Heads of income exclusivity: interest on securities assessed under Section 8; no set off or deductions permitted.

Interest on securities falls exclusively under the head governed by Section 8 and must be computed and charged under that head; consequently a carried forward business loss cannot be set off against such interest, the contention rejected. The first proviso permits deduction only of commission actually deducted by a banker; administrative expenses or imputed commission claimed by an assessee collecting interest are not deductible. Interest on borrowings used to acquire tax free securities is not deductible under the first proviso because no chargeable income from the securities exists to support the deduction.

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Issues: (i) Whether the assessee was entitled to set off the business loss of Rs. 3,21,929 brought forward from the preceding year against the current year's income from interest on securities; (ii) Whether the assessee was entitled under Section 8 to deduct any part of its administrative expenses out of the income from interest on securities; (iii) Whether the assessee was entitled under the first proviso to Section 8 to deduct any interest on money borrowed and utilised for investment in tax-free securities.

Issue (i): Whether the carried forward business loss could be set off against interest on securities of the assessment year.

Analysis: Section 6 classifies heads of income and Sections 8 and 10 prescribe distinct modes of assessment for interest on securities and business profits respectively. The classification operates exclusively; an item falling squarely under Section 8 must be computed and charged under that section. The option to reclassify an item as business income is not available under the Act merely because the securities are used in the business. Additionally, Section 24(2) permits carry forward only of the portion of loss not set off under Section 24(1), and the statutory scheme requires that the loss carried forward be capable of being set off against a different head in the year of origin; treating interest as business income could preclude such set off. Factual foundation for treating the securities as business income was not established.

Conclusion: No. The carried forward business loss cannot be set off against interest on securities; the contention is rejected and the tax treatment under Section 8 stands.

Issue (ii): Whether administrative expenses (other than commission actually deducted by a banker) are deductible from interest on securities under Section 8.

Analysis: The first proviso to Section 8 permits deduction of commission actually deducted by a banker realising interest on behalf of the assessee. It does not allow an assessee who collects interest himself to claim administrative expenses or to impute a commission for deduction. The statutory language conditions the deduction on actual commission deducted by a banker realising the interest.

Conclusion: No. Administrative expenses not actually deducted as banker's commission are not deductible under Section 8.

Issue (iii): Whether interest on money borrowed and invested in tax-free securities is deductible under the first proviso to Section 8.

Analysis: The first proviso authorises deduction of interest on moneys borrowed where the interest earned on the securities is chargeable to tax. The third proviso exempts interest from tax where securities are tax-free; where no chargeable income exists, there is no basis for allowing a deduction of interest on borrowings related to that tax-exempt income. The statutory structure therefore precludes deduction of borrowing cost attributable to tax-free securities.

Conclusion: No. Interest on borrowings used to acquire tax-free securities is not deductible under the first proviso to Section 8.

Final Conclusion: All three referred questions are answered against the assessee; interest on securities must be assessed under Section 8, administrative expenses not constituting actual banker's commission are not deductible under that section, and interest on borrowings for tax-free securities is not deductible.

Ratio Decidendi: The heads of income under Section 6 are mutually exclusive and an item of income falling within the specific charge of Section 8 (interest on securities) must be assessed under that section alone; consequently deductions or set-off that depend on reclassification as business income or on the existence of chargeable income cannot be permitted.

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