COMMISSIONER OF INCOME-TAX, MADRAS versus INDIAN BANK LTD.

Citation: [1965] 1 S.C.R. 833 · Decided: 26-10-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

A 
B 
c 
D 
COMMISSIONER OF INCOME·TAX, MADRAS 
v. 
INDIAN BANK LTD. 
October 26, 1964 
(K. SUBBA RAo, J. C. 'SHAH AND$. M. SIKRI JJ.) 
Income Tax-Deductible expenditure-Tax~free income from securities 
-Interest paid on 1noney borrowed for investment in such securities-
Whethtr deductible ?-Indian Income-tax Act, 1922 (11 
of 1922), 
S, 10(2) (Iii), 
The Indian. Bank Ltd., Madras, in the course of its business received 
money in deposit from its constituents and invested the same, inter alia. 
ill Mysore Government securities which were free from Income-taX and 
super-tax. The Bank claimed the whole of the interest paid by it to its 
depositors .•• a deduction under s. 10(2) (iii) of the Indian Income-tax 
Act, 1922. The Income-tax Officer disallowed the claim in part, holding 
that interest paid in respect of money which bad been invested in the 
tax-free securities was not an admissible deduction. The Appellate Assis-
tant Commissioner and the Income-tax Appellate Tribunal having affirmed 
the above order, a reference under s. 66( 1) was, at the instance of the 
assessee, made to the High Court. The reference was answered in favour 
of the assessee. The Revenue appealed to this Court by special leaYe. 
It Wa• contended on behalf of the Revenue that no expenditure could 
be allowed as a deduction from the profits of a business unless the part 
of the bus.iness to which the expenditure was attributable was capabl« of 
producing income or profits liable to be taxed under the Act. 
HELD : In construing an Act ·it is necessary to adhere closely to the 
E · language employed in it. 
Only if the terms of a provision are ambiguous 
· can recourse be had to the well-esl•blished principles of construction. It is 
not permissible first to create an artificial ambiguity and then try to resolve 
it by some general principles. [836 B] 
There is nothing in the language of s. 10 of the Indian Income-tax Act. 
1922 from which it can be fairly implied that an expenditure or allowance 
falling within the section must fulfil some other condition before it can be 
F 
allowed. Sub-section (1) of s. 10 direc~ that an assessee must be taxed 
in respect of the .profits and gains of bus.iness carried on by him. Then 
under sub-s. (2) all the allowances permissible to him must be deducted. 
Th~ is no provision which would justify looking behind the expenditure, 
if it fell within the term of sub-s. (2), to see whether it had the quality 
of directly or indirectly producing taxable income. 
Perhaps the legislature 
asstlllled that most types of expenditure which are laid out wholly and 
exclusively for the purpose of business would directly or indirectly produce 
G 
taxable income. · [836 C-H] 
• 
In the instant case, however, it was controverted that the profits 
and losses accruing from the sale and purchase of the securities in question 
had been induded ill the assessment. It followed that the said securitie• 
were capable of producing taxable income and the appeal by the Revenue, 
could be dismissed on this ground alone. [835 G-H] 
Hughes v. Bank of New Zealand, 21 T.C. 472, relied on. 
H 
Chellappa Chettiar v. Commissioner of Income-tax, Madras, approved. 
Commissioner of Income~tax v. Somasundaran. Chettiar, A.l.R. t 928 
Mad. 487, Provident.Investment Co. Ltd. v. C.I.T., Bombay, 6 I.T.C. 21 and 
/ 
834 
SUPREME COURT REPORTS 
[1%5] I S.C.R. 
Indore Malwa Mills v. C.I.T. (Ce11tral) Bombay, 45 l.T.R. 210, dJStingu:sh-
A 
ed. 
CIVIL APPELLATE JURISDICTION: Civil Appeal J\'.o. 1095 of 
1963. 
Appeal by special leave from the judgment dated November 
9, 1960 of the Madras High Court in T. C. No. 41 of 1959. 
B 
S. V. Gupte, Solicitor-General, K. N. Rajagopala Sa<tri, R. fl. 
Dhebar and R. N. Sac/11hey, for the appellant. 
R. Venkarram and R. Gopa/akris/man, for the respondent. 
The Ju<lgmcnt .. of the Court was delivered by 
Sikri J. 
This is an appeal by special lc~vc :igainst the jud~­
ment of the Madras High Court. :mswering a question refcrr~d 
to it under s. 66(-1) of the Indian Income Tax Act, 1922, herein-
after referred to as the Act, against the Revenue. 
The q 11estion referred to it was the following: 
· Whether on the facts and circumstances of the case 
the Bank was entitled to claim the deduction of the 
entire interest paid by it on fixed deposits, either under 
s. 10(2) (iii) or 10(2) (xv)?" 
The relevant facts and circumstances are these. 
The respon-
dent, the Indian Bank Ltd., Madras, hereinafter referred to as the 
ass

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