The notification issued by the Central Government under S. 60A of the Income-tax Act, 1922, provided an exemption from income-tax payable by an assessee on a particular class of income subject to specified conditions. The expression "interest receivable on income-tax free loans" was clear and unambiguous and meant the amount of interest calculated as per the terms of the securities.

Judgement

SUBBA RAO, J. : The respondent, the South India Bank Limited, 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 towards 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 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 deducting 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 amounting to Rs. 44,720. At the instance of the Department, the Tribunal referred the following question to the High Court of Kerala for its decision:

"Whether, on the facts and circumstances of the case, the Tribunal was right in holding that Explanation to S. 8 is not applicable in this case and that the entire interest of Rs. 44,720 earned by the assessee from securities issued by the former Native States, etc., is entitled to rebate of income-tax."

A Division Bench of the High Court expressed the opinion that the entire interest of Rs. 44,720 was entitled to rebate for income-tax under the notification issued by the Central Government in exercise of its powers under S. 60-A of the Indian Income-tax Act, 1922. Hence the appeal.

2. Mr. R. Ganapathy Iyer, learned counsel for the Revenue, argued that under S. 8 of the Indian Income-tax Act, income-tax was computed under the head "interest on securities" in respect of the interest received by an assessee on any Government securities minus the expenditure incurred by him to realise the same in terms of the first proviso and the Explanation thereto, that when under the third proviso the assessee was exempted from paying tax on the interest receivable on any securities of State Government issued income-tax free, he was only exempted from such tax payable by him if it was not so exempted. To put it differently, his argument was that the exemption under the third proviso was only in regard to that part of the interest which was taxable but for the exemption. His further contention was that the notification issued by the Central Government under S. 60A of the Income-tax Act did not enlarge the scope of the exemption but that the said notification must be construed only in terms of S. 8 of the Income-tax Act.

3. Mr. A. V. Viswanatha Sastri, learned counsel for the respondent, argued that the substantive part of S. 8,read with the first proviso and the Explanation thereto, had no application to securities issued income-tax free and that the interest from the State Government securities was governed by the third proviso which did not provide for any deduction from the interest receivable from such securities for the purpose of income-tax. Further he sought to sustain the order of the High Court on the ground that the interest in question was solely governed by the notification issued by the Central Government whereunder the entire interest receivable from such securities was exempted from income-tax.

4. As we agree with the High Court on the construction of the notification issued by the Central Government, we do not propose to express our opinion on the rival contentions of the parties based upon the provisions of S. 8 of the Income-tax Act.

5. Section 8 of the Income-tax Act provides for the compu