Gross interest receivable governs rebate on tax-free securities; deductions for borrowing and collection costs do not reduce the relief.

A rebate notification granting relief on "interest receivable" from tax-free securities was construed according to its own terms, and the phrase was held to mean the full contractual interest stipulated by the securities. The rebate therefore applied to the gross amount of interest, not to a net figure reduced by borrowing costs or collection expenses. Once the notification was treated as governing the field, the separate computation argument under the Income-tax Act provisions did not survive. The legal effect is that exemption or rebate under the notification must be worked out on gross interest receivable, subject to any factual determination on whether a security became chargeable in the relevant period.

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Issues: Whether rebate on interest from tax-free securities was allowable on the gross amount of interest receivable under the notification, rather than on the net amount after deduction of borrowing costs and collection expenses.

Analysis: The claim for rebate was governed by the notification issued under section 60(1) of the Indian Income-tax Act, 1922, which continued in force under section 297(2)(1) of the Income-tax Act, 1961. The notification had to be construed on its own terms. The expression "interest receivable" referred to the amount stipulated by the securities themselves and not to a reduced figure arrived at after deducting expenditure incurred in earning that interest. The statutory rebate under section 86 of the Income-tax Act, 1961, therefore attached to the full contractual interest from the tax-free securities. The separate computation issue based on sections 19 and 20 did not survive once the notification was held to govern the field.

Conclusion: The rebate was allowable on the gross amount of interest receivable, and the answer on the referred question was in favour of the assessee.

Final Conclusion: The legal effect of the decision is that exemption or rebate under the applicable notification must be worked out on the full interest receivable under the securities, while the remaining factual question as to whether any security had become chargeable during the relevant accounting period was sent back for determination.

Ratio Decidendi: An exemption or rebate notification must be interpreted according to its own language, and where it grants relief on "interest receivable," the relief applies to gross contractual interest and not to net interest after deductions, provided the notification remains in force under the saving provision.

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