# COMMISSIONER OF INCOME-TAX, KERALA v. SOUTII INDIAN BANK LTD. TRICHUR

- **Citation:** [1966] 2 S.C.R. 674
- **Court:** Supreme Court of India
- **Decided:** 1965-11-23
- **Case number:** Civil Appeal No. 842 of 1964
- **Bench:** K. Subba Rao, J. C. Shah, S. M. Snau
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-kerala-v-soutii-indian-bank-ltd-trichur-3738
- **Pages:** 4

## Headnote

Indian 111come-tax Act, 1922, s. 8-lnterest on securities-Claim of
rebate under notification issued under s. 60A-Rebate wherher to be allowtd 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 Bench of the
High Court upheld the Tribunal's view; the Commissioner of Income-tax
appealed to this Court.
It was contended for the Revenue that the exemption under the third
proviso to s. 8 was only in regard to that part of the interest which was
taxable but for the exemption. The further contention was that the notification issued by the Central Government under s. 60-A of the Incometax Act did not enlarge the scope of the exemption but that the said notification must be construed only in terms of s. 8 of the Income-tax Act.
HELD : The notification had to be construed on its own terms in its
application to the question of rebate raised in the present case. It is not
intended to cover the same ground occupied by s. 8, and there is no
ocope for controlling the provisions of the notification with reference to
s. 8. The expression 'interest receivable on income·tax free loans' in the
notification is clear and unambiguous, and can only mean the amount
of interest calculated as per the terms of the securities. lt ~annot obviousiy mean interest receivable minus the amount spent in receiving the
same. No income-tax was theq:efore payable in respect of the interest
by the assessee from the securities in question. [677 E-0]
CML APPELLATE JURISDICTION : Civil Appeal No. 842 of
1964.
Appeal by special leave from the judgment and order dated
February 19, 1963 of the Kerala High Court in Income-tax ReA
B
c
D
G
ferred Case No. 23 of 1962.
u
R. Ganapathy Iyer and B.R.G.K. Achor and R. N. Sachthey,
for the appellant.
•
•
•
•
•
•
. '
...
r
c.r.T. v. s. I. BANK (Subba Rao, J.)
675
A
A. v. Viswanatha Sastri and R. Gopalakrishnan, for the
respondent.

## Text

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 allowtd 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 Bench of the
High Court upheld the Tribunal's view; the Commissioner of Income-tax
appealed to this Court.
It was contended for the Revenue that the exemption under the third
proviso to s. 8 was only in regard to that part of the interest which was
taxable but for the exemption. The further contention was that the notification issued by the Central Government under s. 60-A of the Incometax Act did not enlarge the scope of the exemption but that the said notification must be construed only in terms of s. 8 of the Income-tax Act.
HELD : The notification had to be construed on its own terms in its
application to the question of rebate raised in the present case. It is not
intended to cover the same ground occupied by s. 8, and there is no
ocope for controlling the provisions of the notification with reference to
s. 8. The expression 'interest receivable on income·tax free loans' in the
notification is clear and unambiguous, and can only mean the amount
of interest calculated as per the terms of the securities. lt ~annot obviousiy mean interest receivable minus the amount spent in receiving the
same. No income-tax was theq:efore payable in respect of the interest
by the assessee from the securities in question. [677 E-0]
CML APPELLATE JURISDICTION : Civil Appeal No. 842 of
1964.
Appeal by special leave from the judgment and order dated
February 19, 1963 of the Kerala High Court in Income-tax ReA
B
c
D
G
ferred Case No. 23 of 1962.
u
R. Ganapathy Iyer and B.R.G.K. Achor and R. N. Sachthey,
for the appellant.
•
•
•
•
•
•
. '
...
r
c.r.T. v. s. I. BANK (Subba Rao, J.)
675
A
A. v. Viswanatha Sastri and R. Gopalakrishnan, for the
respondent.
The Judgment of the Court was delivered by
Subba Rao, J.
The respondent, the South India Bank LimitB ed, Trichur, is a banking company. This appeal is concerned with
the assessment year 1956-57, corresponding previous year being
the calendar year 1955. During the accounting year the Bank
received a sum of Rs. 44,720/- toward5 interest in respect of taxfree Cochin and Travancore Securities. During the course of the
assessment of its income to tax, it claimed that rebate should be
C
allowed on the entire sum of Rs. 44,720/- received as interest from
the said securities. But, the Income-tax Officer, while completing
the assessment, arrived at the figure of Rs. 33,444/- as the sum
representing-two items, viz., (i) reasonable sum expended by the
assessee in realizing the said interest; and (ii) the interest payable
on the money borrowed for the purpose of investment. After deD
ducting the said sum from the interest receivable from the said
securities, he granted only a sum of Rs. 7,276/- as rebate for
income-tax.
On appeal, the Appellate Assistant Commissioner
upheld the view of the Income-tax Officer. On a further appeal,
the Income-tax Appellate Tribunal, Madras Bench, held that the
Bank was entitled to a rebate on the gross amount of interest
E
amounting to Rs. 44,720/-. At the instance of the Department,
the Tribunal referred the following question to tlie High Court of
Kcrala for its decision :
"Whether, on the facts and circumstances of the
case, the Tribunal was right in holding that Explanation
r
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."
A Division Bench of the High Court expressed the opinion that
G
the entire interest of Rs. 44,720/- was entitled to rebate for incometax under the notification issued by the Central Government in
exercise of its powers under s. 60-A of the Indian Income-tax Act,
1922. Hence the appeal.
Mr. R. Ganapathy Iyer, learned counsel for the Revenue,
argued that under s. 8 of the Indian Income-tax Act, incomc:>-tax
H
was computed under the head "interest on securities" in respect of
the interest received by an assessee on any government securities
. Dlinus the expenditure incurred by him to realise the same in
676
SUPREME
COURT
REPORTS
[1966] 2 S.C.R.
terms of the first proviso and the Explanation thereto, that when
A
under the third proviso the asscssee was exempted from paying
tax on the interest receivable on any securities of State Government
issued income-tax free, he was only exempted from such tax payable by him if it was not so exempted. To put it differently, his
argument was that the exemption under the third proviso was only
in regard to that part of the interest which was taxable but for
B
the exemption. His further contention was that the notification
issued by the Central Government under s. 60A of the Income-tax
Act did not enlarge the scope of the exemption but that the said
notification must be construed only in terms of s. 8 of the Incometax Act.
Mr. A. V. Viswanatha Sastri, learned counsel for the respondent, argued that the substantive part of s. 8, read with the first
proviso and the Explanation thereto, had no application to securities issued income-tax free and that the interest from the Sta~
Government securities was governed by the third proviso which
c
did not provide for any deduction from the interest receivable
D
from such securities for the purpose of income-tax. Further he
sought to sustain the order of the High Court on the ground that
the interest in question was solely governed by the notification
issued by the Central Government whereunder the entire interest
receivable from such securities was exempted from income-tax.
As we agree with the High Court on the construction of the
notification issued by the Central Government, we do not propose
to express our opinion on the rival contentions of the parties based
upon the provisions of s. 8 of the Income-tax Act.
Section 8 of the Income-tax Act provides for the computation
J;
of income and deductions therefrom under the head "interest on
•
securities". Section 60 of the Act confers a power on the Central
Government to make an exemption, reduction in rate, or other
modifications in respect of income-t[\.x in favour of any class of
income or in regard to the whole or any part of any income of any
class of persons. This power is conferred on the Government to
meet special situations de hors s. 8. If s. 8 of the Income-tax Act
makes an exemption in respect of a particular income, there is no
scope or occasion for invoking the special power conferred on the
Central Government under s. 60A of the Income-tax Act. Unless
G
we accept the contention that the notification under s. 60A was
issued by the Central Government in superabundant caution to H
cover the same ground occupied by s. 8-we need not attribute
any such redundancy to the Central Government-we do not see
any reason why the notification should not be construed on its own
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B
c.I.T. v. s. r. BANK (Subba Rao, J.)
617
terms in its application to the question of rebate raised in this
case. The said notification reads : .
•
"No income-tax shall be payable by an assessee on
c
the interest receivable on the following income-tax free
loans issued by the former Government of Travancore
or by the former Government of Cochin, provided that
such· interest is received within the territories of the State
of Travancore-Cochin and is not brought into any other
part of the taxable territories to .which the said Act
app)ies. Such interest shall, however, be included in the
total inc;ome of the assessee for the purposes of Section
16 of the Indian Income-tax Act, 1922 :-
D
E
"
It is common case that this notification applies to the securities in
question. It will be noticed that this notification does not refer
to the provisions of s. 8 of the Income-tax Act at all. It gives a
total exemption from income-tax to an assessee in respect of the
interest receivable on income-tax free loans mentioned therein ..
It gives that exemption subject to tw9 conditions, namely, (i) that
the interest is received within the territories of the State of Tranvancore-Cochin, and (ii) that it is not'brought into any other part
of the taxable territories. It includes the said exempted interest
in the total income of the assessee for the purpose of s. 16 of the·
Income-tax Act.
Shortly stated, the notification is a self-contained one; it provides an exemption from income-tax payable by
an assessee on a particular class of income subject to specified
conditions. Therefore, there is no scope for controlling the provisions of the notification with reference to s. 8 of the Income-tax
F
Act. The expression "interest receivable on income-tax free loans"
is clear and unambiguous. Though the point of time from which
the exemption works is when it is received within the territories of
the State of Travancore-Cochin, what is exempted is the interest
receivable.
"Interest receivable" can only mean the amount of
G
H
interest calculated as per the terms of the securities.
It cannot
obviously mean interest receivable minus the amount spent in
receiving the same.
We, therefore, hold, agreeing with the Hig!J
Court, that no income-tax is payable in respect of the entire interest of Rs. 44, 720/- earned by the assessee from securities issued
by the former native States.
In the result, the appeal fails and is dismissed with costs .
Appeal dismissed ..
LlSup.CJ/66-13