1. This is an appeal u/s 260A of the Income Tax Act, 1961 ( in short ''the Act'') filed on behalf of the assessee.
2. Heard the learned counsel for the assessee and for the department.
3. The appellant company during the Assessment Year 1990-91 purchased certain securities viz., HUDCO Shelter Bonds Series II and III Rural
Electrification Corporation Bonds. The appellant company claimed interest earned from these securities as exempt within the meaning of Section
10(15)(iv)(h) of the Act.
4. The assessing officer denied the exemption for part of the interest. The CIT (Appeals) allowed the entire claim of exemption of interest on such
bonds. The Tribunal was also inclined to allow the exemption of interest on these bonds, but it held that if these bonds were purchased from the
market the ratio laid down by the Supreme Court in Vijaya Bank Ltd. Vs. Additional Commissioner of Income Tax, Bangalore, would apply.
Hence the Tribunal remanded the matter, and directed the assessing officer to examine this aspect.
5. It was submitted by the learned counsel for the appellant that Section 10(15)(iv)(h) of the Income Tax Act, clearly exempts such interest earned
from the bonds issued by any Public Sector Company subject to the condition that the holder of such bonds or debentures, registers his name and
the holding with the company, as the Central Government may by notification in the official gazette specifies in this behalf.
6. In this connection, the appellant relied on the notification nos. S.O.258 (E), dated 4th April, 1989 and S.O. 284 (E), dated 17th April, 1989
(published in Vo.178 ITR 4) and submitted that the interest earned from these Public Sector Bonds is exempt from tax u/s 10(15)(iv)(h) of the
Act. The notifications provide that the benefit shall be admissible if the holder of such bonds registers his name and holding with the said
corporation. Hence, it is submitted by the learned counsel for the assessee that the interest income does not form part of the total income. It was
also submitted by the learned counsel for the assessee that the Tribunal was wrong in imposing further conditions which are not contemplated by
Section 10(15)(iv)(h) of the Act. 6. Notification No.S.O. 258 (E), dated 4th April, 1989 reads as follows: -
In exercise of the powers conferred by item (h) of sub-clause (iv) of clause (15) of Section 10 of Income Tax Act, 1961 (43 of 1961) the
Central Government hereby specifies ""10 years-9% (tax-free) Secured Redeemable Non-Convertible HUDCO Shelter Bonds (Series-II)"", issued
by the Housing and Urban Development Corporation Limited, for the purpose of the said item:
Provided that the benefit under the said item shall be admissible only if the holder of such bonds registers his name and holding with the said
Corporation.
(Sd.) Nutan Sharma Under Secretary to the Government of India (No.8315/F.No.328/20/8 8-WT)
7. Notification No. S.O. 284 (E), dated 17th April, 1989 reads as follows: -
In exercise of the powers conferred by item (h) of sub-clause (iv) of clause (15) of Section 10 of Income Tax Act, 1961 (43 of 1961) the
Central Government hereby specifies ""10 years-9% (tax-free) Secured Redeemable Non-Convertible REC Bonds (19th Series) (Private
Placement)"" issued by the Rural Electrification Corporation Limited, for the purpose of the said item:
Provided that the benefit under the said item shall be admissible only if the holder of such bonds registers his name and holding with the said
Corporation.
(Sd.) Nutan Sharma Under Secretary to the Government of India (No.8336/F.No.328/19/89-WT)
8. The Tribunal has relied on the decision of the Supreme Court in Vijaya Bank v C.I.T,(supra). We have carefully gone through the said
judgment, and we find that the said decision has no relevance to the facts of the present case. In Vijaya Bank v C.I.T (supra) the Supreme Court
has held that the price paid for purchase of securities was in the nature of a capital outlay, and no part of the said price can be set off as
expenditure against the income accr uing on those securities. In the present case, the question involved is totally different.
9. Section 10(15)(iv)(h) of the Act states that in computing the total income of the previous year of any person, the following income shall not be
included --- ""Interest payable --- ""by any public sector company in respect of such bonds or debentures and subject to such conditions, including
the condition that the holder of such bonds or debentures registers his name and the holding with that company, as the Central Government may,
by notification in the Official Gazette, specify in this behalf
10. The language of Section 10(15)(iv)(h) of the Act is very clear, and hence in our opinion the assessee company is clearly entitled to the benefit
of the exemption under the aforesaid provision. We, therefore, cannot understand why the Tribunal has remanded the matter.
11. In paragraph-10 of its order, the Tribunal has observed: - "" But it is not clear from the record whether the bonds were subscribed for or
purchased in the market. In the event the bonds are subscribed, then interest earned would be exempted u/s 10(15) of the Act. If the bonds were
purchased from the market, then the ratio laid down by the Supreme Court in Vijaya Bank''s case (supra) would apply"".
12. In our opinion, the distinction drawn by the Tribunal is wholly untenable and irrelevant. All that has to be seen in the present case is whether the
assessee is the holder of the bond or debenture and whether the holder of such bond or debenture has got his name registered with the company,
and whether the Central Government has issued a notification in the Official Gazette in this behalf. In the present case, there is no dispute that all
the conditions mentioned in clause (h) of Section 10(15)(iv) of the Act are satisfied. Hence, the assessee is entitled to the benefit of clause (h).
13. It is well settled that in tax law the principle of strict construction (literal rule of interpretation) applies, and we have to only see the wording of
the statute. As observed by Lord Cairns in Partington v. Attorney General, (1869) LR 4 HL 100: -
If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind.
On the other hand if the Court seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however
apparently within the spirit of the law the case might otherwise appear to be
Hence in interpreting a taxing statute one cannot go by the notion as to what is just and expedient, vide Commissioner of Income Tax, Patiala and
Others Vs. Shahzada Nand and Sons and Others, . In Commissioner of Income Tax, Madras Vs. V. Mr. P. Firm, Muar, , the Supreme Court
held that equity is out of place in tax laws. (see also Shrimati Tarulata Shyam and Others Vs. Commissioner of Income Tax, West Bengal, ).
14. As observed by Rowlatt J in his classic statement in Income Tax Officer, Tuticorin Vs. T.S. Devinath Nadar and Others, :
In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.
This judgment has been followed by the Supreme Court in A.V. Fernandez Vs. The State of Kerala, and other decisions. As observed by the
Supreme Court if the words of a taxing statute fail, so must the tax vide Income Tax Officer, Tuticorin Vs. T.S. Devinath Nadar and Others, and
I.T. Commr. v. Elphinstone. S & W. Mills, 1960 SC 1016.
15. In Innamuri Gopalan and Others Vs. State of Andhra Pradesh and Another, , the exemption was denied to the assessee on the ground that the
intention of the notification was to avoid double taxation, and as this was not a case of double taxation no exemption could be granted. The
Supreme Court held that on the plain language of the notification the assessee was entitled to exemption, and since the intention was not reflected in
plain words, it could not be taken into consideration.
16. Keeping the above principles of Interpretation of taxing statutes in mind, it is clear that on a plain reading of clause (h) of Section 10(15)(iv) of
the Act, the assessee is entitled to the benefit of the said provision as his case clearly falls within the plain words used in clause (h).
17. For the reasons given above, this appeal is allowed. The impugned judgment of the Tribunal is set aside, and the order of the CIT ( Appeals) is
restored.
