee's business and, therefore, the loss of the previous year from the banking business of the assessee can be set off against the profits of the assessment year whatever be the source of that profit. The case is similar to the one in Commissioner of Income-tax v. Ogale Glass Works Ltd. The question framed by the Tribunal is a general one and what is to be determined is whether the loss of the previous year can be set off against the income of the assessment year within the provisions of section 24(2) of the Act. The question is wide enough to cover the point raised before us. In the circumstances of this case the third point, r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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