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

Citation: [1966] 2 S.C.R. 674 · Decided: 23-11-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

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 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 noti-
fication issued by the Central Government under s. 60-A of the Income-
tax Act did not enlarge the scope of the exemption but that the said noti-
fication 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 obvi-
ousiy 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 Re-
A 
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. 
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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 Limit-
B 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 tax-
free 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 de-
D 
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

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