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of <h1>Court rules interest on securities separate for tax deductions. Entertainment expenses considered post-deduction.</h1> The court ruled in favor of the revenue, holding that interest on securities should be separately assessed and not merged with business income for the ... Entertainment Expenditure, Interest On Securities Issues Involved:1. Computation of admissible deduction under section 37(2) of the Income-tax Act, 1961, concerning interest on securities as business income.2. Consideration of entertainment expenditure for application of section 37(2) after deduction under section 20.3. Jurisdiction of the Appellate Tribunal to permit the assessee to raise additional grounds not raised before the Income-tax Officer and the Appellate Assistant Commissioner.Detailed Analysis:Issue 1: Computation of Admissible Deduction under Section 37(2) Concerning Interest on Securities as Business IncomeThe court examined whether, in computing the admissible deduction under section 37(2) of the Income-tax Act, 1961, the interest on securities should be considered as business income. The assessee, a scheduled bank, argued that interest on securities should be treated as part of its business income since the securities were held as part of its stock-in-trade. The court referred to the Supreme Court's decisions in CIT v. Cocanada Radhaswami Bank Ltd. and United Commercial Bank Ltd. v. CIT, which clarified that income from securities, even if held as trading assets, must be computed under the specific head of 'Interest on securities' as per section 8 of the 1922 Act (corresponding to section 14 of the 1961 Act). The court concluded that the separate assessment of interest on securities retains its significance and should not be merged with business income for the purpose of section 37(2). Therefore, the assessee would be eligible only for the allowance of Rs. 24,763 as entertainment expenses under section 37(2).Issue 2: Consideration of Entertainment Expenditure for Application of Section 37(2) After Deduction Under Section 20The court addressed whether the entertainment expenditure to be considered for application of section 37(2) should only be that after deduction of the amount allowable under section 20. Section 20 provides for a proportionate allowance of expenses, including entertainment expenditure, from interest on securities. The court emphasized that the expenses deducted under section 20 should not again form part of the deductions under sections 30 to 37 for computing business income. The court rejected the assessee's argument that the restriction imposed by section 37(2) should not apply to section 20, affirming that the proportionate part of entertainment expenditure computed under section 37(2) must be allowed under section 20, with the remaining part allowable under section 37. Consequently, the court answered the questions in T.C. No. 67 of 1975 in the negative and in favor of the revenue, and T.C. No. 71 of 1977 was returned unanswered.Issue 3: Jurisdiction of the Appellate Tribunal to Permit the Assessee to Raise Additional GroundsThe court considered whether the Appellate Tribunal had the jurisdiction to permit the assessee to raise additional grounds not raised before the Income-tax Officer and the Appellate Assistant Commissioner. The court did not explicitly address this issue in the detailed judgment, focusing instead on the primary questions related to the computation of deductions and the application of sections 20 and 37(2). However, the court implicitly supported the Tribunal's jurisdiction by addressing and resolving the substantive issues raised by the assessee during the appeal process.Separate Judgments Delivered by Judges:The judgment was delivered collectively by the court, with no separate judgments by individual judges mentioned.Conclusion:The court ruled in favor of the revenue on the primary issues, affirming that the computation of deductions under section 37(2) must consider the specific provisions for interest on securities and the proportionate allowance of expenses under section 20. The Tribunal's jurisdiction to permit additional grounds was implicitly supported, though not explicitly discussed in detail. The revenue was entitled to its costs, with counsel's fee set at Rs. 500 for one set.
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