Reopening and chargeable interest under the Interest-tax Act fail where reassessment rests on mere change of opinion and securities are excluded.

Reopening of assessment under section 10 of the Interest-tax Act was invalid because the recorded reasons disclosed only a change of opinion on the same material and no acceptable information from an extraneous source; the reassessment could not be sustained. Interest on securities was not chargeable interest under section 2(7) because the statutory definition was construed restrictively as confined to interest on loans and advances, and the Act's scheme did not extend the charge to securities. The reference was answered in favour of the assessee banks and against the Revenue.

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Issues: (i) Whether reopening of assessment under section 10 of the Interest-tax Act was valid; (ii) whether interest on securities forms part of chargeable interest under section 2(7) of the Interest-tax Act.

Issue (i): Whether reopening of assessment under section 10 of the Interest-tax Act was valid

Analysis: Reopening under the provision required the Assessing Officer to have reason to believe, either because of omission or failure by the assessee to disclose material facts or in consequence of information in possession. The recorded reasons showed no reliance on any true external information and only reflected a change of opinion on the same material. In the absence of acceptable information from an extraneous source, reassessment could not be sustained.

Conclusion: The reopening of assessment was held invalid and the issue was decided in favour of the assessee.

Issue (ii): Whether interest on securities forms part of chargeable interest under section 2(7) of the Interest-tax Act

Analysis: The definition of "interest" was construed as a restrictive definition centred on interest on loans and advances, with only the specified additions in the clause. On the scheme of the Act, the nature of securities was treated as distinct from loans and advances, and the deletion of the earlier exclusion did not enlarge the main charging definition to cover interest on securities. Strict interpretation of the fiscal provision supported this reading.

Conclusion: Interest on securities was held not to form part of chargeable interest, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee banks and against the Revenue, and the assessments could not be reopened nor could interest on securities be brought to tax under the Act.

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