Beneficial ownership of securities determines taxability; fund-held securities' interest not taxable to depositor, credit denied.

Deposited government securities tendered in satisfaction of an excess profits levy and held and invested in the Accountant General's name as part of a statutory Excess Profits Fund vested legal and beneficial entitlement to interest in the fund rather than in the depositor; accordingly the realized sum was not assessable as interest on securities in the hands of the depositor. Because the receipt was not the assessee's taxable income as interest, the statutory conditions for tax credit under the cited provisions were not met and no credit was allowable.

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Issues: (i) Whether the sum of Rs. 28,718 recovered by the assessee constituted "interest on securities" assessable under Section 8 of the Income-tax Act; (ii) Whether the assessee was entitled to credit for tax under Section 18(5) read with Section 18(3) of the Income-tax Act.

Issue (i): Whether the sum of Rs. 28,718 is assessable as interest on securities under Section 8 of the Income-tax Act.

Analysis: Government securities were tendered to and accepted by the Accountant-General in payment of the excess profits levy and were endorsed in the Accountant-General's name while forming part of the Excess Profits Fund. The securities were invested and interest on them was realized by the Accountant-General; certificates recorded the Accountant-General as the holder and the securities as part of the Fund. Although the Fund later repaid the amount to the taxpayer under the repayment provisions, the initial transfer placed legal and beneficial ownership and entitlement to interest with the Fund.

Conclusion: The sum of Rs. 28,718 is not assessable as interest on securities in the hands of the assessee.

Issue (ii): Whether the assessee is entitled to credit for tax under Section 18(5) read with Section 18(3) of the Income-tax Act.

Analysis: Relief under the cited provisions depends on the characterisation of the receipt as taxable income of the assessee. Because the amount was found not to be interest received by the assessee and the securities and interest were held by the Excess Profits Fund, the statutory conditions for tax credit under the cited provisions are not satisfied.

Conclusion: The assessee is not entitled to any credit for tax under Section 18(5) read with Section 18(3) of the Income-tax Act.

Final Conclusion: Both issues are answered against the assessee; the challenged sum is not interest taxable to the assessee and no tax credit under the cited sections is available, and the motion is dismissed with costs.

Ratio Decidendi: Securities deposited in payment of a statutory excess profits levy, and held and invested in the name of the statutory accountant as part of a statutory fund, vest legal and beneficial entitlement to interest in the fund rather than in the depositor; consequent receipts on repayment do not retrospectively convert fund income into the depositor's interest on securities for income-tax purposes.

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