COMMISSIONER OF INCOME-TAX, KERALA vs. SOUTH INDIAN BANK LTD. TRICHUR

CIVIL APPEAL No. 842/1964Supreme Court[1966] 2 S.C.R. 67423 November 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI COMMISSIONER OF INCOME4 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the notification issued by the Central Government under Section 60A of the Indian Income-tax Act, 1922, must be construed on its own terms and is not controlled by Section 8. The expression 'interest receivable on income-tax free loans' in the notification is clear and unambiguous, meaning the amount of interest calculated as per the terms of the securities. It does not mean interest receivable minus expenses incurred in receiving it. Therefore, the assessee was entitled to rebate on the gross amount of interest of Rs. 44,720/-. The Court agreed with the High Court and held that no income-tax was payable on this entire interest. The appeal was dismissed.

What were the facts?

The assessee, South Indian Bank Ltd., a banking company, claimed rebate for the assessment year 1956-57 on the entire interest of Rs. 44,720 received from tax-free securities. The Income-tax Officer allowed rebate only on Rs. 7,276 after deducting expenses incurred in realizing the interest and interest payable on borrowed money. The Appellate Assistant Commissioner upheld this order. The Income-tax Appellate Tribunal held that the assessee was entitled to rebate on the gross interest. A Division Bench of the Kerala High Court affirmed the Tribunal's view. The Commissioner of Income-tax appealed to the Supreme Court.

What were the issues?

1. Whether the Tribunal was right in holding that Explanation to Section 8 is not applicable in this case and that the entire interest of Rs. 44,720/- earned by the assessee from securities issued by the former Native States, etc. is entitled to rebate of income-tax? (Question of law and fact, turning on Section 8 and Section 60A of the Indian Income-tax Act, 1922). Assessee's contentions: The substantive part of Section 8, read with its first proviso and Explanation, does not apply to income-tax free securities. Interest from State Government securities is governed by the third proviso, which does not allow deductions. The interest is solely governed by the notification issued under Section 60A, granting exemption on the entire interest receivable. Revenue's contentions: The exemption under the third proviso to Section 8 is only for the taxable part of the interest. The notification under Section 60A does not enlarge the scope of exemption and must be construed in terms of Section 8.

Which sections of the Income-tax Act were involved?

Section 8,Section 60A

AI-generated summary — verify with the full judgment below

674 COMMISSIONER OF INCOME-TAX, KERALA v. SOUTII INDIAN BANK LTD. TRICHUR November 23, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. Snau, JJ.] Indian 111come-tax Act, 1922, s. 8-lnterest on securities-Claim of rebate under notification issued under s. 60A-Rebate wherher to be al- lowtd after deduction of amount spent in earning the interest, The respondent was a banking company. During the accounting year for the assessment year 1956-57 the Bank received a certa:n sum towards interest in respect of tax free securities, and claimed rebate for the whole amount under the notification issued by the Central Government in exercise of its power under s. 60-A of the Indian Income-tax Act, 1922. The Income-tax Officer however, while completing the assessment allowed rebate only on the amount of interest that remained after deduction of sums expended by the asses.see in realising the said interest and the interest payable on the money borrowed for the purpose of investment. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer but the Tribunal held that the reopondent was entitled to rebate on the gro<s amount of interest. In reference, a Division B

The order continues below.

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