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2005 (10) TMI 59 - HC - Income TaxInterest Tax Act, 1974 - (1) Whether, Tribunal was right in holding that hire purchase finance charges are not subject to interest-tax, without going into the nature of the financial transactions? (2) Whether, Tribunal was right in holding that interest from Government securities is not subject to interest-tax? - both questions are answered in the affirmative, against the Revenue and in favour of the assessee
Issues:
1. Whether hire purchase finance charges are subject to interest-tax? 2. Whether interest from Government securities is subject to interest-tax? Analysis: Issue 1: Hire Purchase Finance Charges The appeal involved the question of whether hire purchase finance charges are subject to interest-tax for the assessment year 1996-97. The Appellate Tribunal had ruled in favor of the assessee, following a previous decision in Harita Finance Ltd.'s case. The Revenue argued that a previous unreported decision of the court in CIT v. Harita Finance Ltd. established a different precedent. However, the court, referring to the earlier judgment, upheld the Tribunal's decision, stating that hire purchase finance charges are not subject to interest-tax. The court emphasized that the finding by the Appellate Tribunal was a factual one and there was no reason to interfere with it. Therefore, the first issue was decided in favor of the assessee against the Revenue. Issue 2: Interest from Government Securities The second issue pertained to whether interest from Government securities is subject to interest-tax. The Revenue contended that a decision by the Bombay High Court in Discount and Finance House of India Ltd. v. S.K. Bhardwaj supported their position. However, the court disagreed and held that interest from Government securities is not subject to interest-tax. Citing the interpretation of section 2(7) in the context of the Income Tax Act, the court concluded that such interest does not fall within the definition of 'interest on loans and advances.' Therefore, the second issue was also decided in favor of the assessee against the Revenue. Consequently, the appeal was dismissed, with no costs awarded.
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