TaxTMI 
TaxTMI 
2003 (6) TMI 171
X X X X Extracts X X X X
X X X X Extracts X X X X
....olidated order. 2. We will first take up Interest-tax Appeal No. 54/Mum/1997. 3. In this appeal, filed by the Revenue, solitary grievance raised is as follows: "On the facts and circumstances of the case and in law, the learned CIT(A) has erred in directing the AO to delete the addition of Rs. 6,51,22,058 made on account of interest on Government securities and IRFC bonds." 4. Learned counsel for the assessee has invited our attention to Tribunal's order dt. 22nd Nov., 2002 passed in assessee's own case for the asst. yr. 1992-93, on a perusal of which we find that the aforesaid order squarely covers the above issue in favour of the assessee. Learned counsel has also invited our attention to the orders passed by the Co-ordinate B....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on commercial paper ought to be treated as not exigible to interest tax. A transaction in CP purchase does not create the same relationship between the purchaser and the issuer as in the case of a loan transaction between the lender and the borrower. As such, such transaction constitutes investment and not 'loans and advances'. In substance, thus, assessee's grievance is that the CIT(A) erred in holding that the income of Rs. 1,07,11,877 on commercial paper is exigible to interest tax. 11. During the course of assessment proceedings, the assessee claimed that its income earned by way of discount on commercial paper is not exigible to interest tax as transaction of commercial paper does not create the same relationship between the pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be subjected to interest-tax." 12. The assessee is aggrieved and in cross-objection before us. 13. Shri Sonde, learned advocate, appeared for the assessee, and Shri Bains, learned Departmental Representative, appeared for the Revenue. Learned Representatives have been heard, material before us perused and the factual matrix of the case as also the applicable legal position deliberated upon. 14. We find that s. 2(7) of the Interest-tax Act, 1974 defines interest as "interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all in that category. In the case, of ANZ Grindlays Bank vs. Dy. CIT, Tribunal took note of the position, as evident from the statutory provision, from Finance Minister's speech and RBI circular to the scheduled banks, that the incidence of interest-tax was not to be borne by the bank but was to be passed on to the borrowers which was not possible in case the same is held to be applicable to the securities such as debentures and like. In the case of Punjab National Bank vs. Dy. CIT, the Tribunal after having taken note of the provision of sub-s. (28B) of s. 2 which defines interest on securities including inter alia 'interest on debentures or other securities for money issued by' amongst others 'a company', concluded that since interest on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany issuing the commercial paper'. It would thus follow that a 'commercial paper' is a kind of financial instrument to the investors which is issued in the form of 'usance promissory note transferable by endorsement and delivery'. The thrust of the arrangement is in the nature of issuance of a security and not of raising a loan. It is well settled that unless the arrangement is in the nature of a loan or advance, mere fact that a security is issued in the form of a promissory note or bill of exchange will not ipso facto bring the interest thereon in the ambit of s. 2(7) of the Act. If that was a reason enough for coverage by s. 2(7), the interest on debentures, which are also admittedly in the nature of a usance promissory note, could not....