TaxTMI 
TaxTMI 
TaxTMI 
2004 (6) TMI 244
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....g the precedents, we hold that interest tax is not leviable on interest received on Bonds and Debentures. The AO is directed to give necessary relief to the assessee. 3. The ground No. 2 is as under: "On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the DCIT in charging interest tax on interest of Rs. 5,96,921." 4. It appears that there is some discrepancy in the quantum of interest which is claimed to be at Rs. 5,96,921, whereas in the order of the CIT(A), the quantum is mentioned to be Rs. 4,47,343. The ld. counsel appearing for the assessee explained that the assessee received interest on inter-corporate deposits amounting to Rs. 14,47,290, the break-up of which is as under The relevant facts are that in the assessment order passed by the Assessing Officer under section 8(2) of the Interest Tax Act, the aforesaid interest of Rs. 14,47,290 was included in the computation of chargeable interest. The assessee had claimed that the aforesaid interest was earned on intercorporate deposits and therefore it was beyond the purview of charge of interest tax. The Assessing Officer did not indicate any reasons for rejecting the claim. T....
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....erest on loans and advances is includible in the chargeable interest. It is pointed out that inter-corporate deposits are not covered in the definition and therefore interest tax cannot be levied on interest received on such deposits. It is submitted that a deposit cannot be equated with loan and both have distinct features and characteristics. It is argued that charging section has to be strictly construed and only interest on loans and advances can be included in chargeable interest. The ld. Counsel has placed strong reliance on the following judgments: (i) Pennwalt (India) Ltd. v. Registrar of Companies [1987] 62 Comp. Cas. 112 (Bom.) (ii) Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom.) (iii) AM Shamsudeen v. Union of India [2000] 244 ITR 266 (Mad.) (iv) Baidyanath Plastic Industries (P.) Ltd. v. K.L. Anand, ITO [1998] 230 ITR 522 (Delhi). The ld. counsel has invited our attention to the ratio of the case of Pennwalt (India) Ltd., which is reproduced below from the headnote: "Held, allowing the petition, that there was a distinction between a loan and a deposit for the purpose of the Companies Act, 1956, and in the absence of anything t....
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....ible that in case of deposits, which are for a fixed period or loans which are for a fixed period, the point of repayment may arise in a different manner. But by and large, the transaction of a loan and the transaction of making a deposit are not always considered identical. 'Loan' and 'deposit' are not identical in meaning and cannot always be interchanged. Some loans may be deposits and some deposits may be loans. But all loans are not deposits or vice versa. The fact that both transactions create the relationship of a debtor and a creditor is not enough to equate a loan with a deposit. Nor would it be correct to make a distinction between the two only for the purpose of calculating the period of limitation. The nature of the two are somewhat different and that is the reason why a distinction is made between the two for the purpose of calculating the period of limitation. If the two transactions were identical, there would be no need to prescribe different periods of limitation." The learned counsel submitted that similar view has been taken by the Bombay High Court in the case of Durga Prasad Mandelia. The cases of A.M. Shamsudeen and Baidyanath Plastic Indu....
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....ntee or the provision of such security has been previously authorized by a special resolution of the lending company.....: Provided further that the aggregate of the loans made to all bodies corporate shall not exceed without the prior approval of the Central Government- (a) thirty per cent of the aggregate of the subscribed capital of the lending company and its free reserves where all such other bodies corporate are not under the same management as the lending company." If the provisions of section 370(1) are contravened by a person, under section 371(1), such person shall be punishable with imprisonment up to a period of six months. Thus, the consequences of contravention of section 370(1) are penal and stringent. The Hon'ble Bombay High Court referred to section 58A of the fine or with simple Companies Act and observed that section 58A deals with deposits and under the Explanation, the term 'deposit' has been defined as under: "For the purposes of this section 'deposit' means any deposit of money with, and includes any amount borrowed by, a company but shall not include such categories of amount as may be prescribed in consultation with the Reserve Ba....
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....;deposit' in contra-distinction to loan' or 'advance'. Interest on 'deposit' is not specifically excluded from the definition under section 2(7). Interest on loans as well as advance is chargeable to interest tax. The word 'advance' has wide connotations and it means any money advanced to any person. In the present case, the assessee company has advanced moneys by way of interest earning deposits, to other companies for a fixed term on which interest income is earned. Such deposits have not been made in response to any invitation to make such deposits by the other companies. The transactions have been finalized through brokers. The object and purpose of Interest Tax Act is to levy tax on interest income earned on loans and advances. Even the Bombay High Court has observed that in certain circumstances 'loan' may include a 'deposit' and a 'deposit' may include a 'loan'. It has also been observed that the term 'loan' is a 'generic' term which includes a 'deposit' also. Further, the scope of the definition under section 2(7) is also enlarged as it includes interest not only on loans, but also on ad....