Commissioner Of Income Tax V. Bank Of Chettinad

1946  Present: Soertsz A. C. J. and Rose

COMMISSIONER OF INCOME TAX Appellant, and
BANK OF CHETTINAD, Respondent.

CASE STATED UNDER SECTION 74 OF THE INCOME TAX
ORDINANCE, NO. 84 (INTY.).

Income Tax-Non-resident Bank-Loan to Ceylon Branch ? Claim of deduction of interest- Income Tax Ordinance (cap. 188), s. 90, Rule 1.

Where the Chettinad Bank which had its Head Office at Rangoon and a branch at Colombo lent money to the Colombo Branch and the latter claimed that it should be allowed a deduction, in the assessment of its Income Tax, of the amount of the interest on the loan, under Rule 1 of section 90 of the Income Tax Ordinance-
    
Held, that it was for the assesses to establish affirmatively that both the Head office and the Ceylon Branch carried on the business of banking.
   
A bank contemplated by the Rule is a company or person carrying on as its or his principal business the accepting of deposits of money on current account or otherwise, subject to withdrawal by cheque, draft or order.

CASE stated under the provisions of the Income tax Ordinance for the opinion of the Supreme court upon the application of the Commissioner of Income Tax.

    
H.H. Basnayake, Acting Solicitor-General (with him T. S. Fernando, C.C.), for the commissioner of Income Tax, appellant.-This is a case stated under section 74 of the Income Tax Ordinance (Cap.188). The assessee is a company registered in India. The Head Office is in Rangoon, and there is a Branch Office in Ceylon which transacts business. The Ceylon Branch paid to the Head Office IN Rangoon RS. 53,226 as interest on money advanced by the Head Office for the financial year ending March 31, 1940. This sum was credited in the books of the Ceylon Branch as a payment to the Head Office by way of interest for that year. The Bank claims that this sum should be allowed as a deduction under Rule 1 of the Rules made by the Board of Income Tax under section 90 of the Income Tax Ordinance ? vide Subsidiary Legislation, Vol. III., p. 212. This rule contemplates a Ceylon Branch of a non-resident banker. The Board of Review was wrong when it held that it was immaterial under Rule 1 whether the Ceylon Branch carried on banking business or not so long as it performed some kind of business. The activities of the Bank of Chettinad were merely of non-banking nature. The word ?banker? is defined in section 2 of the Income Tax Ordinance as ?any company or body of persons carrying on the business of banking?. As regards the meaning of the word ?banking? see Hart?s Law of Banking 4 Ed., Vol.IV.p.1. There is no evidence as

to the nature of the activities carried on in Rangoon. There is no material on which a finding could be made that the Bank of Chettinad was either in Ceylon or in Rangoon carrying on banking business. On the evidence it is clear that the Bank of Chettinad merely carries on a money-lending business. See, further, Stroud: Judicial Dictionary (Supplement)p.101,and section 330 of the Companies Ordinance,No.51 of 1938. it is submitted, therefore, that the assessee is only a non-resident trading company and does not come with Rule 1.

H. V. Perera, K. C. (with him N. Nadarajah, K.C., and S. J. Kadirgamer), for the assessee, respondent. -A wide interpretation should be given to the word ?bank?. The correct test is whether the Company utilises for profit its own monies or the monies of others. It is sufficient if the company carried on some banking business. It is not necessary to show that it carried on all the activities of a banker. Thus in order to constitute a bank a Company need not deal with cheques. Discounting of bills would be sufficient to make its business a banking business. The words ?business of banking? do not refer to a particular class or set of activities. In any event the question whether the Rangoon Office and the Ceylon Branch satisfy the definition of a ?bank

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