9911796707
|
Home
Issues Involved:
1. Whether the appellant-company, a 'Residuary Non Banking Company', falls under the purview of the Interest Tax Act as a Miscellaneous Finance Company. 2. Whether the interest earned by the appellant company on investments in securities is chargeable to tax under the Interest Tax Act. Issue 1: Applicability of Interest Tax Act to Residuary Non Banking Company The appellant-company, classified as a Residuary Non Banking Company (R.N.B.C.) by the Reserve Bank of India, argued that it did not fall within the purview of the Interest Tax Act for the Assessment Year 1992-93. The Interest Tax Act was amended by the Finance Act of 1992 to include R.N.B.C.s within the definition of a 'Financial Company' u/s 2(5B), effective from 1-4-1993. The Assessing Officer, however, treated the appellant as a 'Miscellaneous Finance Company' u/s 2(5B)(vi), which the C.I.T.(A) upheld by interpreting the company's objects as fitting within the definitions of an Investment Company and a Loan Company. The Tribunal found that the C.I.T.(A)'s reliance on the company's object No. 2 was misplaced, as investments were mandated by law, not by the company's choice. The Tribunal held that prior to the amendment effective from 1-4-1993, the appellant, being a Residuary Non Banking Company, did not fall within the definition of a 'financial company' and was not liable to interest tax. Issue 2: Taxability of Interest on Investments in Securities The Assessing Officer taxed interest earned by the appellant on investments in securities, treating it as chargeable interest u/s 2(7) of the Interest Tax Act. The C.I.T.(A) upheld this, relying on the Andhra Pradesh High Court's judgment in CIT v. Polisetty Somasundaram Charities, interpreting interest on securities as falling within the scope of 'loans and advances'. The Tribunal disagreed, holding that the definition of 'interest' u/s 2(7) is exhaustive, covering only interest on 'loans and advances' and specific inclusions like commitment charges and discount on promissory notes. The Tribunal emphasized that investments in securities and debentures, mandated by RBI directions, do not constitute 'loans and advances'. Therefore, interest on such investments is not chargeable under the Interest Tax Act. Conclusion The Tribunal concluded that: 1. The appellant-company, being a Residuary Non Banking Company, did not fall within the purview of the Interest Tax Act for the Assessment Year 1992-93. 2. Interest earned on investments in securities is not chargeable to tax under the Interest Tax Act as it does not fall within the definition of 'interest' on 'loans and advances'. The appeals were allowed, reversing the orders of the C.I.T.(A) and the Assessing Officer.
|
