TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 702
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....e Tax Tribunal is right in law in following the judgment rendered in the case of Lakshmi Vilas Bank reported in 228 ITR 697 which was clearly a case dealing with pre-amended provisions of the Interest Tax Act which was applicable upto the assessment year 1991-92 and not subsequently?" 2. The assessee/respondent in both the appeals is engaged in the business of investment and share broking. They held shares in a company called M/s.Sona distillers, which got amalgamated with M/s.Herbertson Limited. On such amalgamation, debentures were issued by the new company in respect of the interest earned on these debentures. The assessee was allotted convertible debentures in the above company in respect of shares held by the assessee in M/s.Sona Distilleries. Therefore, the assessee claimed exemption on the ground that the nature of investment is not chargeable under the Interest Tax Act. The Assessing Officer declined to accept such a claim and included the interest on debentures in the chargeable interest. The second issue relates to addition of notional interest. While arriving at the chargeable interest, the Assessing Officer added certain items of interest receivable from Devi Investmen....
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....terest tax Act as reflected in the Finance Minister's speech referred to by the learned counsel the proviso to s.5 also throws considerable light on this issue. As per this proviso, even interest on bad and doubtful debts are not be considered as part of chargeable interest unless it is credited to the profit and loss account of the credit institution. Though the proviso is specifically with reference to Public Financial Institution etc. covered under s.43D of the I.T. Act, the principle laid down therein throws considerable light on whether notional interest can be a part of chargeable profit. In the instant case, the notional interest brought to tax under the Income Tax Act has never been considered as part of interest accrued or arisen to the appellant in the books of the appellant. I, therefore, hold that it is not right to add the notional interest for the purpose of arriving at the chargeable interest." 5. As against the orders of the Commissioner of Income Tax (Appeals), the Revenue went on appeal before the Income Tax Appellate Tribunal. The Tribunal, by a brief order, placing reliance on the decision in the case of CIT v. Lakshmi Vilas Bank reported in (1997) 228 ITR ....
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....on 5 of the Interest Tax Act. 10. Section 2(7) of the Interest Tax Act, defines the word "interest" which is the key word for the purpose of determination reads as follows: "2. In this Act, unless the contest otherwise requires, ___ ..... (7) `interest' means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India ; and (b) discount on promissory notes and bills of exchange drawn or made in India,but does not include- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934) ; (ii) discount on treasury bills ;" 11. In the light of the above-said provisions, the Supreme Court considered the scope of interest tax on the interest receivable in respect of investment in debentures and held as follows: "The Interest-tax Act, 1974, has been enacted with two-fold purposes, namely, as an anti-inflationary measure and for revenue collection. It is an Act which has been periodically passed for economic reasons, particularly when inflation takes over the economy. With this introduction, one needs to examine the provisions quote....
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....t, interest under Section 2(7) of the Interest Tax Act would include interest from debentures as well. We find that such an argument has also been considered by the Supreme Court against the Revenue and held as follows: "It is the case of the Department, however, which needs to be addressed at this stage, that prior to October 1, 1991, the word "interest" in section 2(7) was defined so as to include any amount chargeable to income-tax under the head "Interest on securities". It is the case of the Department that by an amendment, with effect from October 1, 1991, the said item, namely, "amount chargeable to income-tax under the head "Interest on securities" stood deleted and, consequently, "interest on securities" would fall within the definition of the word "interest" under section 2(7). Accord-ing to the Department, section 2(7) was not exhaustive and with the amendment with effect from. October 1, 1991, when "interest on securi-ties" stood excluded, it (interest on securities) would automatically fall within the purview of the word "interest" under section 2(7) of the 1974 Act. We find no merit in this argument for two reasons. Firstly, as stated above, section 2(7), read as a w....