The United Commercial Bank LTD., Calcutta v. the Commissioner of Income-tax, West Bengal
KAPUR' J.-This appeal brought on a certificate
of the High Court raises a point of far-reaching
consequence as to the interpretation of ss. 8, IO and
24(2) of the Indian Income-tax Act (hereinafter termed
the Act).
The assessee (who is the appellant before us) claims
that in the computation of its profits for the assess
ment year under review (1945-46), it is entitled to set
off the carried over loss of the previous year against
the profits of the year of assessment under s. 24(2) of
the Act. The assessee is a Bank carrying on banking
business. For the assessment year its assessable
income was computed by the Income Tax Officer at
Rs. 14,95,826 "by splitting up" its income into 2 heads
.............. "interest on securities" and ......... .
"b . . '' ''I t t . . . . . . . . . . . . . . usmess mcome . n eres on secu-
rities" in the year of assessment was Rs. 23,62,815 and
under the head "business income" there was a loss
.,..
S.C.R. SUPREME COURT REPORTS 81
of Rs. 8,86,972. After making the necessary adjust- 1957
ments and deducting the business loss from "Interest The United
on securities", the net income was determined at Com~rciaJ Bank
Rs. 14,95,826. In the previous year there was a loss Ltd., v~atcwa
of Rs. 3,21,929 which was computed by setting off the "{~ommusioner
business loss against "interest on securities". "wes:c&":!f•
Before the Income-tax Officer the assessee made its Kapur J.
claim on the basis that it was a part of "the business
of the Bank to deal in securities" ................... .
and "that no distinction should be made between
income from securities and income from business for the
purpose of set-off under s. 24". It also claimed that
it carried on only one business, namely banking as
defined by s. 277F of the Indian Companies Act in the
course of which the "Bank has to receive money on
deposits and invest such deposits in securities, loans
and advances" and therefore holdings of securities by
it could not be treated as its separate business. The
Income-tax Officer was of the opinion that as there
was a loss under the head "business" its claim could
not be sustained and hence it could not be set off under
s.24(2) of the Act.
On .appeal to the Assistant Commissioner of
Income-tax it was again contended that the assessee
was a dealer in securities and that the two heads of
income "Interest · on securities" and "profits and
gains" in banking business could not be treated
separately and were part of the same business of the
assessee and therefore it could claim a set-off under
s. 24{2) of the Act. But this contention was repelled.
The matter was then taken to the Income-tax Appel
late Tribunal where again the contention was repeated
that the business of the assessee could not be split up
into two heads under "interest on securities" and
"banking business". The Tribunal, however, held:
"Reading ss. 6, 8 and 10 it appears to us that the
legislature wanted to keep the income from the two
sources as separate. We are therefore of the opinion
that the Income-tax Officer was right in splitting up
the income of the appellant into two heads and in
refusing the set-off of the business loss brought forward
19s1 from last year against income from Government
v.. United securities earned this year."
c"£::Z:'tafc1::::' It therefore did not :iJJow the loss of the previous
v. year to be set off agamst the computed profits of the
Commissioner a t e of Income-tax, SSessmen y ar.
w .. 1 Bengal The assessee thereupon asked for a case to be stated
Kapur J. to the High Court and inter alia raised two questions;
(1) Whether interest on securities was a part of
Bank's income from business carried on by it.
(2) Whether the assessee was entitled to set off
the carried over loss of the previous year against
income during the assessment year.
The assessee contended that it was carrying on
banking business in various towns in India, that "in
the usual course of its business it invests moneys in
securities and receives interest thereon" and therefore
it claimed that the loss of Rs. 3,21,929, carried forward
from the previous year could be set off under s. 24(2)of
the Act.
The Tribunal stated the case and sought the
opinion of the High Court on the following three
questions;
(I) "Whether on the facts and in the circums
tances of this case the assessee was entitled to set off
the business loss of Rs. 3,21,929 brought forward from
the preceding. year against this year's income from
interest on securities held by the assessee.
(2) Whether on the facts and in the circumstances
of this case the assessee was entitled under s. 8 to
deduct any part of the administrative expenses out of
the income from interest on securities.
(3) Whether in the circumstances of this case, the
assessee was entitled under the first proviso to s. 8 of
the Income-tax Act to deduct any interest on money
borrowed and utilised for investment in tax-free
securities."
The High Court answered all the questions in the
negative. The learned Chief Justice during the course
of his judgment said:
S.C.R. SUPREME COURT REPORTS 83
"It appears to me, therefore, that because the 1957
several heads under s. 6 in the Indian Act are mutually The United
exclusive and because under any Income-tax Law, an ctT'~Bank
item coming under an exclusive head cannot in any ' ·• v. cutta
circumstances be charged under another head and also TM Commiuioner
because the interest on ·securities in the hands of a
0
~::,co;:~i;·
banker cannot be treated as business income on the
principles explained by Mr. Justice Rowlatt, I must
hold that the contention of th~ asse~~~e ........... .
. . . . . . . . • • . . . . . . . . must be rejected.
We had the benefit of a full and able argument from
counsel on both sides. Counsel for the appellant has
raised three points: ·
(1) That ss. 8 and 10 of the Act should be so read
that "interest on securities"' in cases where the true
nature and character of the securities in the hands of
an assessee is one of trading assets, would be excluded
from the scope of s. 8 and would fall under the head
"business" whithin s. 10 of the Act.
and alternatively even if ss. 8 and 10 are read as
specific heads then s. 10, being more appropriate, should
be applied to the facts of the present case; ·
(2) If ss. 8 and 10 are equallly applicable the
assessee has the option to be taxed under. that head
which iinposes a lighter burden on him; and
(3) Lastly he contended that even if the heads of
income were to be taken as mutually exclusive so that
the "interest on securities" falls under s. 8 and
"business" under s. 10 of the Act, the assessee would
be entitled to a set-off under s. 24(2) because "interest
on securities" and "profits and gains" from business
results from different operations of the same business,
the two being different forms of the same business of
the assessee.
We may now tum to the scheme of the Act. Sec
tion 2(15) defines "total income" to mean "t~tal amount
of income, profits and gains ........ computed in the
manner laid down in the Act" Chapter I of the Act
deals with "Charge of income-tax". It consists of two
sections-3 & 4. Section 3 provides that "income-tax
shall be charged for any year at any rate or rates in
Kapur J.
84 SUPREME COURT REPORTS (1958]
1957 accordance with and subject to the provisions of this
The United Act."
01;::t'"/!:l,/:::::f' Section 4 provides that "the total income of any
' •· previous year of any person includes all income, profits
The Commiut. 1111r and gains from whatever sources derived" of lncolM'-tax, •
Well &.,a1 Chapter 3 deals with "Taxable iticome". Section 6
Kapur 1. enumerates the heads of income chargeable to income
tax. It says as under:
S.6 "Save as otherwise provided by . this Act,
the following heads of income, profits and gains, shall
be chargeable to income-tax in the manner hereinafter
appearing namely:-
(i) Salaries.
(ii) Interest on securities.
(iii) Income from property.
· (iv) Profits and gains of business, profession or
vocation.
(v) Income from other sources.
(vi) Capital gains."
The two relevant heads for the purpose of this
appeal are (ii) & (iv), i.e., "interest on securities" and
"profits and gains of business" which are dealt with
under ss. 8 and 10 of the Act respectively. Section 8 pro
vides that "the tax shall be payable by an assessee
under the head "interest on securities" in respect of
interest receivable by him on any security of the
Central Government. ........ " and in the provisos to
this section are given the allowable deductions. The ,.
amendment made in the proviso by the Act of 1955 is
very relevant for the purpose of this appeal and we
shall advert to it at a later stage.
Section IO provides:
"The tax shall be payable by an assessee under
the head "profits and gains of business, profession
or vocation" in respect of the profits or gains of any
business, profession. or vocation carried on by him".
The assessee contends that securities are a part of its
trading assets and this position has throughout been
accepted by the Department, and any income which
accrues in respect of these assets in the form of interest
I
S.C.R. SUPREME COURT REPORTS 85
has the same characteristics as profits or gains of
"business"· and therefore must be treated as income
falling under the head "business" under s. IO of the
Act. In other words the income of the assessee from
its banking business wpich includes dealing in securities
is really income from the same source and whatever
accures in the form of interest whether from securities
or from any other source of investment would fall
under s. IO and not s. 8 because all the interest
accrues from the business carried on by the assessee and
this business is only one business. The argument thus is
that ss. 8 & IO have to be so construed as to harmonise
with each other and the only way they can be
harmonised is that income accruing in the form of
"interest on securities" should be taken to be accruing
from the business of the assessee because securities
form part of its trading assets and thus fall within
s. 10 and not s. 8, which must be restricted to capital
investments only. It is further contended that if the
object of the legislature was to give a separate and
exclusive identity to the income from "interest on
securities", it would have made the language ·of s. 8
of the A.ct as specific as it· has made in the case of
income from dividends from shares, which income by
the addition of sub-s. (1-A) to s. 12 has come to have
a specific place under the head "other sources" and is
no longer within the head "business" under s. IO of the
Act and thus by statute its nature and character have
undergone a change. Reference is in this connection
made to Commissioner of Income-tax v. Ahmuty & Co.
Ltd. (I) where it was held by the High Court of Bombay
that divided income received by a dealer in shares is
chargeable under s. 10 and not under s. 12 of the Act.
It is thus contended that in order to preserve the
unity and oneness of the business of the asses see and
to maintain the unity of its business income the appli
cability of s. 8 should be circumscribed to "interest on
securities" when they are not trading assets of the
assessee.
According to the scheme of the Act discussed above
income-tax has to be charged in respect of the "total
(1) [ 1955) 21 I.T.R. 63.
1957
The United
Commercial Bmlk
Ltd., Calcutta
v.
The Cominissioner
of Income-tax,
West Bengal
Kapur J.
86 SUPREME COURT REPORTS [1958}
1957 income" of the previous year of every assessee and
The United "total income" is defined under S. 2(15) to c6mprise all
commercial Ba11k income, profits and gains from whatever source derived
ltd., C9/cu1ta • · · Ch 3 h · h · v. sub1ect to certam exemptions. apter w 1c 1s
The Commissioner entitled "Taxable income" comrprises ss. 6 to 17 (both
0
{v:;,c
0
;;:.~,~~/· sections inclusive). Section 6 enumerates the various
Kapur J. heads of income, profits and gains which are charge
able· to income-tax. Each of these heads of income,
profits and gains is dealt with under a separate section
and these sections also give the details of allowances
and exemptions in regard to each different head. The
argument raised by counsel for the Revenue is that
. according to the decision of the Privy Council in
Probhat Chandra Barua v. The King Emperor (') s. 6
is the charging section and that the words of ss. 7 to
12 show that the various heads of income are mutually
exclusive and items which specifically fall under these
various heads have to be charged under only that head
and would fall under one of these several but appro
priately specific sections. It is true that the Privy
Council in Probhat Chandra Barua v. The King Emperor
(supra) did point out that s. 6 was a charging section,
but this was because ss. 3 and 4 were then differently
worded as pointed out by Kania, J., in B.M. "Kamdar,
In re (2) at p. 43 and by Chagla, J., in the same case
at p. 57. The Federal Court in Chatturam and others
v. Commissioner of Income-tax, Bihar (') said:
"The liability to pay the tax is founded on ss. 3
and 4 of the Income-tax Act which are the charging
sections."
The judgment of the Privy Council in Wa/lac Brothers
& Co. Ltd. v. Commissioner of Income-tax(') also shows
s. 3 to be the charging section. ·
It is then argued that s. 6 of the Act being manda
tory all items of income, from whatever source they
arise, would fall only under one of the heads enumerat
ed under S. 6 and therefore one of the SS. 7 to J 2 would
specifically apply and s. 8 which relates to "interst
on securities" must be held to apply to income from
that· source. It is also contended by counsel for the
{t) [1930] L.R. 57 I.A. ••8, 238. (3) [1947] •S I.T.R. 30•, 3o8.
(2) [1946] 1.1 I.T.R. to. · (4) [1948] 16 J.T.R. 0.10.
S.C.R. SUPREME COURT REPORTS 87
Revenue that even if there is any overlapping between 1957
ss. 8. and 10 "interest on securities" whether accruing 77re United
from securities held as a capital asset or trading cL'dr~~ B~nk
assets falls under s. 8 alone ands. 10 should be so read t "v.
0
cu
0
as to altogether exclude the income from "interest on The Commissioner
• • " of Income-tax. secunties . West &nzal
Counsel for the Revenue has referred us to · form
of the Return, prescribed under s. 22(1) of the Act at
the relevant time of the assessment under review. The
heads there shown are \1) Salary, (2) Interest on
securities, (3) Property, (4) Business, profession or
vocation, (5)other sources, and inome from each source
is to be shown in a separate column, in each one of
which reference is made to a particular note relevant
to that head of income. In the column under the
head "interest on securitiess" reference is made to note
9 which is in the following words: ·
' 1Interest on securities" means interest on promis
sory notes or bonds issued by the Government of India
or any other State Government or the interest on
debentures or other securities issued by or on behalf of
a local authority or company. The gross amount
before deduction of income-tax should be entered.
Entries under this head should be accompanied by
persons paying the interest under section 18(9) of the
Act. Deductions are allowable in respect of- .
(a} Commission charged by a banker for collecting
the interest.
(b) Interest payable on money borrowed for the
purpose of investment in the securities except certain
interest payable to persons abroad from which tax has
not been deducted (see section 8 of the Act for details).
Full particulars (in a separate statement if necessary)
should be given of any deduction claimed."
This is a statutory form and it gives what is meant by
"'interest on securities", what documents are to
accompany the Return in order to entitle an assessee
to claim refund and what deductions are to be made."
The mandatory character of s. 6 is indicated by
the language employed in that section and the
phraseology of all the sections following, i. e., 7 to 12,
employing the words "the tax shall be payable under
Kapur J.
1957 the head ........ in the respect of" the different and
Tile United distinct heads of income, profits and gain, "salaries'',
commercial Bank "Interest on securities", and "property'', "business" Ltd., Calcutta v. etc. is indicative of the intention of the legislature
ne Commissioner making the various heads of income, profits and gains
of Income-tax, II I · S · f · h west Bengal mutua y exc us1ve. o every item o mcome, w at-
l~apur J. ever its source, would fall under one particular head
and for the purpose of computing the income for
charging of income-tax the particular section dealing
with that head will have to be looked at. The various
sources of income, profits and gains have been so
classified that the items falling under those heads
become chargeable under ss. 7 to 12 according as they
are income of which the source is "salaries", "interest
on securities", "property", "business, profession or
vocation", "other sources" or "capital gains".
Looked at thus the contetion of counsel for the
Revenue that under the scheme of the Act and on a
true construction of these relevant sections "interest
on securities" by whomsoever and for whatever
purpose held has to be taxed under s. 8 and under no
other section is well founded and must be sustained
It being a specific head of chargeability of tax, income
from "interest on securities" whether held as a trading
asset or capital asset would have to be taxed under
s .. 8 and not under s.10 of the Act.
The amendment made in the proviso to s. 8 in the
year 1955 allowing a deduction in respect of any
remuneration paid to any person other than the
banker for realising interest on behalf of the assessee,
supports this interpretation. Thus this proviso now
provides that reasonable amount can be deducted by
an assessee for commission paid to a Bank or remune
ration paid to anybody else for realising interest on
its behalf which clearly indicates the intention of the
legislature that interest on securities specifically falls
under s. 8 arld under no other section. This amend
ment shows that even a Bank, if it buys securities as
a part of its trading assets, is entitled to make a
deduction for remuneration paid by it to any person
for realising interest which postulates that "interest on
securities" would fall under s. 8 of the Act.
..
S.C.R. SUPREME COURT REPORTS 89
This interpretation receives further support from 1957
the language of s. 18 which deals with payment after The United
deduction at source. Section 18(3) requires a person Commercial Bank
· I " · "· · . ,, Ltd,, Calcutta respons1b e ior paymg mterest on secuntI~s to v. . .
deduct income-tax on the amount of the mterest 77reCommissioner · • of Income-tax,
payable at the maximum rate and the person so res- West Bengal
ponsible is required, after deduction of the income-tax,
to pay to the account of the Central Government
within 7 days of the deduction, the sum so deducted
and under s. 18(5) maximum rate is to be charged for
the year in which the the amount is paid and not at
the rate of the assessment year.
A combined reading of ss. 3,4, 6, 8, 10, 18 and refund
seetion, s. 48, shows that income-tax is to be charged
at the rate or rates prescribed in the Finance Act on
the total income of the assessee as defined in s. 2(15)
of the Act and computed in the manner given in ss. 7
to 12 which are not charging scetions but are pro
visions for the computation of "total income". In
the words of Viscount Dunedin in Salisbury House
Estate v. Fry (1) :
"Now, the cardinal consideration in my judgment
is that the income-tax is only one tax, a tax on the
income of the person whom it is sought to assess, and
that the different schedules are modes in which the
Statute directs this to be levied".
As has been pointed out in that judgment there are no
separate taxes under the various schedules but only
one tax. But in order to arrive at the total income on
which tax is to be charged "you have to consider the
nature, the constitutent parts, of his (assessee's) income
to see which schedule you are to apply." If these
words may be used with reference to the language
of the Indian Act, we have to look at the source of
"income profits and gains" and then see under what
head it appropriately and specifically falls and if it
falls under one particular head then computation is to
be made under the section which covers that particular
. head of income. We cannot treat any one of the sec
tions from ss. 7 to 10 to be general or specific for the
purpose of any one particular source of income. The
(t) [1930] 15 T.C. 266, 306.
Kopur J.
1957
The United
Commercial Bonlc
Ltd., CalOlllla
v.
~ CommissioMr
of Income-tax.
West Bengal
Kapur J.
language shows that they are all specific and deal
with the various heads in which the item of income,
profits and gains in the case of an assessee falls.
Sir George Rankin in Commissioner of Income Tax v.
Chunilal B. Mehta(') said:
"The effect of s. 6 is classify profits and gains,
under different heads for the purpose of providing for
each appropriate rules for computing the amount; its
language is "shall be chargeable ................. .
in the manner hereinafter appearing."
One of the heads is "business", which has ahead of
income stands alongside salaries, interest on securities,
professional earnings and other sources. True, the
classification of income is according to the character
of the source .............. But the list of "heads"
in s. 6 is a list of sources not in the sense of attribut
ing the income to one property rather than another,
one business rather than another, but only in the sense
of attributing it to property as distinct from
employment, or business as distinct from invest-
ment .................................•........
. . . . . . . . What is to be learnt from an examination of
the language of sub-s.(l) of s. 4--income, profits and
gains, described or comprised in s. 6 from whatever
source derived-is that s. 6 is intended as describing
different kinds of profits ..... ' ................... "
In that case the question for decision was whether a
resident carrying on business in India and controlling
transactions abroad in the course of such business was
liable to income-tax on such transactions, it was held
that the profits arising under such transactions do not
arise or accrue in India merely because of control by
the assessee in India. The judgment of the Privy
Council shows what s. 6 of the Act means-each head
refers to income, profits and gains attributable to the
source-salary, interest on securities, property, busi
ness, profession etc. This supports the contention of
each head being separate, exclusive and specific.
Decided cases all support the contention of counsel.
for the Revenue that the various heads of income
enumerated in s. 6 of the Act and more particularly
(>) [1938) 6 l.T.R. 5"• 509.
S.C.R. SUPREME COURT REPORTS 91
dealt with in ss. 7 to 12 are exclusive heads and if an 1957
item of income falls under one of these heads then it The united
has to be treated for the purpose of income-tax under c;.rc.~' Bank
that.head and no other. In Salisbury House Estate 1 •• v~cutta
Ltd. v. Fry(') the assessee was a limited company which The Commissioner
" d " h f · S 1. of Income-tax was 1orme 1or t e express purpose o acqurmg a is- West Bengal'
bury House and utilising it. In this building there
were 800 rooms which were let to tenants. The com
pany also maintained a staff of servant to render
various kinds of services to the occupants of the rooms.
The company was assessed to income-tax under Sch. A
upon gross valuation of the premises and as the
actual rent received was higher, the Revenue wanted
to assess income again under Sch. D. The company
contended that so far as the proceeds of the property
were concerned they had already been taxed under
Sch. A and could not again be brought "in computo"
under Sch. D.
Viscount Dunedin at p. 306 observed :
"Now, if the income of the assessee consists in
part of real property you are, under the Statue,
bound to apply Sch. A".
Lord Atkin at p. 319 said:
"the dominance of each Sch. A, B, C & E over its
own subject matter is confirmed by reference to the
Sections and Rules which respectively regulate them in
the Act of 1842. They afford a complete code for each
class of income, dealing with allowances and exemp
tions, with the mode of assessment, and with the officials
whose duty it is to make the assessments ........... .
. . . . . . . . . . . . . . . . . • . . . . . . . . . . . • I find no grouna for
assessing the tax payer under Sch. D for any property or
gains which are the subject matter of the other specific
Schedules."
At p. 320, he pointed out that Sch. D is a residuary
Schedule and all Shchedules are mutually exclusive.
Referring to investments in securities he said:
"I~ome derived by a trading company from
investments of its funds, whether temporary or per
manent, in government securities must be taxed under
(1) [1930) 15 T.C. 266.
Kapur J.
92 SUPREME COURT REPORTS [1958J
1957 Sch. C, and cannot for the purposes of assessment
The united under Sch. D be brought into account."
Commercial Bank This shows that even though Sch D is residual all Ltd., Calcutta ·
v.. . Schedules are mutually exclusive and if income falls
7ne Commissioner under one Schedule it must be assessed under that of Income-tax, '
West Bengal Schedule because the Schedules are a complete code
Kapur/. for each class of income dealing with allowances and
exemptions and with the mode of assessment. A
significant passage in the judgment of Lord Atkin (at
p. 321) is :
"I find it difficult to say that companies which
acquire and let houses for the purposes of their trade,
such as breweries in respect of their tied tenants and
collieries and other large employers of labour in respect
of their employees, do not let the premises as part of
their operation of trading. Personally I prefer to say
that even if they do trade in letting houses their income
so far as it is derived from that part of their trading
must be taxed under Sch. A and not Sch. D."
Thus even though the assessee was a company carry
ing on business or trade, income from the head
"property" was taxed under Sch. A and not Sch. D.
This case supports the contention that different
Schedules being distinctly applicable to each individual
head of income would exclude the applicability of any
other head.
In Butler v. The Mortgage Company of Egypt Ltd.('),
a British company controlled in Egypt was carrying
on business of lending money on mortgage of land in
Egypt or on the security of debentures by mortgage
of land. In case of default the bank could take action
in the Egyptian Courts either to sell the property or to
take possession with a view to future sale. The
General Commissioners held that the acceptance of
securities for money lent was only an incident of the
company's business and that income was not assessable
under Case 4 of Sch. ·D. The company claimed that
the assessment should be under Case 5 of Sch. D and
not Case 4. It was hied that the Crown had the right
to tax under Case 4 but even if the assessee satisfies
(1) l1928] 13 T.C. 803, 809, 810.
>
-
\
i
\
S.C.R. SUPREME COURT REPORTS 93
that Case 5 is also applicable it was still for the Crown 1957
to decide and tax under Case 4 provided both cases The United
applied' equally Rowlatt J said . Commercfa/ Bank ' ' • Ltd., Calcutta
"A banker could never ask to be repaid the tax 'he v ...
h. h h d b d d d f h G T. Commissioner w 1c a een e ucte rom t e overnment secu- of Income-tax,
rities which he held, because he held them as a banker, West Bengal
the point being that when you have once got a security Kapur. J
(we will say) the interest on which is taxed by the Act,
you cannot get out of it because you say that you look
a I(ttle further and see this is only embedded in a
business."
It means in terms of the Indian Statute that in the
case of interest on securities if chargeable under a
specific section, the assessee even though he is a
banker cannot claim that they be treated as "business
income."
In Thomson v. The Trust and Loan Company of
Canada (1), the respondent company carried on business
as a loan and finance company. During the material
years the company bought treasury bond-cum-coupons
and on the same day sold bonds of the same nominal
value retaining the coupons and received on encash
ment a half year's interest under deduction of income
tax. The Crown contended that in computing the
Company's profits for assessment to income-tax under
Case I of Sch. D. there should be included, as receipts,
the amounts realised by the sale of bonds ex-coupons
and the net proceeds of the coupons and, as disburse
ments, the amounts paid by the company for the bonds
cum-coupons. But it was held that the interest
received by the company was income of the company
taxed by deduction under Sch. C and that no part of
the procdeeds of the coupons should be included in the
computation of the company's liability under Sch. D.
Rowlatt J. at p. 400 said: ·
"The Crown cannot treat a transaction which has
its own character for income tax purposes as if it were
something of a different character .... "
and Lord Han worth M. R. at p. 406 put the matter·
thus:
(1) [1932] 16 T.C. 394.
94 SUPREME COURT REPORTS [1958)
1957 "Now in the present case it is plain that this
The United subject matter of tax, government bonds and coupons
.c.iJd'f1fat °"':/' payable out of the government funds, have got to be
·• v. cu • taxed under Sch. C; they cannot be taxed anywhere
The Commissioner else."
of Income-tax, I 1 I f s· • d ) ww &ngal n Vo ume o 1mon's Income-Tax (1948 E . p. 54
Kapur J. the Jaw is thus stated:
"These Schedules are prima facie mutually
exclusive and consequently if a particular kind of
income is charged under one Schedule the Crown
cannot elect to charge it under another.
This is in accord with the decisions discussed above.
The Commercial Properties Ltd. v. Commissioner of
Income-tax, Bengal(') was a case of a registerd company
whose sole object was to acquire lands, build houses
and let them to tenants, the sole business of the com
pany being the management and collection of rents
from the properties. The assessment was made under
s. 9 of the Act but the company claimed that they
were carrying on a business assessable under s. 10 and
not under s. 9. The Court held that the company was
rightly assessed under s. 9 its income being derived
from its ownership of buildings.
Rankin C. J. said at p. 26 :
"In my judgment the words of s. 6 and s. 9 and
s. 10 must be read so as to give some effect to the
contrast that is there made between income, profits
and gains from "property" and from" business";
and I entirely refuse my assent to the proposition
that because it happens that the owner of a property
is a company which has been incorporated for the
purpose of owning such property, therefore the income
derived from "property" must be regarded as income
derived from business". In my judgment, income
derived from "property" is a more specific category
applicable to the present case."
The decision in this case shows that the ownership of
the house property was not considered as "business"
and that income derived from such source would more
specifically and appropriately fall within the head
"property."
(1) [1928] 3 l.T.C. 23.
S.C.R. SUPREME COURT REPORTS 95
The applicability of s. 8 directly arose and was dis- 19s1
cused in H. C. Kothari v. Commissioner of Income-tax, . The United
Ma_dras (1). The assess~es in th~t case had seve~a~ sources c;,:::er1f!ic!'!:'d'
.of income, one of which was mterest on securities. The v.
business of the assessees showed a loss but the assessees The Commissioner
claimed earned income relief in respect of interest on °1 i/e~r;;e,;;:t·
securities on the ground that securities, which they had
purchased and sold as part of their business, formed
their stock-in-trade and the interest therefrom should
be treated as ''business" profits. But s. 8 of the Act
was held applicable to the facts of that case.
Satyanarayana Rao, J. said:
" .............. it seems to us obvious that s. 8 of
the Act ·which deals with interest on securities is a
separate and distinct head, and if an· income if charge
able under that head, it is not open either to the
assessee or to the department to change the head and
claim to tax it under a different head ...... "
It was also pointed out in this judgment following
Commissioner of Income-tax v. Bosotto Bros. (2) that
if income falls under more than one head the assessee
l1as the option to choose the head which makes the
burden on his shoulders lighter.
The following two cases were relied upon by the
assessee:-(1) Mangalagiri Sri Umamaheshwara Gin
and Rice Factory Ltd. v Guntur Merchants Gin and
Rice Factory Ltd. (3) where a limited company incorpo
rated for the purpose of milling rice leased out the
buildings, plant, machinery etc., to another company
for a fixed annual rent. The lessees were to do the
necessary repairs to keep the mill in good working
condition and the lessors were to bear the loss of
depreciation. The assessee company claimed the
allowances for depreciation under s. 10(2) (vi) of the
Act. It was held that the company was carrying on
the business of letting a rice mill and as such was
entitled to a deduction for depreciation. The judgment
of Krishnan, J., shows that it was clear from the facts
of the case that the company was carrying on business
(I) [1951] 20 l.T.R. 579, 587. (3) [1956] 2 l.T.C. 251.
(2) [1940] 8 I.T.R. 41.
M2SC-7
Kapur J.
96 SUPREME COURT REPORTS [1958J
19s1 of letting the mill for the purpose of being worked by
Tile united lessees and it was under these cirumstances that s. i 0
Commercial &mk was held applicable. The other case is Sadhucharan
Ltd., ;_a1cu1ta Roy Chowdhry, In re (1) the facts of which were similar
Th~C,ommissioner to the facts of Mangalagiri Sri Umamaheshwara Gin
o, .ncome-tax, d R" "' L d G "' h G" d West Bengal an ice ,·actory t ., v. untur mere ants m an
Kapur J, Rice Facto1y Ltd. (supra). It was held that Jetting of
a Jute Press at rent was as much a business as the
letting of a ship to freight or letting of. motor-car or
any either kind of machines or machinery for hire, and
therefore allowances for depreciation were allowed like
in Mangalagiri's case (supra). Neither of these cases
throws any light on the question now before us.
The appellant's contention that looking at the real
nature and character of the source of income arising
from "interest on securities" in the case of the present
assessee, the Bank, s. 10 of the Act would apply and
not s. 8 can receive no support from the decision in
Davies v. Braithwraite ('). That was a case where an
actress earned her living by accepting and fufilling
professional engagements, her activities being acting
in stage-plays in England and America, performing for
the films and on the wireless and performing for
gramophone companies. These were held to fall under
Sch. D and not E as whatever contracts she made were
nothing but incidents in the conduct of her professional
career. The use of the following words by Sir George
Rankin in Commissioner of Income-tax v. Chuni/al
B. Metha (') : I
"But the list of "heads" in s. 6 is a list of sources
not in the sense of attributing the income to ........ .
. . . . . . . . one business rather than another but only in
the sense of attributing it to .............. business
as distinct from investment. ..................... "
is no surer foundation for saying that "interest on
securities" is severable into income from securities
held as a capital investment and income from those
held as trading assets. The language of ss. 6, 8 and
I 0 is destructive of any such contention.
(.) [1935] 3 l.T.R. 114.
(2) [1931] 2 K.B. 628.
(3) [1931!] 6 l.T.R. 52" 529.
S.C.R. SUPREME COURT REPORTS 97
Thus on a true construction of the various sections !957
of the Act the income of an assessee is one and the The United
various ss. 7 to 12 are modes in which the Statute Commercial Bank
d. h . . b I . d d h . Ltd., Calcutta irects t at mcome-tax is to e ev1e an t ese v.
sections are mutually exclusive. The head of income The Commissione;
f h. h h · ... · . ,, h . of Income-tax, o w ic t e source is mterest on secunties as its West Bengal
characteristics for income~x purposes and falls under
the specific head covered by s. 8 of the Act, and where
an item falls specifically under one head it has to
be charged under that head and no other. This
interpretation follows from the words used in ss. 6, 8
·and 10 which must be read so as to give effect to the
contrast between "income, profits and gains" charge-
able under the head "interest on securities" and
"income, profits and gains" chargeable under the head
"business". Thus on this construction the various
heads of "income, profits and gains" must be held to
be mutually exclusive, each head being specific to
cover the item arising from a particular source. It
cannot, therefore, be said that qua the assessee in the
present case and for the purpose of securities held by
it, s .. 8 is more specific and s. 10 general or vice-versa,
and therefore no question of the applicability of the
principle "generalia specialibus non derogant" arises.
This finds support from the decided cases which have
been discussed above. Thll;s both on precedent and
on a proper construction, the source of income
"interest on securities" would fall under s. 8 and not
under s. 10 as it is specifically made chargeable under
the. distinct head "interest on securities" falling under
s. 8 of the Act and cannot be brought under a different
head _eve_n though th~ secur.ities are held as a trading
asset m the course of its busmess by a banker. In this
view of the matter no· question of ·exercise of option by
the assessee or the Revenue arises. Consequently
Lord Shaw's observation in The Liverpool and Land &
Globe Insurance v. Bennett (') : ·
"It appears to me that this selection is not only
justified in law but is founded upon the soundest and
most elementary principles of business."
(1) [1g13] 6 T.C. 327, 376.
Kapur J.
98 SUPREME COURT REPORTS [1958/
1957 will be inapplicable to the facts of the present case,
The United and so also the rule as to choosing the head which
cun::e'"c":.l//,:,';f' imposes on the assessee's shoulders burden which is
·• •· lighter as given in Commissioner of Income-tax. v.
TheCommi.rsioner B II B ( ) d 't t d . H C v h . of Income-tax oso o ros., supra an ret era e m . . .not an v.
West Be111ai' Commissioner of Income-tax, Madras (supra).
Kapur J. To the third point raised by counsel for the assessee
that even if interest in securities falls under s. 8 of
the Act and not under s. 10 the assessee is entitled to
get a set-off under s. 24(2) of the Act, counsel for the
Revenue has taken the objection that this plea is not
available to the appellant because it was not placed -
before the Income-tax Appellate Tribunal for being
referred to the High Court nor was it raised before the
High Court. How the guestion was specifically raised
before the Income-tax Officer and the Appellate Assis
tant Commissioner and also before the Income-tax
Appellate Tribunal has already been mentioned.
In its application to the Tribunal for stating the case to
the High Court the assessee specifically raised in two
suggested questions its right to set off the business loss
of Rs. 3,21,929 brought forward from the previous year
against the income of the assessee in the assessment
year. It does not appear from the judgment of the
High Court that the question was argued in the manner
it has been debated in this court. The appellant seems
to have rested his case on the applicability of s. 10 to
tlte profits under the head "interest on securities"
because of the securities being trading assets but this
contention was repelled and the same question has
been raised before us but the assessee now supports
his case on an alternative argument that even if the
securities fall under s. 8 still the profits from that
source are from an item of the assessee's business and
therefore the loss of the previous year from the bank
ing business of the assessee can be set off against the
profits of the assessment year whatever be the source
of that profit. The case is similar to the one in Com
missioner of Income-tax v. Messrs. Ogale Glass Works
Ltd. ('). The question framed by the Tribunal is a
general one and what is to be determined is whetlter
(1) [1955] I S.C.R. 185, 196, 198.
S.C.R. SUPREME COURT- REPORTS 99
the loss of the previous year can be set off against 19s1
the income of the assessment year within the pro- The united
visions of s. 24(2) of the Act. The question is wide c'L"d1'l"/ ~
enough to cover the point raised before us. In the / ·· v." cut a
circumstances of this case the third point raised by The Commissioner
1 c h . b ' d of Income-tax, counse 1or t e assessee, 1s open to e canvasse west Bengal
before us.
Counsel for the Revenue contends that the words
used in s. 24(2) were "the same business" and there-
fore this set-off would be allowable only against any
profits or gains of the same business and no other
business. He further contends that the scheme of
s. 24(1) and (2) shows that profits and gains must be
arising under s. 10 and not under any other section
because the expression used is profits or gains which
goes with "business" under s. IO and cannot have
reference to income, profits and gains arising from
"interest on securities" which are under s. 8 of the Act.
Counsel for the assessee on the other hand submits
that the use of the word "same" signifies the identity
of the business in which the loss has occurred and has
no reference to the head under which the profits· are
chargeable. In other words interest does not cease to
be profits and gains of the same business merely
because for the purpose of chargeability it falls under
a different head, i.e. under s. 8 and not under s. IO.·
Section 24 of the Act deals with the set-off of loss in
computing the aggregate income.
He also contends that the business which the
assessee was carrying on was the business of dealing in
money and credit and that banking and dealing in
securities constitute one and the same business. He
refers to s. 277 F of the Indian Companies Act and
relies on the Privy Council decision in Punjab Co-opera
tive Bank Ltd. v. The Commissioner of Income-tax,
Punjab (1) in which it was pointed out that in the
ordinary case of a bank the business consists in its
essence of dealing with money and credit. The banker
has always to keep enough cash or easily realisable
securities to meet any probable demand by depositors,
and if some of the securities are realised to meet
(1) [1940] fl I.T.R. 635.
Kapur J.
,
1957 withdrawals by depositors, this is clearly a normal
The united step in carrying on the banking business. It is an act
Commerc~ Bonk done in what is truly carrying on of the banking
Ltd., ~ cutta business.
The Commissioner In view of the order we propose to make, we do not
of lnco1111i-tax fi d · · · h west Bengal' m 1t necessary to express any opm1on on t e respec-
tive contentions raised by counsel for the parties. In
Punjab Co-operative Bank's case (supra) a finding had
been given that the purchase and sale of securities was
as much the assessee's business as receiving deposits
from clients and withdrawals by them. In the case
before us no such finding has been given and in the
absence of such finding, no opinion can be given as to
whether the holding of securities out of which interest
was derived formed part of the same business within
Kap11r J.
s. 24(2) or not.
The appeal would therefore, be allowed and the case
remitted to the High Court for a fresh decision of the
reference alter getting from the Tribunal a fuller state
ment of facts about this part of the case, whether the
securities in question were a part of the trading assets
held by the assessee in the course of its business as a
banker.
The costs of this appeal will be costs in the reference
before the High Court.
Appeal allowed. Case remitted