2020 (3) TMI 1177 - HC - Income Tax

Liability to pay interest tax on the interest earned - HELD THAT - Controversy involved in the present case would clearly stand covered by the decision of this court in the case of Asman Investment Limited v. Assistant Commissioner of Income Tax 2018 (2) TMI 1966 - GUJARAT HIGH COURT Under the circumstances, it is not necessary to deal with the facts and contentions in detail. Question is answered in the affirmative, that is, in favour of the revenue and against the appellant assessee. It is held that in the facts and under the circumstances of this case, the Income Tax Appellate Tribunal was right in law in holding that the appellant is liable to pay interest tax on the interest earned by it.

Summary

Issues Involved:
1. Whether the appellant is liable to pay interest tax on the interest earned under the Interest Tax Act, 1974.
2. Whether the appellant qualifies as a "credit institution" or "financial company" under sections 2(5A) and 2(5B) of the Interest Tax Act, 1974.
3. Whether the interest income earned by the appellant falls under the ambit of the Interest Tax Act.

Detailed Analysis:

Issue 1: Liability to Pay Interest Tax
The appellant challenged the order of the Income Tax Appellate Tribunal which held that the appellant is liable to pay interest tax on the interest earned. The Tribunal's decision was based on the assessment that the appellant's principal business involved financing activities, thus falling within the scope of the Interest Tax Act. The appellant argued that its main business was not financing but rather a mix of activities, including consultancy and trading in shares and securities, and hence, it should not be liable for interest tax.

Issue 2: Qualification as a "Credit Institution" or "Financial Company"
The appellant contended that it does not qualify as a "credit institution" or "financial company" as defined under sections 2(5A) and 2(5B) of the Interest Tax Act. The Assessing Officer, however, determined that the nature of the appellant's interest income indicated that it fell within the parameters of a finance company under section 2(5B). The Commissioner (Appeals) and the Tribunal upheld this view, noting that the appellant engaged in activities that generated significant interest income, which is characteristic of a financial company.

Issue 3: Interest Income under the Interest Tax Act
The appellant argued that not all interest earned should be subject to interest tax, emphasizing that its interest income was incidental to its primary business activities. The Tribunal, however, found that the interest income was substantial and consistent with the activities of a financial company. The Tribunal also noted that similar arguments were made and rejected in a related case involving Pinnacle Project and Infrastructure Private Limited, which had merged with the appellant. The Tribunal concluded that the appellant's activities and income profile fit the description of a financial company liable to interest tax.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decision. The Court held that the appellant is liable to pay interest tax on the interest earned, as it qualifies as a financial company under the Interest Tax Act. The Court noted that the appellant's arguments were similar to those in the related case of Pinnacle Project and Infrastructure Private Limited, which had already been adjudicated. The Court found no merit in the appellant's contentions and upheld the Tribunal's findings, concluding that the appellant's business activities and income profile warranted the imposition of interest tax.