2010 (10) TMI 1042 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee is a loan company as defined u/s 2(5B)(iv) of the Interest Tax Act.
2. Whether the Tribunal was correct in reversing the order passed by the Commissioner of Income Tax exercising power u/s 19 of the Interest Tax Act, 1974.
3. Whether the Tribunal was correct in allowing the appeals when related appeals challenging the Tribunal's orders were pending.

Summary:

Issue 1: Definition of Loan Company
The primary issue was whether the respondent-assessee qualifies as a loan company u/s 2(5B)(iv) of the Interest Tax Act. The High Court examined the nature of the assessee's business activities, which included money lending, hire purchase, and dealing in shares. Despite the assessee's contention that its main business was in vegetable oil and investments, the court found that the major portion of its income for the assessment years 1995-96 and 1996-97 was from interest received from loans. Therefore, the court concluded that the assessee's principal business was providing finance, making it a loan company u/s 2(5B)(iv).

Issue 2: Reversal of Commissioner's Order
The Tribunal had reversed the order of the Commissioner of Income Tax, who had invoked powers u/s 19(1) of the Interest Tax Act to subject the interest received by the assessee to tax. The High Court found that the Tribunal erred in its interpretation, as the assessee did not fall within the exclusion clauses of section 5 of the Act. The court emphasized strict interpretation of the charging and exclusion sections, concluding that the interest received by the assessee was chargeable under section 4 of the Act. Thus, the Tribunal's reversal of the Commissioner's order was incorrect.

Issue 3: Pending Appeals
The Tribunal allowed appeals I.T.A. No. 1/Bang/2005 and I.T.A. No. 2/Bang/2005 while related appeals I.T.A. No. 1111/06 and I.T.A. No. 1112/06 were pending. The High Court found that the Tribunal should have considered the pending appeals before making its decision. The court held that the Tribunal's actions were premature and not justified.

Conclusion:
The High Court allowed all four appeals, answering the substantial questions of law in favor of the revenue. The court held that the respondent-assessee is a loan company u/s 2(5B)(iv) and that the interest received by it is chargeable under section 4 of the Interest Tax Act. The Tribunal's orders reversing the Commissioner's decisions were set aside.