Treasury bill discount treated as interest on securities, not business income, where the issue discount represented investment return.

Treasury bills issued as statutory Government securities were treated as giving rise to interest rather than business profit. The court construed "interest" broadly under the Income-tax Act and noted that, because treasury bills are issued at a discount and redeemed at face value, the difference represents the return on funds invested until maturity. On that basis, the discount was characterised as interest on securities and not as a trading receipt, so it was taxable under the head of interest on securities rather than as business income.

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Issues: Whether the discount on treasury bills is assessable as income from business or as interest on securities.

Analysis: Treasury bills were treated as government securities under the relevant statutory definitions. The expression "interest" under the Income-tax Act was construed broadly to include amounts received in relation to borrowed moneys or debt incurred. Since treasury bills are issued at a discount and redeemed at face value, the difference between issue price and maturity value represents the return on investment and has the character of interest on Government securities rather than a trading receipt.

Conclusion: The discount on treasury bills is chargeable as interest on securities and not as business income.

Final Conclusion: The reference was answered in favour of the assessee and against the Revenue, and the matter stood disposed of accordingly.

Ratio Decidendi: Where treasury bills are statutory Government securities and the issue discount represents the return on funds invested until maturity, the discount is taxable as interest on securities.

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