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Issues: Whether interest on securities held by a banking assessee, when the securities formed part of its trading assets, was part of the income of the business for the purpose of carrying forward and setting off business loss under section 24(2) of the Indian Income-tax Act, 1922.
Analysis: Section 6 classifies taxable income under different heads only for computation of total income, and the heads are not exhaustive of the sources from which income may arise. Section 24(1) permits set-off across different heads in the same year, while section 24(2) is concerned with loss from the same business in subsequent years and does not confine the expression to the statutory heads. Where securities are part of the trading assets of a banking business, income from such securities remains business income on commercial principles even though it is separately classified under the head of interest on securities for computation purposes. The Tribunal and the High Court had found that the securities were trading assets of the assessee-bank.
Conclusion: The interest on the securities formed part of the assessee's business income, and the carried-forward business loss could be set off against that income under section 24(2). The answer to the reference was correctly given in the assessee's favour, and the appeals failed.
Ratio Decidendi: For purposes of section 24(2), income from securities that constitute trading assets of a banking business is business income, notwithstanding its separate classification under section 6 for computation of total income.
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