TaxTMI 
TaxTMI 
2002 (10) TMI 88
X X X X Extracts X X X X
X X X X Extracts X X X X
....which the investor was guaranteed a minimum return of 1.5 per cent. a month, is "interest" as it is defined in section 2(28A) of the Income-tax Act, 1961. The assessment years are 1993-94 and 1994-95. That definition reads as under " 'interest' means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." The Tribunal has held that the moneys received by the assessee from the investors create an obligation and that the return on that investment at the guaranteed minimum payment of 1.5 pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the concept of securitisation of investments and by this innovative scheme it had enabled individual investors to entrust their funds for management by the assessee with a guarantee from the assessee that it would so manage the funds as to ensure a minimum return of 1.5 percent per month to the investor even while ensuring that the investments made in the course of the management are fully securitised and are backed by bank guarantees. Counsel also submitted that the investors' moneys are not made part of the funds of the assessee-company's accounts, but are kept in a separate account termed "Viswapriya Funds Management Account-Bank Guaranteed Investments" and that a firm of chartered accountants has been appointed to function as fiduciary ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sted the money in the fund organised by the assessee-company. Counsel submitted that there was no provision for obtaining advance rulings when the scheme was commenced, which could have been resorted to by the assessee to ascertain the precise extent of its liability for tax and its obligation with regard to the deduction of tax at source on the amount distributed to the investors. That the action taken by the assessee was bona fide and its bona fides have also been accepted by the Tribunal. Counsel further submitted that what was in issue before the Tribunal was not the levy of tax on income, but the alleged failure on the part of the assessee to deduct the tax, which, the person who received the amount distributed by the assessee was l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cuments and for ensuring that the funds collected are deployed in accordance with the condition stipulated in the memorandum, ensuring that the bank guarantees are invoked in cases of default by the borrowers from the fund; that monthly payments are collected and distributed to the investors, the payment of management time of redemption/termination and to record transfers of interest in the investment certificate as and when notified by the investors. The investor is promised under that memorandum, a monthly payment of 1.5 per cent. of the amount invested if option is exercised for monthly payments. For those who opt for re-investment scheme, that sum is to be credited to their account and is deemed to be re-invested from the date of cre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assurance that the moneys would be returned to the assessee at the end of the period of three years when the certificate of investment issued by the assessee is to be redeemed by the assessee and that during the tenure of that scheme, the investor is to receive a return of 1.5 per cent. per month. The moneys entrusted under the scheme are to be managed by the assessee and the investor is not required to be informed as to the specific investments made from the fund and the particular investment in which the investor's amount is utilised. The investor in the scheme is assured of his return irrespective of the amounts realised from out of the investments made from the fund, the obligation to ensure such a return being on the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or on money claims or rights or obligations incurred in relation to money, such payment is by this statutory definition, regarded as interest. The scheme under which the assessee induced investors to entrust their moneys to the assessee, under the very terms of the scheme, imposed an obligation on the assessee to repay the investor at the end of the period of 36 months and also to ensure a monthly payment of 1.5 per cent. to the investor during that period. The mere fact that the assessee did not choose to characterise such payment as interest will not take such payment out of the ambit of the definition of "interest". The payment made by the assessee being a payment made in respect of an obligation incurred under the terms of the offer....