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TAXAP/1065/2010 7/ 7 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 1065 of 2010
=========================================================
COMMISSIONER
OF INCOME TAX-II - Appellant(s)
Versus
GUJARAT
STATE FINANCIAL SERVICES LTD - Opponent(s)
=========================================================
Appearance
:
MRS
MAUNA M BHATT for
Appellant(s) : 1,
MR MANISH J SHAH for Opponent(s) :
1,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE AKIL KURESHI
and
HONOURABLE
MS JUSTICE SONIA GOKANI
Date
: 06/09/2011
ORAL ORDER
(Per
: HONOURABLE MR.JUSTICE AKIL KURESHI)
1.0 Leave
to amend.
2.0 The
Revenue has filed these appeals challenging the judgment of the
Tribunal dated 29.05.2009 raising following questions for
consideration.
“[A]
Whether the Appellate Tribunal is right in law and on facts in
confirming the order passed by CIT(A) in deleting the addition of
Rs.17,81,300/- being hire purchase charges?”
[B] Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by CIT(A) in deleting the addition of Rs.11.17 crores
being interest on KPVs/ FDRs/ Debentures?
[C] Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by CIT(A) in deleting the interest received by the
assessee in respect of investment of Rs.10,86,69,462/- (except the
investment in Govt. securities amounting to Rs.3,07,85,028/-) under
the interest tax Act?
[D] Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by CIT(A) in deleting the addition of Rs.19,22,96,972/-
made on lease rent?
[E] Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by CTI(A) in deleting the addition of Rs.12.74 crores
being the interest on call money?
[F]
Whether the Appellate Tribunal is right in law and on facts in
confirming the order passed by CIT(A) in deleting the addition of
Rs.12,85,657/- being interest on liquid deposit scheme?
[G] Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by CIT(A) in deleting the addition of Rs.23,54,089/-
being brokerage?”
3.0 With
respect to questions [A] and [D], learned counsel for the Revenue
pointed out that such questions are being considered in the case of
this very assessee in Tax Appeal No. 18 of 2007, which was admitted
on 11.10.2007.
4.0 Considering
the above position, this tax appeal is required to be admitted for
considering the above mentioned questions [A] and [D] as substantial
questions of law.
5.0 Regarding
rest of the questions, for reasons to be recorded hereinafter, we are
of the opinion that such questions are not required to be considered.
6.0 With
respect to questions [B] and [C], we find that the issues are
squarely covered against the revenue by virtue of the decision of the
Apex Court in the case of Commissioner of Income Tax vs. Sahara
India Savings and Investment Corporation Ltd. reported
in [2010] 321
ITR 371(SC). In
the said decision, the Apex Court observed that, for the purpose of
Interest-tax Act, 1974, interest on bonds and debentures bought by an
assessee as and by way of “investment” would not be
covered under expression “interest on loans and advances”.
7.0 We
may notice that in the decision in the case of Commissioner of
Income-Tax vs. Ratnakar Bank Ltd. reported in [2008] 306
ITR 257(SC), while approving the observations made in the case of
CIT vs. Corporation Bank [2008] 166 Taxman 388 (SC), the Apex
Court has observed that there is a basic difference between loans and
advances on the one hand and investments/ securities on the other.
The Apex Court eventually held that the interest/ loan on Government
securities would not be covered within Section 2(7) of the
Interest-tax Act.
8.0 With
respect to questions [E], [F] and [G], we find that it would be
useful to discuss these issues jointly. Though the nature of receipts
involved in each question is somewhat different, attempt on the part
of the revenue is to bring such receipts within the purview of the
Interest-tax Act, 1974.
9.0 Section
4 of Interest-tax Act provides for charge of tax on every scheduled
bank for every assessment year commencing on or after the 1st
day of April, 1975, a tax (in this Act referred to as interest-tax)
in respect of its chargeable interest of the previous year at
specified rate. Section 2(5) of the Interest-tax Act defines term
“chargeable interest” to mean the total amount of
interest referred to in Section 5, and computed in manner laid down
in section 6. In turn, Section 5 of the Interest-tax Act, pertains to
scope of chargeable interest. Section 6 provides for the mechanism
for computation of chargeable interest.
10.0 Term
‘interest’ is defined under section 2(7) of the Interest-tax Act is
as under:
“interest”
means interest on loans and advances made in India and includes-
(a)
commitment charges on unutilised portion of any credit sanctioned for
being availed of in India; and
(b)
discount on promissory notes and bills of exchange drawn or made in
India, but does not include-
(i)
interest referred to in sub-section (1B) of Section 42 of the Reserve
Bank of India Act, 1934;
(ii)
discount on treasury bills.”
11.0 From
the above statutory provisions it emerges that to bring any income
within Section 4 of the Interest-tax Act, such income must be a
chargeable interest as provided under Section 5 and as computed under
Section 6 of the Act. In turn every chargeable interest must
basically be interest as defined under sub-section (2) of Section 7
of the Act.
12.0
In this background the definition of term “interest”
assumes significance. Essentially interest is defined to mean
interest on loan and advances made in India and to include certain
other receipts such as commitment charges and discount on promissory
notes and bills of exchange drawn or made in India etc.
13.0
For the purpose of Section 2(7) of the Interest-tax Act, there must
be interest on loans and advances. Unless such receipt is covered by
any of the inclusion clauses containing under Section 2 of
sub-section (7). In the present case, stand of the revenue is that
all the three figures referred to in questions (E), (F) and (G) are
in the nature of interest on loans and advances made by the assessee
during the previous year relevant to assessment year 2000-01.
14.0 In
this respect, the Tribunal rejected the revenue’s contention with
respect to the question (E) observing that the amount relates to
interest received on call money from “Discount and finance
House of India”, a company, which is a subsidiary of the
assessee. Though the Assessing Officer held that the interest on call
money is towards deposit with the RBI as an advance, the CIT
(Appeals) reversed the Assessing Officer’s view. The Tribunal
rejected revenue’s appeal making following observation.
“After
considering the rival contentions we hold that interest received on
the deposits with RBI cannot be treated as interest received on loans
or advances as deposits with RBI are under compulsion and not in the
nature of voluntary borrowing by RBI. It is equivalent to interest
received from RBI on govt. securities and will not fall within the
meaning of expression ‘interest on loan and advances’. Further,
following the Rule of consistency, the Department should have
accepted the decision of Ld. CIT(A) this year also, as it has
accepted in the assessment year 1999-00. As a result, this ground is
allowed in favour of the assessee.”
15.0 We
are of the opinion that the Tribunal has committed no error. The
deposits made by the assessee with the RBI were not in the nature of
loan or advances. They were only in the nature of deposits
statutorily required by the assessee to maintain as per the
directives of Reserve Bank of India. That being the position, we do
not find any question of law arising in this regard.
16.0 With
respect to question (F), the same pertains to inclusion of income on
liquid deposit scheme for the purpose of charging taxes under the
Interest-tax Act, 1974.
17.0 The
Tribunal while deciding this issue in favour of assessee noted that
under the scheme, funds were deposited in inter bank call money on
discount with “Discount and Finance House of India” being
an entity promoted by the RBI. The Tribunal observed that such money
is deposited on behalf of the companies and corporates and the
interest is earned on behalf of assessee. It was pointed out that the
receipts are basically in the nature of service charges and the
interest earned thereon is passed on to the lender Government
company. In effect, therefore, the money was paid on behalf of the
Government company to Finance House and the interest earned thereon
only is in the nature of service charges. The Tribunal accepted the
assessee’s contention that, therefore, such interest cannot be said
to be earned on loan and advances.
18.0 We
are broadly in agreement with the view of the Tribunal. The revenue
has failed to demonstrate that the interest component covered under
the said issue was earned by the assessee on any loan or advances
made.
19.0 The
question [G] pertains to inclusion of brokerage for the purpose of
Interest-tax Act. The CIT(Appeals) reversed the Assessing Officer’s
view holding that such chargeable interest are not on loan and
advances. The Tribunal in addition to recording that in the previous
year such view of the CIT (Appeals) was not challenged by the revenue
also independently observed that the very description of brokerage
would show that it is not in interest on loan and advances and it is
only other income earned by the assessee.
20.0 Here
also we are of the opinion that Tribunal correctly assessed the
situation. Nothing has been pointed out by the revenue to suggest
that such income arose out of interest on loans and advances.
Basically the income was by way of brokerage charge. That being the
position, the same was not covered under section 2(7) of the
Interest-tax Act, 1974.
21.0 In
the result, Tax appeals are admitted only for considering the
following substantial questions of law.
“(A)
Whether the Appellate Tribunal is right in law and on facts in
confirming the order passed by the CIT(A) holding that the sum of
Rs.17,81,300 being hire purchase charges are not in the nature of
interest as per the provisions of Interest Tax Act?
(D) Whether
the Appellate Tribunal is right in law and on facts in confirming the
order passed by the CIT (A) in deleting the addition of
Rs.19,22,96,972/- on the ground that lease rental income was not
subject to Interest Tax Act?”
To
be heard with Tax Appeal No.18 of 2007.
[AKIL
KURESHI, J.]
[Ms.
SONIA GOKANI, J.]
Amit
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