TaxTMI 
TaxTMI 
2003 (10) TMI 293
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.... 3. In the next three grounds, the assessee has challenged the levy of interest tax under the Interest-tax Act, 1974 (the Act) by holding the assessee to be a credit institution under section 2(5A) of the Act. Since the assessee had not filed its returns of chargeable interest under the Act, notice under section 10(a) was issued to the assessee. No returns were filed in response to the notice, however, written submissions were made by the assessee claiming that it was not a credit institution as envisaged under section 2(5A) of the Act and was not chargeable to interest tax. The Assessing Officer, on the basis of the information furnished by the assessee, referred to the main object of the Company as set out in its Memorandum of Association, and observed that pursuant to the said object, assessee had given loans and earned interest therefrom. Further, it was admitted by the assessee that it was registered as a Non-banking Finance Company (NBFC for short) with Reserve Bank of India (RBI) and hence, according to the Assessing Officer, the assessee was a finance company. The Assessing Officer also observed that even if there is no money-lending activity, hire purchase and finance loan....
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....p; Total Chargeable Interest Tax year Interest (Rs.) @ 3% (Rs.) 1992-93 69,55,946 2,08,678 1993-94 68,38,998 2,05,169 1994-95 60,12,088 1,80,362 1995-96 &....
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..... In this connection reference was made to the letter dated 26-6-1987, issued by the Reserve Bank of India (RBI) classifying the assessee as an "Equipment Leasing Company" as defined in Paragraph 2(1)(dd) of the RBI Directions, 1977. It was further submitted that as per the said letter, the principal business of the assessee was that of leasing and not hire purchase. It was also submitted that the said classification was valid for all the years under consideration. To substantiate the point that the principal business of the assessee was that of leasing, the ld-counsel drew our attention to the chart placed at page 8 of the paper-book which showed the income earned by the assessee under different heads. It was pointed out that in all the years under consideration, income by way of lease rentals constituted more than 50% of the total revenue. It was also pointed out that even if miscellaneous income were considered to be arising out of financial activities, then also lease rentals would be more than 50% of the total revenue. Similar was the position, it was submitted, as regards deployment of funds in leasing division wherein more than 50% of the funds were deployed. 8. The ld. c....
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....nue, lease rentals should be taken at net of depreciation and not gross rentals be taken. However, his main argument was that even lease rent was in the nature of financing the asset. In support of this argument it was pointed out that in none of the cases the asset reverted back to the assessee. Supporting the order of the lower authorities, it was submitted that though the lease agreement did not give any right to the lessee to buy the asset, in reality the asset was transferred to the lessee or his nominee, and therefore, the assessee was a finance company. As regards the quantum of lease rent to be taxed, it was contended that the Assessing Officer had adopted a scientific base to carve out the interest element and hence the same should be confirmed. 11. In his rejoinder, the ld. counsel submitted that the assessee was not interested in leasing out used assets and hence non-reversal of the asset to the assessee was of no consequence. The ld. counsel relied on the decision of the Hyderabad Bench of the Tribunal in the case of N.K. Leasing & Construction (P.) Ltd. v. Dy. CIT[2001] 79 ITD 658. 12. We have duly considered the rival contentions and the material on record. In t....
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....s issued by the Government or a local authority, or other marketable securities of a like nature; (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of the financing of acquisition or construction of houses including acquisition or development of land in connection therewith; (iv) a loan company, that is to say, a company (not being a company referred to in sub-clauses (i) to (iii) which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise; (v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620 of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; (va) a residuary non-banking company [other than a financial company referred to in sub-clause (i), (ii), (iii), (iv) or (v)] that is to say, company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or....
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.... vis-a-vis the business carried on by it. Admittedly, assessee derives income mainly under three heads as follows: (a) Lease Rental. (b) Finance Charges on Hire Purchase, and (c) Interest on Loans. The details regarding the quantum of income under each of these three heads for the years under consideration are as follows: Asstt. Lease Finance Charges Interest on year Rentals on H.P.(Rs.) Loans (Rs.) (Rs.) 1992-93 68,07,216 52,81,000 5,40,410 1993-94 84,44,768 49,51,129 4,80,408 1994-95 1,10,25,581 &....
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....ts of a genuine hire purchase transaction are found in the agreement except one. The one ingredient which is missing, and to our mind the most important, is the option to the hirer to buy the equipment. On the contrary, the agreement is so worded (on page 26 of the paper-book) that it casts an obligation on the hirer to buy the equipment. The relevant wordings are "...the Hiring shall come to an end and the Machinery/equipment shall become his property and THE OWNER will assign and make over all the right, title and interest in the same to THE HIRER..." (Underline by us). There is no other provision in the agreement speaking about the option to the hirer, or about the consequences on the payment of all instalments. Hence, going by the aforesaid provision in the agreement, particularly the portion underlined by us, the inescapable conclusion is that an obligation is cast on the hirer to buy the property. It is true that as per the agreement, the assessee is to remain the owner of the equipment till all the instalments are paid, and it is also true that even under a genuine hire purchase agreement, property in the goods pass to the hirer only on payment of last instalment, but the fa....
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....pany, investment company, housing finance company, loan company, mutual benefit finance company are given. These very terms are defined in section 2(5B) also. But section 2(5B) does not include the definition of a "leasing company" or an "equipment leasing company' though the latter is defined in the RBI Directions. From this it can easily be inferred that the Legislature, while enacting Interest-tax Act, has consciously left leasing activity out of the purview of interest-tax. Hence, we hold that for the purposes of Interest-tax Act, leasing activity is not a financial activity and lease rentals earned by a company cannot be brought to tax under the Act. 18. However, sub-clause (vi) of section 2(5B) is also relevant. It says that if a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in sub-clauses (i) to (v), it will be a finance company. Earlier we have seen that the assessee has income by way of interest on loans and hire purchase finance charges, both of which fall within sub-clauses (i) to (v). In some years it has income from share trading, income from investments etc., all of which fall within sub-clause (ii) of sect....