Securities issued by India States before 1947 held to be assessible u/s 8

1. The appellant-bank held certain securities which were issued by the Indian States of Travancore and Cochin before 1947. The securities were tax free.

2. The appellant-bank contended that the said securities were State Government securities.

3. The High Court rejected the contention holding that the securities were "Government securities" within the meaning of section 3(24) of the General Clauses Act and, on the express terms of the clause, Government securities did not include securities of the Government of any Part B State where reference was made in any Act or Regulation before the commencement of the Constitution to such securities. It further held that section 8 uses the expression "securities of the State Government" and there is no reason to substitute in a taxing statute an expression which the legislature has used by another expression which it has not used.

4. On appeal the Supreme Court held as under:

The question is covered by a judgment of this court in Commissioner of Income-tax v. H.E.H. Mir Osman Ali Bahadur [1966] 59 ITR 666 , 679 (SC), where this court held, in dealing with the claim of an assessee to exemption from liability to pay tax in respect of the Hyderabad State Securities issued before the Constitution was enacted, that the assessee; was entitled under section 8, third proviso, to exemption from tax on interest on those securities.The appeal was therefore, allowed and the answer recorded by the High Court on the first question discharged. The answer to the first question will be that the securities issued by the Indian State of Travancore and Cochin were assessable under section 8 of the Income-tax Act, 1922. The Commissioner will pay the costs of the appellant-bank in this court and in the High Court.