Case: Commissioner Of Income-Tax, Madras Vs. Indian Bank Lid

trade by itself."15. Mr. Sastri urges that the authority of the above decision has been shaken in Mitchell and Edon v. Ross (1961) 40 Tax Cas 11, but we are unable to accept this contention. The point urged in this case was that the authority of Fry v. Salisbury House Estate, 1930 AC 482, had been qualified by the decision in (1937) 21 Tax Cas 472, but this was negatived.16. A number of Indian cases have been cited before us and we will now proceed to examine them.17. The Madars High Courts decision in Commissioner of income-tax, Madras v. Somasundaran Chettiar, AIR 1928 Mad 487 does not assist Mr. Sastri. The assessee carried on business at Madras, where his head office was, and Ipoh a place in the Federated Malay. Money was borrowed at Madras and part of it sent to Ipoh where it was used as capital in the conduct of Ipoh business. The High Court held that interest on the part of the borrowed money used at Ipoh was rightly disallowed as a deduction because at business which was being taxed was the business at Madras and not the business at Ipoh. No exception can be taken to the decision but it does not advance the appellants case because we are concerned with one indivisible business.18. In Provident Investment Co. Ltd., In re 6 ITC 21: (AIR 1932 Bom 94), the assessee, an Indian Finance Company borrowed some money in India and purchased sterling securities out of it and retained them in India. The Bombay High Court held that interest on the borrowed money could not be deducted because" qua the capital which it (the company ) is using outside British India and retaining for that length of time outside British India, is not carrying on business in respect of which profits assessable to Indian Income-tax can be earned so that allowance can be claimed for interest on capital borrowed within the meaning of S.10 (2) (iii)" It appears to us that the Bombay High Court divided the business in two separate businesses. But the business of the present assessee cannot be divided into two separate businesses. It is one and indivisible.19. In Chellappa Chettiar v. Commissioner of Income-tax, Madras, 1937-5 ITR 97 : (AIR 1937 Mad 393 ) the assessee carrying on business as a moneylender had borrowed money and lent it out to constituents. He was obliged to receive agricultural lands in repayment of his debts from such constituents. The question arose whether he was entitled to a deduction in respect of the interest paid by him on capital represented by the agricultural lands. The Court following (1937) 21 Tax Cas 472, held that he was entitled notwithstanding that agricultural income was not taxable under the Income-tax Act. Mr. Sastri says that this was wrongly, decided and was in fact dissented from by the Rangoon High Court in C. I. T. Burma v. N. S. A. R. Concern (1938) 6 ITR 194: (AIR 1938 Rang 151). Dunkley. J., in the Rangoon case, distinguished (1937) 21 Tax Cas 472. because he thought that the scheme of the Burma Income-tax Act was entirely different from the scheme of the English Income-tax Act 1918. He observed that"in England a person is assessed to income-tax in respect of his income while under the Burma Act it is the income which is taxed. Under the English Act no class of income it outside the scope of the Act whereas by S. 4 (3) of the Burma Act the Act is made inapplicable to a number of classes of income. The English Act merely confers certain exemptions on a person in respect of his income up to a certain amount or certain kinds, similar to the exemptions conferred on certain classes of income by the provisos to Ss. 8 and 9 at the Burma Act.Then he noted the difference between the wording of S. 10 (2) (ix) of the Burma Act and the corresponding clause in the English Act. But we are unable to appreciate that these differences necessitate the rejection of the principle laid down in (1937) 21 Tax Cas 472. It is true that under the Indian Income-tax Act it is income that is taxed but it is not taxed in vacuo. It is taxed in the hands of a person. In England, the Interest of tax-free securities was exempted much in the same way as in India. It did not matter there who held them. (1937) 21 Tax Cas 472 cannot be distinguished on the grounds mentioned by the Rangoon High Court. In our judgment, 1937-5 ITR 97 : (AIR 1937 Mad 393 ) was correctly decided.20. The decision of this Court in Indore Malwa United Mills v. Commr. of Income-tax, (Central) Bombay, 1962-45. ITR 210 (SC), is distinguishable. It appears to us that it was because S. 14 (2) (c) and S. 4 (1) (a) and (c) existe at the relevant time that the words profits and gains in S. 24 were limited to such profits and gains as would have been assessable in British India or the taxable territories. This is apparent from the judgment and from the fol1owing observations of Das, J.,"Reading the provisions in S. 24 with the provision in S. 4 (1) (a) and (c) and S. 14 (2) (e) it seems clear to us that S. 24 (1) when it talks of profits or gains has reference to taxable profits and gains; in other words, it has reference to such profits and gains as would have been assessable in British India or the taxable territories. It has no reference to income accruing or arising without British India or without taxable territories which were not liable to be assessed in the case of non-residents"21. We cannot imply from this judgment that there is a general principle that if a part of the income of a business is tax-free, expenditure incurred for the purpose of earning this income is outside the purview of S. 10.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]20. The decision of this Court in Indore Malwa United Mills v. Commr. of Income-tax, (Central) Bombay, 1962-45. ITR 210 (SC), is distinguishable. It appears to us that it was because S. 14 (2) (c) and S. 4 (1) (a) and (c) existe at the relevant time that the words profits and gains in S. 24 were limited to such profits and gains as would have been assessable in British India or the taxable territories. This is apparent from the judgment and from the fol1owing observations of Das,the provisions in S. 24 with the provision in S. 4 (1) (a) and (c) and S. 14 (2) (e) it seems clear to us that S. 24 (1) when it talks of profits or gains has reference to taxable profits and gains; in other words, it has reference to such profits and gains as would have been assessable in British India or the taxable territories. It has no reference to income accruing or arising without British India or without taxable territories which were not liable to be assessed in the case ofWe cannot imply from this judgment that there is a general principle that if a part of the income of a business is tax-free, expenditure incurred for the purpose of earning this income is outside the purview of S.is force in the contention of Mr. Venkatram and the appeal must fail on this ground alone. But as the question has been debated before the High Court and before us. we do not desire to rest our decision on this narrow ground.Then is there such a principle as has been formulated above ? If there is one, can it be invoked to cut down the express language of S. 10 (2) (iii), which expressly allows as a deduction interest on capital borrowed for the purpose of the business? In our opinion, in construing the Act, we must adhere closely to the language of the Act.If there is ambiguity in the terms of a provision, recourse must naturally be had toprinciples of construction but it is not permission first to create an artificial ambiguity and then try to resolve the ambiguity by resort to some generalit seems to its that their is nothing in the language of S. 10 from which it can be fairly implied that an expenditure or allowance falling without the section must fulfil some other condition before it can be allowed.