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Issues Involved:
1. Whether interest on securities is chargeable to interest-tax under the provisions of the Interest-tax Act, 1991. Issue-wise Detailed Analysis: 1. Whether interest on securities is chargeable to interest-tax under the provisions of the Interest-tax Act, 1991: The appeals pertain to the assessment years 1993-94, 1994-95, and 1995-96, where the common issue is the chargeability of interest on securities to interest-tax under the Interest-tax Act, 1991. The assessee, a banking company, did not include interest received on securities/bonds/debentures in its returns. The AO issued a letter to the assessee explaining why this interest should be included in the chargeable income. The assessee responded, objecting to the proposal by stating that loans/advances are different from securities/debentures. The AO argued that securities/bonds issued by the Government are in the nature of loans and advances and concluded that interest received on such securities should be treated as interest on loans and advances under section 2(7) of the Interest-tax Act. The AO also noted that the exclusionary clause for interest on securities was omitted from the definition of 'interest' after 1st Oct., 1991, implying that interest on securities should be included in the tax base. The CIT(A) upheld the AO's decision, relying on the Supreme Court ruling in State Bank of India vs. CIT, which stated that the classification of investments in securities under "Investments" rather than "loans and advances" is not conclusive of the matter. The CIT(A) held that interest on securities is chargeable to interest-tax, leading to the assessee's appeal. The Tribunal examined the history of the Interest-tax Act, noting that interest on securities was specifically excluded in the 1974 and 1980 Acts but not in the 1991 Act. The Tribunal referred to the Finance Minister's budget speech, which did not explicitly state that interest on securities was to be taxed. The Tribunal also considered the exhaustive nature of the definition of 'interest' in section 2(7) of the Interest-tax Act, which includes interest on loans and advances but does not explicitly mention interest on securities. The Tribunal distinguished between 'loans and advances' and 'securities,' noting that securities are investments, negotiable, and transferable, whereas loans and advances are not. The Tribunal also referred to various legal definitions and concluded that the terms 'loans and advances' are different from 'securities.' The Tribunal further examined the charging section (section 4) and the scope of chargeable interest (section 5) of the Interest-tax Act, noting that the charging section excludes interest on securities. The Tribunal also considered the notification issued under section 28 of the Interest-tax Act, exempting banking companies from the levy of interest-tax on income from interest on securities from the financial year 1995-96. The Tribunal referred to the decision of the Madras High Court in CIT vs. Lakshmi Vilas Bank Ltd., which held that interest on debentures (akin to securities) is not chargeable under the Interest-tax Act. The Tribunal concluded that the authorities below were not justified in bringing interest on securities to tax under the Interest-tax Act, 1991, and allowed the appeals. Conclusion: The Tribunal held that interest on securities is not chargeable to interest-tax under the Interest-tax Act, 1991, and allowed the appeals filed by the assessee.
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