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PETITIONER:

COMMISSIONER OF INCOME TAX, BOMBAY

Vs.

RESPONDENT:

M/S. BANQUE NATIONALE DE-PARIS

DATE OF JUDGMENT: 21/03/1997

BENCH:

S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E NT

PATTANAIK, J.

This appeal by special leave is against the judgment of

the Bombay High Court in Income Tax Reference No. 86 of

1970. At the instance of the Revenue on an application being

filed under Section 256(1) of the Income Tax Act, 1961, the

Tribunal referred the following two questions to the High

court for being answered and the High Court answered both

the questions in the affirmative in favour of the assessee

and against the Revenue.

The two questions are:-

"(1) Whether, on the facts and in

the circumstances of the case,

Income by way of any "interest on

securities" received from

Government could be excluded in the

computation of chargeable profits

in terms of Clause (x) of Rule 1 of

the First schedule too the super

profits Tax Act, 1963.

(2) Whether , on the fact and in

the Circumstances of the case , the

Tribunal was right in holding that

only the proportionate interest of

Rs. 5,19,804/- on borrowings should

be deducted from the interest

amount of Rs. 12,93,828/- received

by the assessee from the Indian

concerns, and not the whole of the

interest amount of Rs. 10,12,252/-

paid by the assessee to various

parties, in order to determine the

net interest income for the

purposes of exclusion from the

chargeable profits in terms of

Clause(X) of Rule 1 of the First

Schedule to the super profits Tax

Act, 1963."

The short facts leading to the questions being referred

are that the assessee M/s. Banque Nationale De-Paris is a

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non-resident company and admittedly it had not made any

arrangement for declaration of payment of dividends in India

during the calendar year 1961. A sum of Rs. 2,18,802/- which

the assessee had received towards interest on securities had

been included in the assessee's total income for the

purpose of assessment. The assessee's contention was that

the super profits Tax assessment made by the Departmental

Authority is erroneous as the assessee was entitled to

exclusion of the aforesaid interest amount in computing the

chargeable profits in accordance with Clause(X) Rule I of

the First Schedule of the super Profits Tax Act, 1963, as

the entire interest amount had been received from the

Government. Since the super profits Tax officer did not

exclude the aforesaid amount as contended by the assessee

the matter was carried in appeal to the Appellate Assistant

Commissioner. The said Appellate Authority was of the

opinion that the interest on security received from the

Government was to be excluded from the chargeable profits

for the purpose of super profits Tax assessment in

accordance with clause X Of Rule I of the First Schedule of

the super profits Tax Act but the said Assistant

Commissioner Came to the Conclusion that the figure of

income from interest on security which the assessee claimed

to be deducted in computing the chargeable profits is not

correct and it accordingly reduced the same to Rs. 18,904/-

in respect of interest on borrowings and Rs. 19,333/- in

respect of other expenses. According to the Appellate

Authority the net amount of interest on securities is Rs.

37,683/- which should be excluded from the chargeable

profits. The Department filed the appeal before the Tribunal

against the aforesaid order to the Authority contending that

the interest on security can not be excluded in computing

chargeable profits for super Profits Tax purposes as Clause

X of Rule I of the First Schedule does not apply to the

interest on government securities. According to Revenue the

interest in securities to be excluded from the Chargeable

profits has been dealt with under Clause VI of Rule I of

First Schedule and, there fore, the decision of the

Appellate Authority is incorrect. The Tribunal , however,

rejected the contention of the revenue and held that

interest received by non-resident company from whatever

source and from the Government or Local Authority or any

Indian concern would be deductable under Clause X of Rule I

of First schedule and, therefore, the Appellate Authority

came to the correct conclusion law. It, therefore ,

dismissed the appeal filed by the Revenue and on these facts

the first question was referred to the High Court which the

High Court also answered in favour of the assessee and

against the Revenue.

The assessee during the relevant period had also

received a sum of Rs. 12,93,822/- by way of interest on

advances given to Indian concerns. The total amount of

interest which the assessee received from various sources

was Rs. 25,19,560/- The assessee before the super profits

Tax officer had claimed the deduction of entire Rs.

12,93,822/- which it had received by way of interest on

advances given to Indian concerns. The super profits Tax

officer in computing the income the income by way of income

from Indian concerns arrived at the figure of Rs. 1,16,617/-

. The super profits Tax officer was of the view that the

interest to be excluded from the chargeable profits is the

net amount of interest after deducting the interest which

the assessee paid to its depositors and creditors as well

as after deducting other proportionate expanses and thus

the said super profits Tax officer determined that the net

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income by way of interest to be excluded from the chargeable

profits on this head is Rs. 1,61,617/-. The assessee then

carried the matter in appeal to the Appellate Assistant

Commissioner who came to the conclusion that the interest

which the asessee received from Indian concerns to the

extent of Rs. 12,93,828/- should be reduced by that

proportion of the interest which the assessee himself had

received from Indian concerns bears to the total interest

receipt of the assessee. According to the Appellate

Authority such proportion would work out at Rs. 5,19,804/-

and the proportionate expenses is Rs. 5,51,207/- which

together would work out at Rs. 10,71,011 /- and this amount

should be deducted from the gross interest receipts of Rs.

12,93,828/- and therefore , the Appellate Authority worked

out the net amount of interest received by the assessee from

Indian concerns at Rs. 2,22,817/- which amount should be

excluded from the chargeable profits. Against the aforesaid

decision the Revenue felt aggrieved and carried the matter

the second appeal. The Tribunal came to the conclusion that

the formula adopted by the Appellate Assistant Commissioner

was extremely fair and no exception could b taken to it and

ultimately did not interfere with the order of the Tribunal

and on these set of facts and conclusions the second

question was referred by the Tribunal and on these set of

facts and conclusions the second questions was referred by

the Tribunal.

After arguing for considerable period Dr. Gauri

Shanker, Learned senior counsel appearing for the appellant

did not press the second question and, therefore we are not

required to deal with the said question in this appeal. Dr.

Gauri shanker, learned senior counsel appearing for the

Revenue, however, so far as the first question is concerned,

contended that under section 4 of the super profits Tax Act,

a super profit Tax is to be charged on every company on the

amount on which the chargeable profits of the previous Year

exceeds the standard deduction at the rate specified in the

IIIrd schedule. The Chargeable profit has been defined under

section 2(5) to mean the total income of an assessee

computed under the Income Tax Act. 1961 for any Previous

year and adjusted in accordance with the provisions of the

First Schedule. First Schedule Provides the rules for

computing the chargeable profits and in making such

computation it stipulates that while computing the total

income for the year in question under Income Tax Act certain

amount as indicated in different clauses of Rule I are to be

Excluded. Rule I therefore provides :

"Income, profits and gains and

other sums falling within the

following clauses shall be excluded

from such total income"...........

Since Clause VI indicates that the income chargeable

under the Income Tax Act Under the head "interest on

Security" it is that clause which is applicable and not

clause X as has been applied by the Appellate Authority and

confirmed by the Tribunal and even the High court has

answered the question framed in favour of the assessee.

Mr. Ganesh. learned counsel appearing for the assessee

on the other hand contended that the assessee being a non-

resident company and clause X having made it clear that

income by way of any interest which the company and clause

X having made it clear that income by way of any interest

which the company receives from any Government or local

authority or Indian concern, it is Clause X that would apply

and , therefore, the High court has not committed any error

in answering the question posed in favour of the assessee.

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For better appreciation of point in issue it will be

appropriate to extract Clauses VI and X in extenso;-

"(VI) income chargeable under the

Income -Tax Act under the head

"interest on securities" derived

from any security of the Central

Government issued or declared to be

income-Tax free or from any

security of a state Government

issued income-tax free, the income

-tax whereon is payable by the

state Government issued income-tax

free, the income-tax whereon is

payable by the state Government:

(X) in the case of a non-resident

company which has not made the

prescribed arrangements for the

declaration and payment of

dividends within India, its income

by way of any interest or fees for

rendering technical services

received from Government or a local

authority or any Indian concern;"

The question that arises for consideration, therefore ,

is that in computing the chargeable profits of the assessee

of a previous year from the total income computed for the

year under the Income Tax Act the adjustment would be made

in the case of the assessee in accordance with Clause VI or

Clause X. According to Mr. Ganesh, the learned counsel

appearing for the respondent the expression "any interest"

in clause X is of widest ambit and cover every type of

income by way of interest of a non-resident company and in

that view of the matter there is no justification to give a

restrictive meaning to the aforesaid expression "any

Interest" to mean interest other than those covered under

Clause VI. The learned counsel also urged that the court in

interpreting a particular provisions of a statute need not

add or subtract words into it if the meaning of the

Provision is clear and it is only when there is any

ambiguity or absurdity in giving plain meaning of a word of

statute it will be Permissible for a court to add words

into it. This being the principle of interpretation and

there being no ambiguity in clause X it would not be

permissible for the court to interpret the said Clause X by

inserting the words "other than the interest " on

securities derived from any security of the central

Government or state Government after the expression "any

interest" in Clause X. According to Mr. Ganesh, learned

counsel Clause X being a specific clause dealing with the

case of a non-resident company the said Clause should apply

and not the general clause in clause VI. Dr. Gauri Shanker ,

Learned senior counsel appearing for the Revenue on the

other hand contended, that the rule Of schedule II of super

Profits Tax Act provides the method of computing the

chargeable profits of an assessee of a previous year an

while the total income for the previous year under the

Income Tax Act is taken into account for determining the

chargeable profits certain sums falling within different

clauses of Rule I are to be excluded. When Clause VI

specifically provides that the income chargeable under the

head "Interest on security" derived from any security of the

Central Government or state Government then even in case of

a Non-resident Company the Computation has to be made in

accordance with the said Clause , so far as the interest

received on Government securities are concerned and Clause X

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would apply only in respect of other income by way of

interest for the non resident company not covered under

Clause VI . According to Dr. Gauri Shanker, the learned

senior counsel appearing for the appellant, the emphasis is

on the head from which the income is derived and not on the

status of the assessee.

Having considered the rival submissions we find

considerable force in the argument advanced by the learned

counsel appearing for the Revenue. Under Chapter IV of the

Income Tax Act the total income of an assessee is computed

and under section 14 there are only five heads of income ,

namely:-

A. Salaries

B. Interest on securities;

C. Income from house property;

D. Profits and gains of Business

or Profession;

E. Capital gains ;and

F. Income from other sources

Head B has been omitted by Finance Act 1988 with effect

from 1.4.89 but was there during the relevant period with

which we are concerned in the present case . Section 18, as

it stood , deals with "interest on securities" and it

provided that the amounts due to assessee in the previous

year shall be chargeable to income-tax under the head

"interest on securities" are :

(i) interest on a security of a

Central or State Government;

(ii) interest on debentures or

other securities for money issued

by or on behalf of the local

authority or company or corporation

established by the Central, State

or Provincial Act.

When Clause VI of Rule I of the First Schedule of super

Profits Tax Act Stipulates that the Income Chargeable Under

the Income Tax Act under the Head "Interest on securities"

derived from any Security of the central Government or a

State Government , it is therefore , Necessarily referable

to section 14(b) so far as the head of income is concerned,

and section 18 so far as the type of securities , interest

from which has to be computed in arriving at the income of

the assessee. It does not make any distinction between a

non-resident company or any other individual assessee. That

being the position in allowing adjustment in computing the

chargeable profits of a previous year of an assessee from

the total income computed for the year under the Income Tax

Act what would be deducted so far as interest on security

derived from the Central Government or state Government is

concerned in accordance with Clause VI of Rule I of First

Schedule has no application . Clause X Provides for an

additional deduction to be made in case of a non-resident

company if the said company has derived any income by way of

interest which it received from government or local

authority or any Indian concern which is not covered by

Clause VI. In the case of United Commercial Bank Ltd. Vs.

Commissioner of Income-Tax, West Bengal 32 Income Tax

Reports 1957 page 688, the question for consideration before

this court was whether income from interest on security

Would fall under section 8 or under section 10 of the Income

Tax Act, 1922? This court construed sections 8, 10 and

24(2)of

versa, and therefore no question of

the applicability of the principle

generalia speciialibus non derogant

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arises. This finds support from the

decided cases which have been

discussed above. Thus both the

precedent and on a proper

construction , the source of income

"Interest on Securities" would fall

under section 8 and not under

section 10 as it is specifically

made chargeable under the distinct

head "interest on securities"

falling under section 8 of the Act

and cannot be brought under a

different head even though the

securities are held as a trading

asset in the Course of its business

by a banker."

Though this case is not a direct authority on the

question of interpretation of Rule I of the First schedule

to the super profits Tax Act, 1963 , but the principles

there would apply with full force and, therefore, the income

under the head "interest on security" derived from security

of the Central or State Government having fallen under the

head under section 14(B) of the Income Tax Act as it stood

then , as well as under section 18(B) of the said Income Tax

Act as it stood at the relevant point of time, when the

question of Computation of Chargeable profits of a previous

year under the super profits Tax Act crops up, then the

adjustment as provided under clause VI of Rule I of the said

First Schedule has to be made from the total income Computed

for the said year under the Income Tax Act for the purpose

of levy of super tax. The Appellate Assistant Commissioner,

the Tribunal and the High Court have committed error in

holding that Clause X of Rule I of the First Schedule to the

super profits Tax Act would apply. The income which is

derived by the assessee as interest from the government

securities being an income liable for tax under the head

"income from the interest on securities" under section 14 of

the Indian Income Tax Act, the Character and incidence of

that income is not altered merely because it is earned By a

Non-resident company.

In the aforesaid premises we are of the considered

opinion that in the matter of computation of the chargeable

profits of the assessee for the purpose of levy of super

profits tax under provisions of the super profits Tax Act,

1963 from the total income of the assessee computed for the

year in question under the Income Tax Act he would be

entitled to the adjustment of the amount received as

interest on securities derived from any security of the

Central Government or the State Government as per Clause VI

of Rule I of the First schedule inasmuch the said amount is

chargeable under the Income Tax Act under the head "interest

on securities" which was in force at the relevant period and

not under Clause X of Rule I of the First Schedule of the

super profits Tax Act as held by the High Court. The

impugned Judgment of the High Court is accordingly set aside

and the first question posed by the Tribunal is answered in

favour of the Revenue and against the assessee. The appeal

is accordingly allowed.