TaxTMI 
TaxTMI 
2002 (12) TMI 73
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....debentures and, therefore, not liable to tax under the provisions of the Interest-tax Act when the interest on securities fall within the meaning of 'interest chargeable to tax' as defined under section 2(7) of the Interest-tax Act, 1974. Moreover, requirements of tax deduction at source from interest on securities as per section 193 of the Income-tax Act makes it clear that interest on securities is chargeable to tax under the Interest-tax Act, 1974 Facts: For the sake of convenience, we are reproducing hereinbelow the facts in Income-tax Appeal No. 71 of 2001. United Western Bank Limited is a banking company. The bank filed its return of chargeable interest on December 31, 1993. The chargeable interest was Rs. 55,35,87,501. The c....
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....nterest on securities/debentures was not includible under section 2(7) of the Interest-tax Act. Consequently, the Tribunal allowed the appeal. Being aggrieved, the Department has come by way of appeal under section 260A of the Act read with section 24 of the Interest-tax Act. Arguments: Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, contended that the Interest-tax Act came into force with effect from September 23, 1974. That, the Act continued to remain in force up to March 31, 1978. That, from April 1, 1978 to June 30, 1980, it was dropped. It was once again revived from July 1, 1980, up to Mardi 31, 1985. From April 1, 1985 up to September 30, 1991, it was once again dropped. On October 1, 1991, it was....
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....hat Act. He invited our attention to Form A-Schedule III. In the column of "assets", item No. 4 refers to investments whereas, item No. 6 refers to advances. He, therefore, submitted that under the Banking Regulation Act, there was a difference between investments on the one hand and loans and advances on the other hand. He submitted that the securities/bonds were not held by the banks as stock-in-trade/current assets. He invited our attention to the annual report of the assessee-bank for the accounting year 1993-94 and pointed out Schedule 8 of the balance-sheet under the caption "Investments in Government securities; other approved securities; shares; debentures and bonds and other (including deposits with IDBI, deposits with post office ....
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.... ITR 612 (Bom), in which this court has discussed the object of the Act as also the scheme of the Act. He contended that the Act contemplates twofold object, viz., to augment the revenues and to reduce the borrowings. He contended that the Act was introduced and dropped from time to time depending on the state of the economy of the country. That, the Act contemplates anti-inflationary enactment. He contended that under section 26C, the lending credit institution was entitled to vary the terms of the loan agreements so that it could pass the burden of interest-tax on to the borrower. He contended that section 26C itself shows that the Act applies only to loan agreements and not to investments. That, the terms of investments cannot be modifie....
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....ts on liquidation of the company to be treated as transfer. It was rejected by the Supreme Court. It was held that the exclusionary clause was in the nature of clarification and, therefore, its deletion did not affect the main section 12B(1). That, the proviso was only introduced by Parliament by way of abundant caution. In our view, the judgment of the Supreme Court in Madurai Mills Co.'s case [1973] 89 ITR 45, applies to this case. In our case also, the main section 2(7) of the Interest-tax Act shows that the word "interest" meant interest on loans and advances and not interest on securities/debentures and, therefore, deletion of the exclusionary clause by the Finance (No. 2) Act, 1991, had no consequence on the main section 2(7). Therefo....
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....he Government paying interest-tax which would not only defeat anti-inflationary measure but, it would also decrease the Government revenues. Therefore, one has to keep in mind the object and the scheme of the Act while interpreting section. 26C of the Interest-tax Act. The difference between loan and investments is well known in a commercial sense, accounting sense and also under the Companies Act (see sections 370 and 372). It is also borne out by section 13(1)(d) and section 11(5) of the Income-tax Act. It is also borne out by section 2(28A) of the Income-tax Act and section 2(7) of the Interest-tax Act. Therefore, we hold that the Interest-tax Act will not apply to interest received by the assessee-bank on securities/debentures held by t....