Pattanaik, J. - (1.) This appeal by special leave is against the judgment of the Bombay High Court in Income Tax Reference No. 86 of 1970 at the instance of the Revenue on an application being filed under Section 256 (1) of the Income tax Act, 1961, the Tribunal referred the following two questions to the High Court for being answered and the High Court answered both the questions in the affirmative in favour of the assessee and against the Revenue. The two questions are:-"(1) Whether, on the facts and in the circumstances of the case, income by way of any" interest on securities" received from Government could be excluded in the computation of chargeable profits in terms of Clause (x) of Rule 1 of the First Schedule to the Super Profits Tax Act, 1963. (2) Whether, on the fact and in the circumstances of the case, the Tribunal was right in holding that only the proportionate interest of Rs.5, 19,804/- on borrowings should be deducted from the interest amount of Rs.12,93,828/- received by the assessee from the Indian concerns, and not the whole of the interest amount of Rs.10, 12,252/- paid by the assessee to various parties, in order to determine the net interest income for the purposes of exclusion from the chargeable profits in terms of Clause (x) of Rule 1 of the First Schedule to the Super Profits Tax Act, 1963".
(2.) The short facts leading to the questions being referred are that the assessee M/s. Banque Nationale De-Paris is a non-resident company and admittedly it had not made any arrangement for declaration of payment of dividends in India during the calendar year 1961. A sum of Rs. 2, 18,802/- which the assessee had received towards interest on securities had been included in the assessees total income for the purpose of assessment. The assessees contention was that the Super Profits Tax assessment made by the Departmental Authority is erroneous as the assessee was entitled to exclusion of the aforesaid interest amount in computing the chargeable profits in accordance with Clause (X) Rule 1 of the First Schedule of the Super Profit Tax Act, 1963, as the entire interest amount had been received from the Government. Since the Super Profits Tax Officer did not exclude the aforesaid amount as contended by the assessee the matter was carried in appeal to the Appellate Assistant Commissioner. The said Appellate Authority was of the opinion that the interest on security received from the Government was to be excluded from the chargeable profits for the purpose of Super Profits Tax assessment in accordance with Clause X of Rule 1 of the First Schedule of the Super Profits Tax Act but the said Assistant Commissioner came to the conslusion that the figure of income from interest on security which the assessee claimed to be deducted in computing the chargeable profits is not correct and it accordingly reduced the same to Rs.18,904/- in respect of interest on borrowings and Rs.19,333/- in respect of other expenses. According to the Appellate Authority the net amount of interest on securities is Rs.37,683/- which should be excluded from the chargeable profits. The Department filed the appeal before the Tribunal against the aforesaid order of the Authority contending that the interest on security cannot be excluded in computing chargeable profits for Super Profits Tax purposes as Clause X of Rule 1 of the First Schedule does not apply to the interest on government securities. According to Revenue the interest on securities to be excluded from the chargeable profits has been dealt with under Clause VI of Rule 1 of First Schedule and, therefore, the decision of the Appellate Authority is incorrect. The Tribunal, however, rejected the contention of the Revenue and held that interest received by non resident company from whatever source and from the Government or Local Authority or any Indian concern would be deductible under Clause X of Rule 1 of First Schedule and, therefore, the Appellate Authority came to the correct conclusion in law. It, therefore, dismissed the appeal filed by the Revenue and on these facts the first question was referred to the High Court which the High Court also answered in favour of the assessee and against the Revenue.
(3.) The assessee during the relevant period had also received a sum of Rs. 12,93,822/- by way of interest on advances given to Indian concerns. The total amount of interest which the assessee received from various sources was Rs .25, 19,560/-. The assessee before the Super Profits Tax Officer had claimed the deduction of entire Rs. 12,93,822/- which it had received by way of interest on advances given to Indian concerns. The Super Profits Tax Officer in computing the income by way of income from Indian concerns arrived at the figure of Rs.1, 16,617/-. The Super Profits Tax Officer was of the view that the interest to be excluded from the chargeable profits is the net amount of interest after deducting the interest which the assessee paid to its depositors and creditors as well as after deducting other proportionate expenses and thus the said Super Profits Tax Officer determined that the net income by way of interest to be excluded from the chargeable profits on this head is Rs.1,61,617/-. The assessee then carried the matter in appeal to the Appellate Assistant Commissioner who came to the conclusion that the interest which the assessee received from Indian concerns to the extent of Rs.12,93,828/- should be reduced by the proportion of the interest which the assessee himself had received from Indian concerns bears to the total interest receipt of the assessee. According to the Appellate Authority such proportion would work out at Rs.5, 19,804/- and the proportionate expenses is Rupees 5,51,207/- which together would work out at Rs.10,71,011/- and this amount should be deducted from the gross interest receipts of Rs.12,93,828/- and, therefore, the Appellate Authority worked out the net amount of interest received by the assessee from Indian concerns at Rs.2,22,817/- which amount should be excluded from the chargeable profits. Against the aforesaid decision the Revenue felt aggrieved and carried the matter in second appeal. The Tribunal came to the conclusion that the formula adopted by the Appellate Assistant Commissioner was extremely fair and no exception could be taken to it and ultimately did not interfere with the order of the Tribunal and on these set of facts and conclusions the second question was referred by the Tribunal.;