THE UNITED COMMERCIAL BANK LTD., CALCUTTA vs. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

CIVIL APPEAL No. 161/1954Supreme Court[1958] 1 S.C.R. 7923 May 1957Bench: 3 JudgesAuthor: NATWARLAL HARILAL BHAGWATI, T.L. VENKATARAMA AIYYAR, J.L. KAPUR SUPREME COURT REPORTS THE UNITED COMMERCIAL BANK LTD., CALCUTTA22 pages
AI SummaryRemanded

What were the facts?

The assessee, United Commercial Bank Ltd., for the assessment year 1945-46, had its income computed by splitting it into 'interest on securities' and 'business income'. The bank had a business loss in the previous year, which it sought to set off against the interest on securities income of the assessment year under Section 24(2) of the Indian Income-tax Act, 1922. The Income-tax Officer rejected this claim, stating that business loss could not be set off against income from securities. The Income-tax Appellate Tribunal and the High Court upheld this view, holding that 'interest on securities' was not business income under Section 10, but a separate head under Section 8. The bank appealed to the Supreme Court, arguing that securities held were trading assets and thus part of its banking business, or alternatively, that even if under Section 8, it was part of its single banking business.

What did the Supreme Court hold?

The Supreme Court held that the scheme of the Indian Income-tax Act, 1922, as per Sections 6, 8, and 10, enumerates mutually exclusive heads of income. Therefore, 'interest on securities', specifically chargeable under Section 8, cannot be brought under Section 10, irrespective of whether the securities are held as trading or capital assets. The Court found that the crucial question of whether the securities in question formed part of the trading assets held by the assessee in the course of its banking business was not adequately established. Consequently, the Court could not definitively rule on whether the income from securities was part of the 'same business' for the purpose of set-off under Section 24(2). The appeal was allowed, and the case was remitted to the High Court for a fresh decision after obtaining a fuller statement of facts from the Tribunal regarding the nature of the securities held by the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the assessee was entitled to set off the business loss of Rs. 3,21,929 brought forward from the preceding year against the assessment year's income from interest on securities held by the assessee, under Section 24(2) of the Indian Income-tax Act, 1922. The assessee contended that securities held were trading assets and thus part of its business income under Section 10, or alternatively, that the holding of securities was part of its single banking business, making the income chargeable under Section 8 still part of the same business for set-off purposes. The Revenue argued that Section 6 of the Act made heads of income mutually exclusive, and therefore, business loss under Section 10 could not be set off against income from securities under Section 8. The Revenue also argued that the phrase 'same business' in Section 24(2) meant profits must arise from the same head of income as the loss. 2. Whether, in the absence of a finding that the securities were trading assets held in the course of its banking business, the Supreme Court could decide if the income from securities was part of the same business for the purpose of set-off under Section 24(2).

Which sections of the Income-tax Act were involved?

Section 6,Section 8,Section 10,Section 24(2)

AI-generated summary — verify with the full judgment below

- S.C.R. SUPREME COURT REPORTS THE UNITED COMMERCIAL BANK LTD., CALCUTTA v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL (BHAGW ATI, VENKATAAAMA AYYAR and J. L. KAPUR, JJ.j 79 Income Tax-Business loss of Previous Year-Set-off against income of the Assessment Year-Income from "Interest on sec11- rities"-Banking business-Securities, part of trading assets- Indian Income-tax Act, 1922 (XI of 1922), ss. 6, 8, 10, 24(2).

For the assessment year (1945-46) the assessable income of the appellant bank was computed by the Income-tax Officer by splitting up its income into two -heads "interest on securities" and "business income", and deducting the business loss from interest on-securities. In the previous year the assessment showed a loss which was computed by setting off the 'business loss" against "interest on securities". The appellant claimed that in the computation of its profits for the assessment year in question it was entitled to set off the carried over loss of the previous year under s. 24(2) of the Indian Income-tax Act, 1922. The Income-tax Officer rejected the claim on the ground that the loss was under the head "business" and so could not be set off aga

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