Interest-tax on gross interest receipts applies to UTI, while retrospective withdrawal of the CBDT view and reassessment notices fail.

The Interest-tax Act, 1974 was treated as a levy on gross receipts of interest, not on income, so section 32 of the Unit Trust of India Act, 1963 did not bar its application to UTI; the later special fiscal enactment prevailed to the extent of any overlap. The CBDT communication withdrawing the earlier 1991 view was held to operate prospectively, because UTI had relied on that position and altered its conduct accordingly. Notices under section 10(a) for non-filing of returns were invalid on the facts, as the omission arose from the binding administrative position then in force and not from an actionable failure.

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Issues: (i) Whether interest-tax under the Interest-tax Act, 1974, is a tax on income and whether the UTI was exempt under section 32 of the Unit Trust of India Act, 1963; (ii) whether the CBDT's withdrawal communication dated 29 January 2001 operated retrospectively; (iii) whether notices issued under section 10(a) of the Interest-tax Act, 1974, for non-filing of returns were valid.

Issue (i): Whether interest-tax under the Interest-tax Act, 1974, is a tax on income and whether the UTI was exempt under section 32 of the Unit Trust of India Act, 1963

Analysis: The charge under the Interest-tax Act was held to be on gross receipts of interest and not on income as such. The scheme of sections 4, 5, 6 and 18, together with section 26C, showed that the levy operated on chargeable interest with only limited statutory deduction and could be passed on to borrowers. On the UTI Act, section 32 was construed as exempting computed income, profits or gains, not a levy on gross receipts. The two enactments were treated as operating in different fields, and in any event the later special legislation prevailed to the extent of any overlap.

Conclusion: The Interest-tax Act, 1974, applied to the UTI and the exemption under section 32 of the Unit Trust of India Act, 1963, did not bar the levy. The issue was decided against the assessee.

Issue (ii): Whether the CBDT's withdrawal communication dated 29 January 2001 operated retrospectively

Analysis: The earlier CBDT communication of 11 October 1991 had been acted upon for years and had shaped the UTI's conduct in not collecting interest-tax from borrowers. The withdrawal was treated as a rectification of the earlier view, but not as a measure capable of unsettling completed arrangements and closed schemes retrospectively. Administrative circulars and their withdrawal were treated as operating prospectively, especially where the assessee had altered its position on the strength of the earlier communication.

Conclusion: The withdrawal communication dated 29 January 2001 was prospective and not retrospective. The issue was decided in favour of the assessee.

Issue (iii): Whether notices issued under section 10(a) of the Interest-tax Act, 1974, for non-filing of returns were valid

Analysis: Section 10(a) required escapement of chargeable interest by reason of omission or failure to file returns under section 7. On the facts, the UTI had not filed returns because it had acted on the binding CBDT view then in force, and the Department itself had not required returns for the relevant period. The invocation of section 10(a) on the basis of failure was therefore not justified on these facts.

Conclusion: The notices under section 10(a) for the relevant assessment years were invalid. The issue was decided in favour of the assessee.

Final Conclusion: The levy of interest-tax was upheld in principle, but the retrospective attempt to revive liability for the earlier years failed, and the reassessment notices for the period covered by the prior CBDT position were set aside.

Ratio Decidendi: A levy imposed on gross receipts of interest under a special later fiscal enactment is not excluded by an exemption for income, profits or gains under an earlier statute, and an administrative circular on which the assessee has materially relied cannot be withdrawn retrospectively to reopen completed years without valid jurisdiction under the reassessment provision.

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