- (1.) This is an appeal by special leave against the judgment of the Madras High Court, answering a question referred to it under S. 66 (1) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, against the Revenue.
(2.) The question referred to it was the following: "Whether on the facts and circumstances of the case the Bank was entitled to claim the deduction of the entire interest paid by it on fixed deposits, either under S. 10 (2) (iii) or 10 (2) (xv) -
(3.) The relevant facts and circumstances are these. The respondent the Indian Bank Ltd., Madras, hereinafter referred to as the assessee, carried on the business of banking. In the normal course of its business, it received deposits from constituents and paid interest to them. It invested a large sum in securities both of the Central and State Governments (including Mysore Government). The interest on Mysore Government securities was exempt from income-tax and super tax under the provisions of a notification issued under S. 60 of the Act. It bought and sold these securities and the profits and losses on the purchase and sale of such securities were duly taken into account in computing the income of the assessee under the head 'Business'. For the assessment year 1951-52 (accounting year Calendar Year 1950) it claimed a deduction of Rs. 25, 91,565 as interest paid to various depositors under Section 10 (2) (iii) of the Act. The Income-tax Officer for Appellate Assistant Commissioner and the Income-tax Appellate Tribunal disallowed interest amounting to Rs. 2,80,194. This amount was arrived at by calculating the proportionate interest which would be payable on money borrowed for the purchase of Mysore securities for Rs. 2,49,93,511. We need not describe the formula adopted for calculating the proportionate interest for nothing turns on it.;