Chitty subscriptions are not deposits for interest tax purposes, so the assessee was not treated as a credit institution.

Receipts collected as chitty subscriptions were not deposits for purposes of the Interest Tax Act because the Act did not define "deposit" and the meaning in section 45-I(bb) of the RBI Act was applied. That definition excludes amounts received by subscription in respect of a chit, so chitty collections could not be treated as deposits under the interest tax regime. On that construction, the assessee was not a credit institution liable to interest tax, and the liability finding was set aside in its favour.

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Issues: Whether receipts from chitty subscriptions could be treated as deposits so as to classify the assessee as a credit institution liable to interest tax under the Interest Tax Act, 1974.

Analysis: Clause (va) of section 2(5B) was applied to residuary non-banking companies receiving deposits under any scheme or arrangement. The expression 'deposit' was not defined in the Interest Tax Act, so the meaning in section 45-I(bb) of the Reserve Bank of India Act, 1934 was adopted. That definition expressly excludes any amount received by subscription in respect of chit. On that basis, subscriptions collected under chitty schemes could not be regarded as deposits for the purpose of the Interest Tax Act. The CBDT circular and RBI notification referred to in the order supported the same interpretation.

Conclusion: The assessee was not a credit institution under the Interest Tax Act and its chitty subscriptions were outside the scope of taxable deposits. The finding of liability to interest tax was set aside in favour of the assessee.

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