2009 (12) TMI 979 - HC - Income Tax

Chitty Business Not Liable for Interest Tax

Commissioner of Income-tax Versus Little Flower Kuries & Enterprises Ltd.

The court held that the respondent, engaged in chitty business, is not liable to be assessed under the Interest Tax Act for interest received in hire ... - Issues involved: Assessment under the Interest Tax Act, 1974 for interest received in hire purchase business.Assessment under Interest Tax Act:The question raised in the appeals is whether the assessee, engaged in chitty business, is liable to be assessed under the Interest Tax Act on interest received in hire purchase business. The Tribunal held that the respondent is not assessable under the Act, a decision challenged by the revenue.Definition of 'financial company' under the Act:The respondent's assessability to interest tax hinges on falling within the definition of a 'financial company' as per section 2(5B) of the Act. The respondent does not qualify as a credit institution under section 2(5A), prompting an examination of whether it fits the definition of a 'financial company'. The Act defines 'financial company' to include various types of companies, such as hire-purchase finance company, investment company, housing finance company, loan company, mutual benefit finance company, residuary non-banking company, and miscellaneous finance company.Principal business determination:The respondent, primarily engaged in chitty business, does not meet the criteria of a hire-purchase finance company as its principal business is not hire-purchase transactions. Since the respondent is not involved in investment or housing finance, it does not fall under those categories either. Although engaged in money lending, it is not the principal business, excluding it from being classified as a loan company. The respondent also does not qualify as a mutual benefit finance company. The contention that the respondent falls under sub-clause (va) or (vi) is rejected.Chitty business and interest tax liability:The court analyzed whether the chitty business, which involves collecting kuri subscription and paying prize amounts, falls within the definition of a 'financial company'. Given that chitty business does not entail advancing loans and interest is charged only on default payments, it is deemed outside the scope of the Act. The legislature did not intend to cover chitty business under the Act, as interest on default payments cannot be equated to interest on loans or advances.Miscellaneous finance company classification:The alternative argument that the respondent could be classified as a 'miscellaneous finance company' under sub-clause (vi) is dismissed. As the respondent's principal business is chitty business and only a subsidiary activity involves hire purchase financing, it does not meet the criteria for a miscellaneous finance company. The appeals are thus dismissed, affirming the Tribunal's decision that the respondent's principal business does not fall within the Act's scope.