Strict construction of tax exemptions bars reliance on manual instructions or analogy to reduce taxable interest income.

Tax liability on interest on securities had to be computed strictly under the express terms of the Income-tax Act, and the Explanation to section 8 of the 1922 Act could not be extended by analogy to a co-operative society. Departmental instructions in the Income-tax Manual had no statutory force and could not create a deduction or exemption, especially after withdrawal from the relevant edition. The assessee therefore had no legal basis to reduce the taxable interest income to the lower figure claimed, and the higher amount was correctly treated as taxable.

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Issues: Whether the assessee-co-operative society was entitled to reduce its taxable income from interest on securities by applying departmental instructions in the Income-tax Manual, or by invoking the principle underlying the Explanation to section 8 of the Income-tax Act, 1922, so as to limit the taxable amount to Rs. 13,578 instead of Rs. 59,498.

Analysis: The Explanation to section 8, by its terms, applied only to a banking company and could not be extended to a co-operative society by analogy or on considerations of equity. Tax liability must rest on express statutory language, and exemption or saving provisions cannot be enlarged by implication, administrative convenience, or notions of fairness. The departmental instructions in the Manual had no statutory force and, in any event, had been withdrawn from the relevant edition. Since the assessee's business income was separately exempt and the dispute concerned only interest on securities, there was no legal basis to allow the further deduction claimed.

Conclusion: The assessee was not entitled to have the taxable income from interest on securities reduced to Rs. 13,578; the amount of Rs. 59,498 was correctly treated as taxable.

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, with costs awarded to the department.

Ratio Decidendi: Taxing provisions and exemptions must be applied strictly according to their express terms, and administrative instructions or equitable considerations cannot create a deduction or exemption where the statute does not provide one.

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