Exempt income does not imply proportionate disallowance of banking deductions unless the statute clearly requires apportionment.

Section 8, as amended in 1956, required a special computation for income from interest on securities and a proportionate reclassification of certain banking expenses, but it did not show a legislative intent to cut down the balance of deductions otherwise allowable under section 10(2). The text indicates that the amendment only split the allowable item between sections 8 and 10, and that exempt income under section 4(3)(xvii) could not, without clear statutory language, trigger an implied apportionment disallowance of related business deductions. On that reasoning, the proportional disallowance of the banking company's claimed expense was not justified.

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Issues: Whether, after the 1956 amendment to section 8, the assessee-bank's interest on deposits and related business expenses attributable to investment in 10-year Treasury Savings Certificates exempt under section 4(3)(xvii) could be proportionately disallowed.

Analysis: Section 8, as amended, prescribed a special mode of computation for income under the head "interest on securities" and, in the case of a banking company, required a proportionate reclassification of certain expenses and interest payments that would otherwise fall within section 10(2). The amendment did not, however, evince a legislative intent to deny the balance of the deductions otherwise allowable to a banking company under section 10(2). The effect was only to split the allowable item between section 8 and section 10, not to reduce the total deduction merely because part of the related income was exempt under section 4(3)(xvii). Income falling within section 4(3) was not to be computed as net income by importing a further apportionment disallowance absent clear statutory language.

Conclusion: The proportional disallowance of Rs. 1,719 was not justified in law and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Exemption of income under section 4(3) cannot, by implication, justify proportionate disallowance of otherwise admissible business deductions unless the statute clearly requires such apportionment.

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