Gross interest on tax-free securities qualifies for rebate where the notification uses "interest receivable" and excludes expense deductions.

An exemption notification governing tax-free securities must be construed on its own language. The phrase "interest receivable" refers to the full contractual interest payable on the securities, so rebate is computed on the gross interest and not on a net figure reduced by proportionate borrowing or collection expenses. Computation provisions invoked by the Revenue cannot narrow the scope of the exemption granted by the notification. On that construction, rebate remained admissible on the entire interest receivable, and the assessee succeeded on the issue.

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Issues: Whether rebate under the relevant exemption notification was admissible on the gross interest receivable from the tax-free securities or only on the net amount after deducting proportionate borrowing and collection expenses.

Analysis: The exemption arose under a notification issued under section 60(1) of the Indian Income-tax Act, 1922, and continued to operate under the Income-tax Act, 1961. The governing principle was that such a notification must be construed according to its own language. The expression "interest receivable" in the notification denoted the full contractual interest payable on the securities and did not permit reduction by expenses incurred in earning or realising that interest. On that basis, the computation provisions relied on by the Revenue could not curtail the scope of the exemption conferred by the notification.

Conclusion: Rebate was payable on the gross amount of interest receivable under the notification, and the assessee succeeded on this issue.

Ratio Decidendi: An exemption notification governing tax-free securities is to be construed on its own terms, and where it uses the expression "interest receivable," rebate or exemption applies to the full amount so receivable and not to the net amount after deducting related expenses.

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