Specific head of income controls tax treatment; business loss, administrative expenses, and borrowings deductions were all disallowed.

Income from securities must be assessed under its specific statutory head and cannot be reclassified as business income merely because the securities are held in the course of business. On that basis, brought-forward business loss could not be set off against interest on securities. The article also states that Section 8 permits only actual commission deducted by a banker in realising interest, so administrative expenses were not deductible. Interest on borrowings used to acquire tax-free securities was likewise not deductible, because the proviso extends only to borrowings for taxable securities. The reference was answered wholly against the assessee.

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Issues: (i) Whether the assessee could set off brought-forward business loss against income from interest on securities; (ii) whether administrative expenses were deductible from income from interest on securities under Section 8; (iii) whether interest on borrowings used to invest in tax-free securities was deductible under the first proviso to Section 8.

Issue (i): Whether the assessee could set off brought-forward business loss against income from interest on securities.

Analysis: The heads of income under Section 6 of the Income-tax Act, 1922 are mutually exclusive. Interest on securities is a distinct head and is chargeable under Section 8, while profits and gains of business fall under Section 10. Income falling within a specific head must be assessed under that head and cannot be reclassified because, in a commercial sense, it may be connected with the assessee's business. The fact that the securities may form part of a bank's circulating capital does not alter the statutory head of income.

Conclusion: No. The brought-forward business loss could not be set off against interest on securities.

Issue (ii): Whether administrative expenses were deductible from income from interest on securities under Section 8.

Analysis: The proviso to Section 8 allows deduction only of commission actually deducted by a banker realising interest on behalf of the assessee. It does not permit an assessee who realises the interest itself to claim a notional allowance for administrative expenses. The claimed deduction was not commission and had no support in the statutory language.

Conclusion: No. Administrative expenses were not deductible under Section 8.

Issue (iii): Whether interest on borrowings used to invest in tax-free securities was deductible under the first proviso to Section 8.

Analysis: The first proviso to Section 8 permits deduction of interest on money borrowed for acquiring taxable securities, because that expenditure is incurred to earn chargeable interest income. It does not extend to borrowings used for tax-free securities, since no tax is payable on that income and the Act provides no basis for allowing a corresponding deduction. The statutory scheme does not justify treating such interest as deductible from taxable interest on other securities.

Conclusion: No. Interest on borrowings used for tax-free securities was not deductible.

Final Conclusion: The reference was answered wholly against the assessee, and the income from securities had to be assessed separately under the statutory head applicable to such income.

Ratio Decidendi: Where the Income-tax Act assigns income to a specific and exclusive head, that income must be assessed only under that head, and it cannot be recharacterised as business income merely because the asset is held in the course of business.

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