TaxTMI 
TaxTMI 
2002 (8) TMI 270
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.... are being decided by a consolidated order. 2. The grounds raised in interest tax appeal No. 2/Del/98 read as under:-- "1. That the order is against law and facts of the case. 2. That the learned CIT (Appeals) has erroneously ignored the definition of interest chargeable to tax as given in section 2(7) of the Interest Tax Act. 3. That the definition of "interest" under section 2(7) of the Interest Tax Act restricts the scope of chargeable interest to interest on loans and advances. It is prayed that interest on debentures, bonds and securities does not per se amount to interest on loans and advances and therefore interest amounting to Rs. 927,16,43,213 being interest on securities, bonds and debentures be directed to be excluded from the chargeable interest. 4. That the learned CIT (Appeals) was not justified in upholding the inclusion of Rs. 19,17,224 received towards "Export Subsidy" as interest chargeable to Interest Tax. It is prayed that the same be excluded not being interest per se." 3. Ground No. 1 in the above appeal is general in nature and requires no adjudication. 4. The relevant facts pertaining to ground Nos. 2 & 3 raised in appeal No. 2/Del/98 ar....
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....s range in the earlier assessment years. He also considered the fact that CIT(A)-17 in assessee's own case for 199394 assessment year had confirmed the entire addition on identical facts. 7. Aggrieved by this, the assessee came in appeal before the first appellate authority. 8. It was contended that from the definition given of interest under section 2(7) of Interest Tax Act, it could be concluded that only interest on loans and advances inIndiacould be charged to interest tax. Interest on securities, debentures and bonds cannot be classified as interest on loans inasmuch as these are not loan per se. 9. It was further contended on behalf of the assessee that since the Act particularly and clearly lays down that interest chargeable to interest tax would be only and only interest on loans and advances made in India and by no stretch of imagination, interest on debentures, bonds and securities could be treated or classified as interest on loans and advances and subjected to interest tax. 10. Reliance was also placed upon the definition of interest on securities and debentures as a separate category of income under section 2(28b) of the I.T. Act. 11. Apart from that, re....
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.... advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking) accruing or arising to the credit institution in that previous year." 20. On the plain reading of the above section, the CIT(A) concluded that the chargeable interest of any previous year of a credit institution shall be the payable amount of interest accruing or arising to the credit institution in that previous year and the only exception is the charging of interest on bad and doubtful debts in the year of its actual receipt as envisaged in the case of financial institution under section 43D of the IT. Act. 21. He further considered that section 6 of the Interest Tax Act which provides the method of computation of chargeable interest stipulates that the only deduction in computing the chargeable interest of the previous year shall be the amount of interest which is established to have become a bad debt during the previous year which has been further clarified by the Explanation below the proviso to sub-section (1) of section 6 of the Interest Tax Act which too was reproduced by him and which reads as under:-- "Explanation for the removal of doubts, i....
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.... interest under section 2(7) cannot be stretched to include interest on debentures, bonds and securities for the purpose of charging the same under the Interest Tax Act. 27. The order of the Bangalore Bench of the Tribunal in the case of Canara Bank Ltd.--Interest Tax Appeal No. 5678 (Bang.) of 1997 of 16-9-1997 was also relied upon. Our specific attention was invited to the copy of the above order which was placed in the paperbook placed before us. It was vehemently contended that the debentures are not loans and advances but are investments. This contention was supported by the learned AR by the fact that the non-inclusion of interest on securities in the present Act was due to the fact that the head of income on interest on securities under the I.T. Act, 1961 in section 18 to 21 was omitted by the Finance Act 1988 w.e.f. 1-4-1989. Thus, it was contended that it would be redundant to exclude the said interest on securities under the definition of 'interest' under section 2(7) of the present Act. 28. Heavy reliance was placed by the learned AR on the speech of the Hon'ble Finance Minister in 1991 wherein the intention of the Parliament can be gauged and understood that it wa....
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....nbsp; one subscriber and the Issuer. 3. Interest rate can be varied. 3. Interest rate is determined once and for all. 4. The right to realise loan cannot be 4. The transfer of the security transferred without consent of the can be done at will. loanee. 5. The right to recover a debt cannot 5. Securities can be marketed be sold or transferred freely. freely and their prices are &....
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....Bench of the Tribunal in the case of Canara Bank Ltd. in which decision it was contended that all the possible arguments which the Revenue could advance have been duly considered and met and the interest on securities was held to be not coming within the purview of Interest Tax Act. 33. Regarding the contrary decision in the case of State Bank of Hyderabad v. Dy. CIT [1998] 66 ITD 464 of the Hyderabad Bench of the Tribunal, it was submitted by the learned AR that the Hon'ble Bench of the Tribunal failed to correctly interpret the provisions of section 2(7) of the Act and came to the conclusion that exclusionary clause which was deleted w.e.f. 1-10-1991 was itself a sufficient indication that interest on securities has to be included in the tax base. 34. It was reiterated that this view was further fortified by the notification issued by the Central Government in exercise of its powers under section 28 giving exemption to the banks etc. w.e.f. 1995-96 assessment year. 35. With regard to the reliance placed by the Revenue authorities on CBDT Instruction No. 193, it was contended that the CBDT Instructions could not be treated as correct interpretation on the provisions of th....
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....tin Smt. Tarulata Shyam s case further observed that "there is no scope for importing into the Statute words which are not there. Such importation would be not to construe, but to amend, the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation." 39. Hence, the submission was that once it is shown that in the present case the assessee comes within the letter of the law, then he must be taxed however great the hardship may appear to the judicial mind. 40. The learned counsel invited the attention of the Bench to the following provisions of the Act namely the object clause, section 2 (1), section 2(5)( a), 2(7), section 26, section 5, section 6 and section 28 of the Interest Act. Attention was also invited to section 2(10) and 2(28a), 2(28b) of the I.T. Act. 41. It was further contended that the only object of the Act i.e. Interest Tax Act has always been and is to impose a special tax on interest in certain cases. The expression "interest" as governing the assessment years in question as defined in section 2(7) of the Interest Act reads as under:-- "(7) 'Interest' means interest on loans and advances m....
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....tead relied upon the rule of interpretation of "Means and includes" as explained by the Supreme Court in different context and facts thereby ruling out the inclusion of Government securities and debentures and loans and advances from section 2(7) of the Interest Act. It was vehemently contended that there is no dispute about the true construction of the said expression whatever it may be as enunciated by the Supreme Court but it was argued it was not at all clear how this rule of construction could lead to the finding that money borrowed by the Government or the company by issuing Securities/Debentures to the holders, was not tantamounting to a loan advanced by the holder and a loan taken by the Government or a company, as the case may be. It was questioned that should observance of this rule of interpretation lead to determine that what is chargeable to interest tax are only those species as are specified in clauses (a) & (b) of section 2(7) of the Interest Act. It was further stated that great emphasis has been laid on the said rule by some benches of the Tribunal which have been relied upon by the assessee but the logic of arriving at the conclusion that the securities and deben....
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....Ganesan on behalf of the assessee bank whereby the assessee is trying to raise a doubt on the issue whether interest on securities falls within the meaning of interest as interest on loans and advances made in India, our attention was invited by Mr. Sharma to the definition of Government securities as defined in section 2(b) of the Security Contract (Regulations) Act and Public Debt Act 1944. On the basis of which, it was contended that the matter can be concluded by holding that Government securities are clearly loans raised from the public. The argument was that the definitions clearly show that so far as the government is concerned, which is the creator of the security, it raised a loan from the public in anyone of the forms stated. The contention put forth was the Public Debts Act applies only to Government securities issued by the Central Government or the State Government and its definition should demolish all doubts about the character of security in as much as it is a loan. Thus, on the basis of the above, it was contended that security is a form of loan given to the government on interest which is earned by the lender. Accordingly, the submission was that government securi....
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.... on it although it may not always be so. Investment, on the other hand, is an expression of a very wide import whereas loan is a word of narrower concept. It was further contended that every investment need not be a loan but every loan is an investment. Thus, both of them would appear on the asset side of the balance sheet but the description in the balance sheet would not determine their intrinsic character. 51. Regarding the arguments on behalf of the assessee with respect to the provision of section 2(28A) and 2(28B) of the Income-tax Act, 1961 in support of the claim that interest on securities has been separately defined and if the intention of the government was to include interest on securities within the purview of the Interest Tax Act, the Parliament would have included in the first part of the definition and said that interest includes interest on securities. It was argued by him that this rather supports the case of the Revenue because the expression occurring in the second place of section 2(7) of the Interest Tax Act has to be interpreted only in accordance with section 2(28A) under which interest on securities clearly falls under the broader category of interest. I....
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....erest Tax Act as it stood on the Statute for 1975-76. As such, it was not relevant in the relevant assessment year where the Act had been amended. 55. It was further contended that at that time, charging section 4 of the Interest Tax Act did not cover "credit institutions" which came on the Statute Book w.e.f.1-10-1991. The meaning assigned to "Loans and Advances" have to be harmonized in the case of the banks as well as the credit institutions, and the matter cannot be considered in isolation in the light of the Banking Regulation Act alone. A particular treatment for presentation given to certain items of loans in the balance-sheet of the bank may be different from that of the credit institutions. It was contended that it is, therefore, imperative that no undue emphasis should be laid on defining "loans and advances" on the manner of depiction of these items in the balance-sheet of the bank. In the instant case, it was vehemently contended, we are concerned with the assessment years 1992-93 to 1995-96 where admittedly the law was different. This aspect has not been considered by some benches of the Tribunal holding a view, adverse to the department relying on the Madras High C....
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....hat the post history of the notification dated 11-9-1995 which has been reproduced in 217 ITR 5 which has been issued by the Central Government expressly exempts interest on securities w.e.f. the financial year 1995-96 i.e. 1996-97 assessment year from charge of interest tax. It was vehemently contended that there is no question of issuing a lawful notification within the powers conferred upon the Central Government under section 28 of the Act, if otherwise interest on securities was not chargeable to tax. Accordingly, it was question that it really is unintelligible how the pre 1992-93 history or post history 1995-96 history of legislature regarding section 2(7) of the Interest Act supports the case of the assessee whereas it is eminently clear that this fact itself supports the Revenue's stand. 61. Thus, apart from the golden rule of strict interpretation of a taxing statute, the pre-history and post-history of the Statute and the Minutes recorded in the Finance and Law Ministry were also relied upon by Mr. G.C. Sharma. 62. With reference to the reliance by the learned AR Mr. Ganesan on behalf of the assessee on the provision of section 26C of the Interest Tax Act, Mr. G....
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....been appended in our paper book. Perusing the written submissions on behalf of the Revenue, it is seen that specific reference to the Mumbai Bench in the case of Life Insurance Corpn. of India has been made on behalf of the Revenue and it has been canvassed that the said decision has no relevance as it is in the context of the LIC Act and has no relevance to the Banks. 66. It may be pertinent to state that the Delhi Bench in the case of ANZ Grindlays has relied upon the order of Mumbai Bench in the case of Life Insurance Corpn. ofIndia. Thus, the present appeals are being disposed after taking into consideration all the decisions relied by the parties on the date of hearing and the ones relied upon before us in the written submissions. 67. Right at the outset, it would be appropriate to bring on record the chequered history of the Interest Tax Act introduced in 1974 withdrawn in 1978, reintroduced in 1980, again withdrawn in 1985 and yet again revived in 1991. It is considered appropriate at this juncture to state that when the Interest Tax Act 1974 (45 of 1974) was introduced, interest on securities was specifically excluded from the purview of the Interest Tax Act. At that ....
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....1 at the floor of the House is as under:-- "In view of the binding fiscal constraints and the need to mobilise resources, I propose to revive the Interest-tax which was first introduced in 1974 and withdrawn in 1978, re-introduced in a modified form in 1980 and finally withdrawn in 1985. I am enlarging slightly, the coverage of this tax. The new tax will be levied on the gross amount of interest received by all banks, financial institutions and non-banking financial companies in the corporate sector or loans and advances made inIndia. These institutions would reimburse themselves by making necessary adjustments in the interest rates charged from borrowers. The proposed tax is expected to raise the cost of borrowing and yield revenue to the Government. It should, therefore, have both monetary and fiscal impact." 71. After a careful consideration of the entire conspectus of the matter and due deliberations amongst us, we are of the view that in these circumstances, it would be appropriate to be guided by the fact that the majority view favourable to the assessee has been taken by the Coordinate Benches of the Tribunal at Bangalore, Mumbai, Allahabad and Delhi in the following c....
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....en the two have been elaborately and appropriately discussed by the ITAT Bombay Bench, Bombay in its order dated 20-3-2001 in the case of LIC of India, Bombay vide Interest Tax Appeal No.9 /Bom/96 etc. Although, admittedly securities, bonds and debentures are forms of raising loans for the borrower but for the credit institution or that matter any other subscriber/purchaser, they are investments. These investments are different and separate from giving loans and advances. Further the Ld. Counsel rightly pointed out that the words 'means' included and lastly 'but does not include' used in section 2(7) of the Act in giving the meaning of the word interest clearly show that the meaning of the word interest given in section 2(7) is exhaustive and therefore there is no scope for giving any imputation, implication, presumption or addition or subtraction to what has been clearly and exhaustively mentioned in section 2(7) of the Act. Hence it will not be legally possible and acceptable to say that the definition of interest given in section 2(7) of the Act will include interest on securities, bonds and debentures. In this view of the matter the view taken by the Assessing Officer and Ld. C....
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....bonds, debentures cannot be modified to cover the incidence of Interest Tax. Thus the provisions of the Act, the Finance Minister's speech and the RBI's Circular would stand circumvented and violated and there would be discrimination effect if Interest Tax were imposed on interest on securities, bonds and debentures. No materials were brought on record to show that assessee had passed on incidence of interest tax where investments were made in securities, bonds and debentures etc. on their private placements by borrowers or otherwise. 15. The ld. counsel for the assessee again rightly contended that the CBDT Instruction might be binding on the Assessing Officer but the same was not binding on the ld. CIT(A) and in any case it was not at all binding on the ITAT which are required to decide the issue according to provisions of law and decided case laws. We are of the view that the CBDT instruction referred to above is not consistent with the provisions of law and the decided case law as referred to above. The correct position of law in this regard is that interest on security, bonds and debentures is not part of the interest on loans and advances and as such it was not liable to i....
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....ead 'interest on securities' was specifically excluded for the purposes of the term 'interest' as defined in section 2(7). However, with effect from 1-10-1991, section 2(7) has been substituted and, therefore, the provision as contained in the original secti9n cannot come to the rescue of the assessee, nor can be Statement of Objects and Reasons, as given at the time of introduction of the bill, be of any assistance in the matter. The fact that the exclusionary clause has been deleted with effect from1-10-1991is a sufficient indication that interest as securities has now been included in the tax base. This belief is strengthened from the Notification issued by the Central Government in exercise of the power under section 28. Therefore, interest received on securities would be included in computation of chargeable interest." 75. The above view cannot be also said to be a correct interpretation and proposition of law. In the original definition of interest under section 2(7), interest does not include any amount chargeable to income-tax under the Income-tax Act under the head "interest on securities". The Income-tax Act, 1961 was amended by the Finance Act, 1988 w.e.f. 1-4-1989 by....
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....the ground that the incidence of tax would not be passed on to the customers. In that view of the matter, if the interest on securities is subject to tax under the Income-tax Act, 1961 under the head "interest on securities" then the same has to be excluded from interest chargeable to tax under the Interest Tax Act, 1974. With the omission of sections 18 and 19 of the Income-tax Act which deal with the assessment of interest on securities under the Income-tax Act, consequent omission was made in the definition of interest under section 2(7) of the Interest Tax Act without considering the unintended consequences. When it was pointed out, the Government by the above Notification exempted the levy of Interest tax on the interest on securities. 80. Accordingly, due to the reasons mentioned above, respectfully following the decision of the Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank are decided in favour of the assessee. 81. The next ground which is raised by the assessee in Interest Tax Appeal No. 2/Del/98 is with respect to the inclusion of Rs. 19,17,224 received towards export subsidies which is added by the tax authorities as interest chargeable to interest t....