Law:

Section:

Section 28 of the Income-tax Act, 1961 – Business income – Chargeable as - Assessment year 1969-70 – Assessee bank treated part of sale proceeds of securities constituting its circulating capital as interest realised by it in respect of broken period upto date of sale - Said interest in fact had been realised by vendees when it become due and payable – Tribunal held that amount in question was price of expectancy of interest realised in course of its banking business and was, therefore, to be assessed as income from business under section 28 – Whether order of Tribunal was justified – Held, yes FACTS During the accounting year corresponding to the assessment year in question, the assessee bank had realised certain amount on the sale of its securities. Out of the sale proceeds, certain sum was treated by the assessee as interest realised by it in respect of the broken period up to the date of sale, although, in fact, the interest in respect of these securities had been realised by the vendees when they became due and payable. Before the ITO, the assessee claimed that under section 18 the sum which represented the interest on the securities sold by it could not be taxed as the interest had, in fact, been realised by the purchaser after the sale. The ITO rejected the claim of the assessee holding that the said sum was part of the profits of the banking business carried on by the assessee and it was taxable under section 28. The AAC rejected the claim of the assessee on the ground that although the nomenclature given was interest, it was not interest, but part of the sale consideration worked out and determined on the basis of the interest receivable up to the date of sale. This finding had been affirmed by the Tribunal by observing that what the assessee had received was, not interest but it was the price of the expectancy of interest. On reference : HELD From the material on record, it was clear that the Tribunal had proceeded on the basis that section 18 was inapplicable to the instant case since there was no realisation of interest as such by the assessee on the securities and that the receipt was part of its business income. The above conclusion of the…

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