Gross interest exclusion for non-resident companies under the Super Profits Tax regime includes Government securities and avoids extra expense deductions.

Rule 1(x) of the First Schedule to the Super Profits Tax Act, 1963 is a self-contained exclusion for qualifying non-resident companies, and its scope is wide enough to cover interest on Government securities without being limited by rule 1(vi). The exclusion is applied to the gross interest received from the specified sources, and the clause does not require reduction by the whole of the interest paid on borrowings or by related management and other expenses unless the provision itself so provides. On that construction, the exclusions claimed by the assessee were upheld.

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Issues: (i) Whether interest on Government securities received by a non-resident company could be excluded in computing chargeable profits under rule 1(x) of the First Schedule to the Super Profits Tax Act, 1963. (ii) Whether, for exclusion under rule 1(x), only proportionate interest on borrowings was deductible from interest received from Indian concerns, or the whole of the interest paid and related expenses had to be deducted.

Issue (i): Whether interest on Government securities received by a non-resident company could be excluded in computing chargeable profits under rule 1(x) of the First Schedule to the Super Profits Tax Act, 1963.

Analysis: Rule 1(x) is a special exclusion applicable to a defined class of assessees, namely non-resident companies which have not made the prescribed arrangements for declaration and payment of dividends within India. The language of the clause is wide enough to cover interest received from Government. Rule 1(vi), which deals with interest on tax-free securities, operates in a different field and does not control the scope of rule 1(x). The two provisions are not in conflict, and rule 1(x) cannot be cut down by reading into it a restriction drawn from rule 1(vi).

Conclusion: Interest on Government securities was rightly excluded under rule 1(x), in favour of the assessee.

Issue (ii): Whether, for exclusion under rule 1(x), only proportionate interest on borrowings was deductible from interest received from Indian concerns, or the whole of the interest paid and related expenses had to be deducted.

Analysis: Rule 1(x) does not contain any provision requiring the interest received to be reduced by interest paid or by management or other expenses before exclusion. The exclusion operates on the interest received by the qualifying non-resident company, and the gross receipt is the relevant amount for the clause. The adjustment made by the appellate authority was therefore consistent with the proper understanding of the clause.

Conclusion: The exclusion was to be worked out on the basis of gross interest received without deducting the entire interest paid or expenses, in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee, and the claimed exclusions under the Super Profits Tax Act were upheld.

Ratio Decidendi: Rule 1(x) of the First Schedule to the Super Profits Tax Act, 1963 is a self-contained special provision for non-resident companies, and the exclusion it grants applies to the gross interest received from the specified sources without being restricted by rule 1(vi) or by deductions for interest paid or expenses unless the clause itself so provides.

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