JUDGMENT
P.D. Dinakaran, J.
The above tax case appeals are directed against the order of the Tribunal in ITA Nos. 17 and 18/Mad/1997, dated 2-12-2003.
2. The revenue is the appellant. The assessment year involved in the appeals are 1993-94 and 1994-95. The assessee filed a return of chargeable interest on 30-11-1994. While computing the chargeable interest, the assessee had not offered interest of Rs. 5,11,325 received from M/s MacMillan India Ltd., for deposits made with them towards advance for the lands leased to the assessee. In addition, the assessee had derived interest on trade advances totalling a sum of Rs. 45,30,750, which was on account of advances made for procurement of vehicles and the assessee claimed exemption of interest-tax on Government securities, as interest on such securities should be excluded from the total chargeable interest under the Interest-Tax Act. The assessing officer, on the basis of the word ‘interest on loans and advances’ used in the statute, proceeded to assess interest from the deposits referred to above to tax. On appeal by the assessee, the Commissioner (Appeals) allowed the appeal for the assessment year 1993-94 and partly allowed the appeal for the assessment year 1994-95, Hence, the revenue preferred appeals before the Tribunal. The Tribunal, following the decision of this court rendered in CIT v. Lakshmi Vilas Bank Ltd. (1997) 228 ITR 697 (Mad), dismissed the appeals, holding that the interest on Government securities was not liable for tax.
3. Aggrieved by the same, the revenue has come forward with these appeals, raising the following substantial question of law :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest on Government securities is not liable to be taxed under the Interest Tax Act ?
4. It is fairly submitted by the learned counsel for the revenue that the issue is covered against the revenue by the decision of this court in CIT v. Lakshmi Vilas Bank Ltd. (supra) and the Bombay High Court in Discount & Finance House of India Ltd. v. S.K. Bhardwaj, CIT & Ors. (2003) 259 ITR 295 (Bom).
5. This court in CIT v. Lakshmi Vilas Bank Ltd. (supra), considered the question whether the interest on debentures is taxable and held as under :
“………..The Tribunal pointed out that interest from debentures issued by companies will certainly be entitled to be excluded. In order to support the conclusion arrived at by the Tribunal that co-operative societies registered under the Co-operative Societies Act are also corporate bodies, reference was made to the Speech made by the Finance Minister, dated 31-7-1974, in Parliament, which is extracted at of (1974) 95 ITR (St) 76. In the Speech made by the Finance Minister, it was pointed out that the Government proposed to levy a tax on the gross amount of interest received by scheduled banks on loans and advances made in India. The proposed tax will have both a monetary and a fiscal impact in that it will serve the purpose both of raising the cost of borrowed funds and of supplementing Government revenues. The debentures and other securities issued by local authorities, companies and statutory corporation will not be included in the tax base. Interest received on transactions between scheduled banks will likewise be exempted from the proposed levy.”
6. The Bombay High Court in CIT v. United Western Bank Ltd. (2003) 259 ITR 312 (Bom) held that the Interest Tax Act would not apply to interest received by the assessee-bank on securities/debentures held by the assessee under the category “permanent”, wherein it is held as under :
“… one has to read section 2(7) in the context of the scheme of the Act. If so read, interest received from the RBI on dated government securities will not fall within the meaning of the expression ‘interest on loans and advances’ under section 2(7). The deletion of the exclusionary clause by the Finance (No. 2) Act, 1991 would have no effect on section 2(7) as the exclusionary clause was only clarificatory in nature.”
7. Following the above said proposition of law, we hold that the Tribunal was right in holding that interest from government securities is not subject to interest-tax. Accordingly, the issue is answered in the affirmative, against the revenue and in favour of the assessee. The appeals are dismissed. No costs.