TaxTMI 
TaxTMI 
2011 (5) TMI 828
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....of Rs.1,99,89,630/- being interest tax recovered from the customers as chargeable to interest tax?" 2/3. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee is a credit institution earning interest and filed its return of chargeable interest on 30.11.1998 declaring total chargeable interest at Rs.99,94,82,400/-. The assessee had not included the interest tax amounting to Rs.1,99,89,630/-collected from its clients in the chargeable interest. The Assessing Officer vide order dated 23.1.2001 completed the assessment under Section 8(2) of the 1974 Act while adding the said amount of Rs.1,99,89,630/- to the chargeable interest in view of provisions of Section 26C of the 1974 Act. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short "the CIT(A)"]. The CIT(A) vide order dated 16.4.2002 upheld the order of the Assessing Officer and dismissed the appeal. Dissatisfied with that, the assessee approached the Tribunal who vide order dated 31.3.2005 allowed the appeal holding that the amount of Rs.1,99,89,630/- being interest tax recovered from the customers was not chargeable to interest tax....
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....f credit institution to increase the rate of interest. Nothing can be realised by way of tax or burden akin thereto which has not been authorized by Parliament." 7. Controverting the aforesaid submission, learned counsel for the assessee vehemently submitted that the Tribunal was right in holding that the interest tax was not includable in the chargeable interest on which tax could be levied under the 1974 Act. He submitted that similar issue was considered in CIT v. Bank of Madura Ltd. [1995] 215 ITR 928/80 Taxman 337 (Mad.) in favour of the assessee. Reference was also made to the judgments of Madhya Pradesh High Court in CIT v. State Bank of Indore [1988] 172 ITR 24/[1987] 35 Taxman 491 (MP), Karnataka High Court in CIT v. Canara Bank [1989] 175 ITR 601/44 Taxman 254 (Kar.) and Bombay High Court in CIT v. United Western Bank Ltd., [2003] 259 ITR 312/127 Taxman 238 (Bom.). 8. We find substantial force in the submission made by the learned counsel for the assessee. 9. The 1974 Act was enacted by Parliament with effect from August 1, 1974, with an object of imposing tax on the total amount of interest received by scheduled banks/credit institutions on loans and advances. I....
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....nterest.- Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and 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: Provided that any interest in relation to categories of bad or doubtful debts referred to in Section 43D of the Income-tax Act shall be deemed to accrue or arise to the credit institution in the previous year in which it is credited by the credit institution to its profit and loss account for that year or, as the case may be, in which it is actually received by the credit institution, whichever is earlier. 6. Computation of chargeable interest.- (1) Subject to the provisions of sub-section (2), in computing the chargeable interest of a previous year, there shall be allowed from the total amount of interest other than interest on loans and advances made to credit institutions accruing or arising to the assessee in the previous year, a deduction in respect of the amount of interest which is established to ha....
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....rtain agreements.- Notwithstanding anything contained in any agreement under which any term loan has been sanctioned by the credit institution before the Ist day of October, 1991, it shall be lawful for the credit institution to vary the agreement, so as to increase the rate of interest stipulated therein to the extent to which such institution is liable to pay interest-tax under this Act in relation to the amount of interest on the term loan which is due to the credit institution. Explanation.- For the purposes of this section, "term loan" means a loan which is not repayable on demand." 15. Elaborating the scope of Sections 2(7) and 26C of the 1974 Act, the Bombay High Court in United Western Bank Ltd's case (supra), following its earlier judgment in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612 had concluded as follows:- "As stated in our judgment in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612 (Bom), the Interest-tax Act was enacted as an anti-inflationary measure and also to augment revenues. The Act has been brought into force in 1974 and, thereafter, it was intermittently dropped and revived. The Act was meant to discourage borrow....