TaxTMI 
TaxTMI 
2005 (11) TMI 199
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....arned on loans and advances only. It does not include interest earned on funds invested in bonds or placed in fixed deposits. Scope of chargeable interest has been defined under Section 5 of the Interest-tax Act while sub-s. (7) of Section 2 of the Act defines interest to mean interest on loans and advances made in India. This definition uses the expressions 'mean' and 'includes' and as such the same is not an extensive definition but is exhaustive in itself. When exhaustive definition is given, then there remains no scope for giving interpretation, implication, presumption, addition or subtraction to what has clearly and exhaustively been mentioned therein. For this proposition reliance was placed on the Supreme Court judgment in Smt. Tarulata Shyam vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC) wherein the apex Court has stated the settled principle of law as under: "in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." 3. He also plac....
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.... Camp Cas 112 (Bom) for the proposition that the deposits are not considered as loans for purposes of Section 370 of the Companies Act, 1956. 6. The learned counsel for the assessee further contends that the Limitation Act, 1963 also makes a clear-cut distinction between the two expressions. Articles 19 and 21 of the Limitation Act fix the period within which suits for recovery of loans can be filed while art. 22 deals with the period of limitation for suits for money on account of deposit. The starting period of limitation under arts. 19 and 21 on the one hand and art. 22 on the other are different. Under arts. 19 and 21 the cause of action in the case of money lent arises from the date of loan, whereas under art. 22 the cause of action in the case of a deposit arises from the date of demand. Therefore, the deposit is clearly distinguishable from the loan. Reliance was also placed on various case laws as under: (i) Ram Janki Devi vs. Juggilal Kamlapat AIR 1971 SC 2551; (ii) Ram Ratan Gupta vs. Director of Enforcement AIR 1966 SC 495; (iii) Abdul Hamid Sahib vs. Rahmat Bi AIR 1965 Mad 427; (iv) Sharda Talkies (Firm) vs. Smt. Madhulata Vyas AIR....
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....as also to be considered since the same will take into account of deposit because of the exclusionary definition. The assessee's reliance on the decision of jurisdictional High Court in the case of Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand, ITO (1998) 146 CTR (Del) 421 : (1998) 230 ITR 522 (Del) will also not be of much assistance as that was a judgment with respect to repayment of loans. It did not have any relation with respect to advancing of loans on which interest earned can be. said to have any implication for the purpose of its assessability under this Act. It was also stated that the Tribunal decision in the case of Punjab National Bank strongly relied by the assessee's counsel to state that it will not be legally acceptable to include interest on securities, bonds and debentures within the definition of interest under s. 2(7) of the Act, cannot be taken a basis for arriving at the conclusion on the question under reference inasmuch as that order was rendered by the Division Bench by following the majority view of the co-ordinate Benches of the Tribunal. This fact is borne out from para 71 of that order. Likewise the decision rendered by the Mumbai Benc....
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....nterest-tax Act. 9. We have heard the parties with reference to precedents on record. The issue under reference relates to the taxability of interest earned under the Interest-tax Act (in short 'the Act'). This Act was originally introduced in 1974 to tax the interest earnings of Scheduled banks. By the Finance Act, 1978 applicability of the Act was withdrawn. Later on by Finance Act (No.2) 1980 the Act was made applicable to Schedule banks and IDBI, IFCI, IRCI and ICICI. It was again withdrawn by Finance Act, 1985. By the Finance (No.2) Act, 1991, the Act was reintroduced w.e.f. 1st Oct., 1991. Again the same has been withdrawn by the Finance Act, 2000 w.e.f. 1st April, 2001. Issue under reference however relates to the Act as applicable between the period 1st Oct., 1991 to 31st March, 2001. When the Act was reintroduced by Finance Act, 1991, some changes were made. The scope of the applicability of the Act was widened by extending its applicability to all other non-banking financial companies and State financial institutions besides banks and public financial institutions. The definition of the word 'interest' was also modified. 10. In the scheme of the Act,....
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....he definition of 'interest' as contained in Section 2(7) thus has three limbs: (a) It defines interest to mean interest on loans and advances made in India, and (b) Besides (a) above, it specifically includes two other items within the meaning of interest, i.e., (i) commitment charges; (ii) discount on promissory notes and bills of exchange. (c) It specifically excludes two items from the meaning of the word 'interest' (i) interest referred to in sub-s. (1B) of Section 42 of RBI Act; (ii) discount on treasury bills. 12. The definition of 'interest' as appeared prior to its amendment did not include the amount chargeable to income-tax, under the IT Act, under the head 'Interest on securities' but this specific exclusion does not find any place in the amended definition applicable from 1st Oct., 1991. A close examination of this clause would reveal that it does not merely talk of 'Interest on securities' but also speaks about any amount chargeable to income-tax under the IT Act, under the head 'Interest on securities'. The Finance Act, 1988 w.e.f. 1st April, 1989 omitted ....
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....ourt went on to further hold that question of giving a natural meaning to the word 'interest' does not arise. The relevant extract from pp. 654-655 of the report is reproduced as under: "It is open to the legislature to define words and, if the legislature has defined it, we cannot go by the meaning in common parlance or what may be called as its 'natural meaning'. We have to strictly abide by the meaning given to it by the legislature, as in the present case. The new definition of Section 2(7) defines interest only to mean interest on loans and advances. No doubt two other categories have also been included, i.e., commitment charges on unutilised portion of any credit sanctioned for being availed of in India, and discount on promissory notes and bills of exchange drawn or made in India. We are not concerned with these two additional categories in the present case. Hence, in our opinion, 'interest' in the new Section 2(7) only means interest on loans and advances, and we cannot give it an extended meaning as contended by learned counsel for the appellant." 13. The apex Court in Suresh Lohiya vs. State of Maharashtra (1966) 10 SCC 379, and also in....
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....very thin. It is, therefore, essential to understand the distinction between the two on the basis of judicial precedence available on record: (i) The Hon'ble Supreme Court in the case of Ram Janki Devi vs. Juggilal Kamlapat held as under: "The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction." (ii) The Hon'ble Supreme Court in the case of Ram Ratan Gupta vs. Director of Enforcement, Foreign Exchange Regulation held as under: "The expression 'to lend' in the ordinary use means to deliver to another a thing or on condition that the thing lent shall be returned with or without compensation for use made of it by the person to whom it is lent. The subject-matter of lending also be money. Though a loan contract created a debt, there may be a debt and without contracting a loan, in other words, the concept of debt is more....
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....levant nor material. The depositor has to go to the depositee for depositing the amount or the depositee may go and collect the amount. But in case of loan, the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount. While coming to its conclusions the High Court followed Privy Council decisions in Md. Akbhar Khan vs. Attar Singh AIR 1936 PC 171, Suleman Haji vs. Haji Abdulla AIR 1940 PC 132." (v) The Bombay High Court had the occasion to consider the distinction between the words 'loan' and 'deposit' in reference to the provisions of Section 370 of the Companies Act, 1956, in Durga Prasad Mandelia vs. RoC and held as under: "In a transaction of a deposit of money or a loan, a relationship of debtor and creditor must come into existence. The terms 'deposit' and loan' may not be mutually exclusive, but nonetheless, in each case, what must be considered is the intention of the parties and the circumstances." It held that the word 'loan' would not include deposit. (vi) Again the Bombay High Court considered the distinction between the words 'loan&....
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....itation. If two transactions are identical, there would be no need to prescribe different periods of limitation." (vii) The Delhi High Court in the case of Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand, ITO also had the occasion to deal with the terms 'loan' and 'deposit' in the context of Section 269T of the IT Act. It is held as under: "In order to determine this question it will be necessary to consider whether the meaning of the term 'deposit' ascribed by the Explanation to Section 269T includes the term 'loan' in its ambit. The distinction between a loan and a deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement and in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This distinction was adopted by the Lahore High Court in the case of Gurcharan Das vs. Ram Rakha Mal AIR 1937 Lahore 81. A similar view was expressed by a Division Bench of the Oudh High Court in the case of Chaturgun vs. Shahzady AIR 1930 Oudh 395. Whi....
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....he starting period of limitation under arts. 19 and 21 on the one hand, and art. 22 on the other, are different. Under arts. 19 and 21 the cause of action in the case of money lent arises from the date of loan, whereas under art. 22 the cause of action in the case of a deposit arises from the date of demand. 19. The learned Departmental Representative has sought to distinguish the decision of Division Bench in the case of Punjab National Bank vs. Dy. CIT. It was contended that that the Tribunal was persuaded by the majority view being taken at various Benches on this issue. From para 73 of that order, it appears to us that the majority view was accepted not for the reason of number game but because of merit of those views. The apex Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) has dealt with a similar contention as under: "On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails-though the fact that a particular view has commended itself to a majority of the High Cour....
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....but by the borrower. In cases of lending made before 1st Oct., 1991 credit institutions were specifically empowered to vary the rate of lending so as to reimburse of the extra charge going to fall on them by the introduction of the Act. Sec. 26C was specifically introduced in the Act for this purpose. Now in case of deposit there is no such power with the depositor to recover the said amount from the depositee. This again indicates that the two expressions are different. 22. From the foregoing discussion we are of the considered view that despite similarities, the two expressions 'loans' and 'deposits' are to be taken different and the distinction can be summed up by stating that in the case of loan the needy person approaches the lender for obtaining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. In view of this legal position it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in Section 2(7) of....
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....loans advanced by it to its borrowers in terms of provision contained in Section 5 of the Interest-tax Act r/w s. 2(7)." Additional grounds common in all the three appeals on the different aspects, on same dispute were raised and allowed to be taken by order dt. 26th Oct., 2005 on record. 24. Briefly stated facts are that the assessee-Corporation is established with the object of promoting urban development. For this purpose it provides funds to finance various housing projects promoted by various organizations including State Governments. During the course of its carrying on the business, assessee, in order to make optimum utilization of the surplus funds, has placed the same as fixed deposit with public sector undertakings like SAIL, BHEL, etc. In the first two years under appeal, i.e., asst. yrs. 1992-93 and 1993-94, assessee has also invested these surplus funds in the bonds of public sector undertakings like REC and NTPC. It has earned interest on both these investments. While filing the return of chargeable interest the appellant has riot included the amount of interest earned on bonds of the aforesaid public sector corporation and interest on deposit placed with ....