Judgement

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, 10 and 24 (2), Income-tax Act (hereinafter termed the Act.)

2. The assessee (who is the appellant before us) claims that in the computation of its profits for the assessment year under review (1945-1946), 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 .............. "business income".

"interest on securities" in the year of assessment was Rs. 23,62,815 and under the head "business income" there was a loss of Rs. 8,86,972. After making the necessary adjustments and deducting the business loss from "Interest on securities", the net income was determined at Rs. 14,95,826. In the previous year there was a loss of Rs. 3,21,929 which was computed by setting off the business loss against "interest on securities".

3. Before the Income-tax Officer the assessee made its 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. 277 F, 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.

4. 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 Appellate 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 from last year against income from Government securities earned this year."

It therefore did not allow the loss of the previous year to be set off against the computed profits of the assessment year.

5. The assessee thereupon asked for a case to be stated 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.

6. The Tribunal stated the case and sought the opinion of the High Court on the following three questions;

(1) "Whether o