1955 Supreme(Pat) 80

PATNA HIGH COURT
S.K.Das and Kanhaiya Singh JJ.
Chota Nagpur Banking Association Ltd.
Versus
Commissioner Of Income Tax
Miscellaneous Judicial Case No. 89 of 1953 ; 185 of 1953 ;
Decided On : AUGUST 05, 1955

The Commissioner of Income-tax had the power to revise the assessment order under Sec. 33B of the Indian Income-tax Act, 1922, for the assessment year 1945-46, where the assessment order was made after the amendment of the Act by which Sec. 33B was inserted. The assessee was entitled to an allowance under the first proviso to Sec. 8 for interest payable on borrowed capital used for investment in securities.

Headnote:

INCOME TAX - Revision of assessment order - Commissioner's power to revise - Assessment year 1945-46 - Amendment of Act by insertion of Sec. 33B in 1948 - Assessment order made after amendment - Commissioner's power to revise - Interest on securities - Allowance for interest payable on borrowed capital - First proviso to Sec. 8 - Interpretation.

Fact of the Case:

The assessee, a public limited company carrying on banking business, filed its income tax return for the assessment year 1945-46, showing income from various sources, including interest on securities, property, and other sources. The Income-tax Officer assessed the income and allowed a loss from business carried forward from the earlier assessment against the total income. The Commissioner of Income-tax, acting under Sec. 33B of the Indian Income-tax Act, 1922, revised the assessment order, holding that the loss from business could not be set off against income from securities, property, and other sources. The assessee appealed to the Appellate Tribunal, which upheld the Commissioner's interpretation of Sec. 24(2) of the Act. The assessee also sought to argue that an allowance should have been made for interest payable on borrowed capital in calculating the income under the head "interest on securities" under Sec. 8 of the Act, but the Appellate Tribunal did not allow this ground to be urged.

Finding of the Court:

The High Court held that the Commissioner of Income-tax had the power to revise the assessment order under Sec. 33B, as the assessment order was made after the amendment of the Act by which Sec. 33B was inserted. The Court also held that the assessee was entitled to an allowance under the first proviso to Sec. 8 for interest payable on borrowed capital used for investment in securities.

Issues: 1. Whether the Commissioner of Income-tax had the power to revise the assessment order under Sec. 33B of the Indian Income-tax Act, 1922, for the assessment year 1945-46, where the assessment order was made after the amendment of the Act by which Sec. 33B was inserted? 2. Whether, in calculating the income under the head "interest on securities" under Sec. 8 of the Indian Income-tax Act, 1922, the Income-tax Department should have made an allowance in respect of interest payable by the assessee on the borrowed capital?

Ratio Decidendi: 1. The Commissioner of Income-tax had the power to revise the assessment order under Sec. 33B, as the assessment order was made after the amendment of the Act by which Sec. 33B was inserted. The amendment came into effect on 30-3-1948, and the assessment order was made on 30-3-1949. Therefore, the Commissioner had the authority to revise the assessment order, which was made after the coming into force of Sec. 33B. 2. The assessee was entitled to an allowance under the first proviso to Sec. 8 for interest payable on borrowed capital used for investment in securities. The proviso exempts from income tax interest payable on money borrowed for the purpose of investment in securities. The assessee was, therefore, entitled to an allowance in respect of the interest payable by it on the borrowed capital to the extent to which the borrowed capital was utilized for the purpose of investment in the said securities.

Final Decision: 1. The first question was answered in favor of the Income-tax Department and against the assessee, holding that the Commissioner of Income-tax was competent to revise the assessment order passed by the Income-tax Officer on 30-3-1949 for the assessment year 1945-46 under Sec. 33B of the Indian Income-tax Act, 1922. 2. The second question was answered in favor of the assessee and against the Income-tax Department, holding that, in the circumstances of the case, the Income-tax Department, while calculating the income under the head "interest on securities" under Section 8 of the Income-tax Act, should have made allowance in respect of the interest payable by the assessee on the borrowed capital, in accordance with the provisions of that section.