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DATED THIS THE 11*" DAY..QF APR1%L%2a%o3Li i V % *4
PRESENT; T X T
H0..r°BLE
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n5I(':VF;:i1N;.,a; '. ' V
THE H_I~i"'BL_L. A1x!A15:DBYRAREDDY%% " T
A I.T.A,..N q...124QOG3VC:'iy:v--. A ' T
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_. 1 'n._ n a I _ \
J6": :_ts_deb'.urs_ tagvzgrae. Ha I1-..%_.,:l:ty '.9 pay Interest tax lemme pa. .
of the chalgeableViVntefeell'within the meaning u1'Seetion 2 (5) read;
5 ti'1'e"Aet. This was challenged by the asses:-zee
"Commissioner - Income tax, unsuccessfully. On a
1.... "f'_iL..... I
I
l'u1~"-i.__herV_ vappeel by the befiire the ribuiial, 'um 1: until
A in favour of the assessee. It is this which is under
ll 'plrallenge in the connected appeal no. ITA 124/2003.
The questions of law that are raised in these appeals are:'
3
"{i} '. -=* er the rim" is en es. in law in. _!1";1;i.=i,.e"-
that the order passed under Section 3(2) of the.V;éte=t i
Assessing Oflficer is not prejudieie-i to the iri-tereitt A
revenue and is not erroneous, arid .. :tl1eief'ore:"' tire
Commissioner has no jurisdiction ut1lr'i*e;;i'w,x:ctiontVi?9 tiie .
A--tt- 'lTiflg tire - . it ' " i
(ii) Whether the law inilllolicling
that interest 'of Ra. 2,(i9,i4Q,'0ii the debtors
I I ......_._
n
V
'3:
is not eilargeujre io ' ii'? ;.:e'*_uri.26§C" tire Ii'z'"r'st
'i'a.-.A.«:-t'??**V l A i H A
5;' o:1lBehuill' of the Revenue that the
1: in ' >--.,:iii*s-"ii" Ii.' . . .. 1... :_____.1_:___. c1__._.:_.__ rush
flSS{§SS6t.iIll:l£.l UI.)l~l¢.'r'l-."r'i.¢3.(1Viit'}-(..'_|lt3.,(')l"Vi-'Ell lI1|.6l'GSl. Dy lIlVU1&1ilg DUUIIDII 4-01.:
of Aetl' aiiditional urnount can only be treated as
GllVii.'i§e£z.i3leinterest§i """ is contended that Section 26C was.
to';t'eeiiiteieeeredit institutions to vary the terms of agreements, in.
respeet'ofterin loan transactions entered into before 1.10.1991, so
increase the rate of interest stipulated therein to the extent to
....n
under the .-$.21. The said ....-.:|.'-.n s:-a..not _- in.to..:siinfv1t:o
in respect of transactions entered into oftgsr » i
6. Thcre is no provision undisr this 'wihioli i
asses:-we to collect any amount snrintereot Vlaxiarsd aotho. nrnoun!.s'-
could not have placed.
relianoo on this i the case: of Commissioner of Income-_. .
i. ._ V' _l; i"~:...: .. -
Tux Vs. l3t£n1L~u)f I'v€ud.u1'a:.._L::::itssd, 215 ITR 928, the sea... can-'.3
Lu lhi$i"ae;se,-ssment yours 1975-76 and 1976-77 when
i ..ijr'ovisiu11 similar to Section 26 C. Furthur the lhotfs
3:5 also _lii_§+;<;iic_ent »- in Lhnti the bank, in that case, was collecting
AAinterést_. from its borrowers and paying the saint: i." th"
i 'oifioviornment. The Court held that there was no prohibition to do
---iso. It was held that the amount of tax collected would not
the bank was eullecting interest tax_fiTtJI_I_1 its v"()nx.vtl1e.
other hand, in the present case, the aisse9'see'3h:is._ett!leeted"i1)té:rest
at a higher rate and that no deduetiun euhttlala hegi-yefliifi' respect of
;;_-.t
such amounts white computing the rhargeable il
auttlolgisedm fxxriflseeks to draw sustenance from
the deeisipii 91" the "Court in the ease of Indian Banks
Asse;1eiai.ion'4_V"Devsi;at;t Consultancy 267 ITR 179, in this
Ael, at pages 188-189 thereto.
a It:2i.s.'there1bre, prayed that the appeals be allowed and the
nqt1esl.iu11s uflaw be answered in favour of the Revenue.
6
l'\
:2. Per contra, Sini. G. Surungan, Senior
appearing for the respondents, euntends__ti1ut.'il.]ieittie' .
Tribunal does not warrant interlerenee
1:. is £:!….1L’-I’.£.’.e£.i Li¢*£’é..it%’*ii”!}l%’.iIli
would indicate that was . u itiIni’te<ii3purpose of
enabling institutions, passing on the
burden of tax u114ier:iI'tl1e Act; The Counsel would
submit that J' Fer tnsteizee a mini" Va-a'i'R*s. 10% tent was charged with
a rate a'._)f interest. et".'..0'§*' interest earned would come to Rs.
10/-. In ilierltlt-1 of interest tax payable thereon is at
3%_er"30 «Appliying this to the mnounts eelleeted .3; th,
accounts inuintained by it, which have been
serutinii2ed"_'by':tIiei'Revenue, would clearly disclose that out of Rs.
10.5019 eelleeited as interest on every Rs. 100, the sum ul'30 paise
L11'! In "If! pfllignag as Ininr:-I51 _ taX_ The-
nfiditionai interest so euiieeled is in accordance with the enabling
provision namely Section 26C and the assessee having acted in
terms of the same — the Revenue seeking to treat the total sum ut'_
&
\.r
has therefore, rightly allowed the appeal
10. it is also contended_ that’ decivsioni Eanis;
Madhura (supra) having been with: retfierenceito a-point of
time when Section 26 C not eaten ‘in_’ei{i’sitence, the ratio of that
decision would iippiy ,with greater at ate the of ‘me
assessee. by the Revenue on a
sentence in _ise]ati<§n, ,_in -»l_he__decisi.on, of Indian Bank's Association
is elearly iuintezzabie… -_'LiI.!gi!! to be dawn out -1'
context.
it i’ _ hence that the appeals be dismissed.
it u these contentions — we may tirstly, note that the;
2 ~ ilntexestiiiliayt Act was ena_’_ed by Parliament with effect Iron};
$1974. The object of the Act was to impose tax on the totai
amount of interest received by Scheduled banks and credit
institutions on loans and advances. The Act was withdrawn in the
10′
year 1978, but re-introduced in the year 1980.
withdrawn in the year 1935. It was re–introduee;3]yet ii!’
_. .:_-._ .r’ : ______ .- ._ V
1 ‘ 1. Fiuzuluu 113:-L,._ 1991
referred to as ‘the 1991 Act’ 1’orh’brevilyV).S’eetion
with effect from 1.10.1991 same is
by day of October, 1991,
i_t._shal_I”‘t1e” fer’ “e:’.sr:.di£ etnstitution to van; the
2:agreen1ei1it’.so..;;:§’«to in:ei*e,§.je_ the rate of interest stipulated
the-tetra. the such institution is liable to
pay this A”: E1 “l*’£r”1 ta the amaurut
‘ Gf.interest’ temms loan which is due to the credit
iI1’stiti1’tign.”
Ftom a plain reading a Section 26 C it is clear that the
said previsiun vests a credit institutiutl with power to vary an:
nt with e lxrrruwer in mggeet Lf :1 I -m it » m.- it per
_ _ _-__ – 7 .. _ _… -_ vw–.-. ya— nu… p Q; . —
“Hpriur to H991, tu increase the rate 01″ interest slipuiuted to the
2%
as.-ssssec .u-as,” ‘ ‘antic. a
11
‘II
I
.. .. m …… ..: H . . . .. *..1.’:’.. -1′ ……. .. -r –
6}-‘J6 at uf 1u\2uul.lu|5 ua U 1’;
iiiijy in iu’u’.m::s’L
the burden of the tax on its borrowers …. .. _
13. The argument of Revenueiithut
be construed as a charging 2 a1i¢l”thst’ ‘tl1e}suid section
having been introduced-«. the hardship of the
. :1 .. .. .,: Lin 1h ‘i
m.iu.u.1unn nu 4’5 l.)GU[..’£U »’r V 1 .J,l;_,_1_)”‘
E ciedii loan iraiisactiuns
it’:
7.
so that such institutions’ can reimburse themselves on
account..o[ u:ltiinaitely»il’r¢)1n the borrowers.
‘ii “14.. liglit u finding by the Tribunal that the
‘* “‘i”eeinents e”ecu’te¢i subsequent to the period
I§’i.Q.«l9’9:l;;incoiiiiorstcd a term imposing an obligation on its
‘ toipuy to it such amounts as are payable by the assessee
V. to the Central or State Governments on nct:t….Int L- any L..- 1’-‘!’$”‘E…’d
on interest on the loan by such Government, is signilicant. The
circumstance that the assesses having collected the liability of
Interest–tax from its borrowers in terms of the contractual
12
._.. 1… .. ._-…_ L ..r ,'”.’.”.;’:«,.-‘.;._ G”:n
11 ‘um ail ugiu i.11_.–S__uu’11uJ,i —-4.’.i’)L_«
–> s…
material. And the further circums_l_am:_t_:’ 1 .
maintained a separate account in re:i’pac”i_i_ioi’i tho’oit:o’unls,i_i”ti1oo;gh
collected as additional interest-.y§aa,9g in iiititti ia_.»wa:r:i’s:.’ ‘;y1i1-nt oi
_, V ,. V’ I.
were not “interest” within’ 2(7) of the Act-
and hence ccJult.l’:1ot_’bo t:featoel~’:as’oliéitgoziiilis interest for purposes
15; .__’i’hc hold that lheidecision in the
casoiof Bankioi’MaiiI1Lira, isupra, would apply on all tours to the
‘I llll’l_h 1 LI 4- AIAIGMIII :—r- 1- !-=- —“–“–‘-‘— “—- :”- –” ‘-“‘i’ ‘
V *”‘.’.”fibt:’.’1.t yang. ::_i’iu ubau: vu’uuu uf ‘um Supi um Cuuli ll! iilu Lube oi
iilniiia Assiwiuliou, supra, as to the scope ot’Sc:uiion 26C is
to tile zfoiiowiiilg effect:
A’ ‘ “Siéctio11 26C of the Act:
Parliament by reason of the said Act imposed aitax
on the banks and other financial institution. By mason of
the said Act, the appellants were not statutorily empowered
to pass ”1: biird’ 1 me bofrowers or reaiise the
– —–v—-‘, 5 q.-
iu “fi3st–tax, does uompoi us to :!’i()is’i iiiiaiiéilc aniountoso colieutocio
13
terr-..1.s of the agreem Ant o. he term lmm *5
n -r 5 unit Illlllll
-tuna, nae u*!5IIv.I.Iuan’_§””-._
were not entitled to charge interest at a higher_ra_te_”than
agreed one. Section 26C was, tlterefhre, .enri.4cted.co’ to V
enable the bankers to realise the an1ouni”ut”‘itaxiwhich’ 7 A
were liable to recover on_tlte_ charge_ahie intereet;V. ::The
appellants have proceeded one-the’-thesis thef it-“f7in_g regarri
to the definition of __”chargeabie:’i1tereet” eel cc.ntai_.fi in
section 2(5) of the the aciiiiditieajlai ~–.i_ntereet_ will have also
to be calculated for the with of tax
must he 4.cala.:t1latc’dV’ ‘which; as noticed
i1ereinheiiore.l;¥i’es;tlted .ir1€addi11.gV for the purpose
Qf NF fir-I: . 9 “Eu” P’ nil.
_A How _?eit1iament.___thought of the matter is the
tieestion. .’i’i1e.i”U:iioni”ef’ Inciia does not agree with the
contention; ot’t..e’a,o§eeil5a1:teito:’d we. The action on tue
H ‘ part: of the appellants suggests that they had put the cart
l1eforet- the horeeL”””Fhe action of taiun’ g recourse to section
” T arise only when the chargeable interest is
« celcix£ate’ci;’Whereupoi1 only the incidence of tax under the
.w’a;; of additional interest. The entire a,;:»
:-l “L. …–..-.—.–.I — 2–
eem is requued to he pumwu at Ll! *”e borrowers by
1-1-
-ae.1 ‘ the
ajjpellants was based on a wrong premise. The said Act, is
a taxing statute. The Union of India under the said Act
cannot direct or permit the bankers or the financial
institutions of raise interest. The Act must, therefore,
it ‘ I-‘I-‘ ,4 4… :1…
,….,……… c….e…..ct:u.. so as w five meet I!) me
urpott and object it seeks to achieve. (see BBC Enterprise
‘$5
14
T {A ‘II’ I-I:=’-FAA!’ ‘r”I”ll1];fl:l\I”£ I fr’ I100
WI 7: 11.! 195′] 1′ 3′ a
o All 121: mg rra-£\«… ” :_.
in 1.3% \.Il2__fVV -. _
at 122-3; Mohan Kumar Singhania v. Union of_India, AIR i
1992 sc 1; Murlidhar Megl1rsj'””Loya _.st_£ue_or’v..”V
Maharashtra [1976] 3 SCC 684; 5$i1per’inter1de1.1t:”
Remembraneer of Legal Affairs to Govemnter-1′ West 3
1′-|–___I s- .l|…..-‘. 11;-.L_ rcnn-up as n,r’I,r1 .n,s_-q 1}-“IL ,,;.”.t-g-_,,V’-,1,
Dflngal V. HD3111 IVE” y 113′ I5″j_>”|’ DLLI UJ’,..l\.fl§I_ DEE” V.
I_I;;s_n_ 9:’ indie {gong} . S£1;’–._.LI1diar_”Iria__IA;diere_i’£s
Emporium v. Union —offj–Indi:a_ ‘7»s_c 446; Ashok
Leyland Ltd. v. State of 3 SCC 1;
[2004] 23:1 249 ¢os}:.V9r’eGqs:;rat v. Gujarat
i<ishan4.I€iazd§§6rs'r'a;j¢sa5,st"{sees} 5 50)
V …. _ ;svent,_j"'fl1e' eontentioil of the appellants is
:.sccepted,'5fne_sar11e would_ give rise to incongruous results.
Such an interpre;ts.t_io:1._:iVasis–weil-icnowri, must be avoided,
:4' M', :.1;J.t¢. ' 1.1-.'..+I;ss…"=….., .. ..+,.r..+,….. :…..,_..+ ……..+ I…_
ll IIVfi!|«|fll-7.I\h .L|o|'L.IuIl\fl'..I.I'l\JI§J, H B Ilnllollly I-IIIEJIJHI lllufll. UV
'definite. regard to article 265 read with article
36fi(23)A of the tiehstinrtion of India nothing is realisable as
1 way of recovery of tax or any action akin
« iliereio vriiieia is not permitted bylaw.
ii 4' It is neither in doubt nor in dispute that section 26C
enabling provision. It has "to be so construed, having
4' regard to the term "lawful" used therein.
It merely prevails over an agreement under which
any term loan has been sanctioned by fire credit institution
before October 1, 1991. It was "lawfinl" for the purpose of
recovering the amount of tax which was payable 'by the
2%
'A id' "3' A" _ '~_'_______ ______'_u____ __ _'
. rulu Etlfilfitivtfilluc scan lg u 1
15
appellants and a forttori-nothing over and above fit¢”‘8an1Ye .~ ;_. it ‘
Such increase in the rate of interest would be (Ea)-._:tov jtiaevvn
extent to which such institution is liable. tn intetettt
tax; (b) in relation to the aittouitttgf iitteseistttcani che’–~¢erm;-t,__ it
ioan; and (0) which is due totime credit—in§titution.» . . A ” °
Increase in the rate of itinteiest in te’r:11_£t inf section
26C of the Act, thus; a esiitéct néxiis-.wifl1 tlidstatiitory
impost. The action on’tt1cvpait_ _oi’fti.ie épgieiitiitts in r landing
9*’? m”t!1.e l.r:te::”es., .h!!%’;,v-Wfifl whet! I’Iii:1ntifi¢_2–:3;
D I
.. .. …,, …_,._.. -.nc_:s !t !_
held that;mdi’§§ée in inte1?esst”:in ‘avjtistiiiat.)1eTfn1aI1nen’ pertains
to’par3st|t’g_««.oit~- iihg contention that the
gang: * batik in exercise of its
.r_eja-citéd. A taxing statute must
,.1.i:… _ .. 1.. .. ……s . ..,
.131′-.’ J.’_.Ul.l|l.IIg U 1 UV IU llfllill U3′ Wily
ctrrpstsnbad Essen “””*’-‘ “” ~
of _ or _a|(..ti_:_ tt1e1~etqt”which has not been authorised by
‘ Patrtianien. .h”’ ” ” V
ia:§’_:3.i.wt’i;t6nal:lc. The assussee has not collected any amount
not authorised or expressly prohibited.
16. We, thertstiirc are of the firm upiniun that the appellant
-“has not made out any cast: on merits. The appeals are hence
h-I
O’.
dismissed. The questions of law are answered i11’V.’..l_’e_’14*.I.LVV)”L’11E ;)’l”‘«tV.l1¢:
assess:-.6 and against the Revenues.
11 :
IDIIIV