2006 (4) TMI 77 - HC - Income Tax

Interest-tax Act, 1974 - Interest on Securities - computation of income - interest on G.P. notes - chargeable interest - Tribunal was correct in law in holding that interest on securities is not chargeable to interest-tax under the Interest-tax Act, 1974

Summary

Issues:
Interpretation of the Income-tax Act regarding taxation of interest on securities under the Interest-tax Act for the assessment year 1995-96.

Detailed Analysis:

The case involved an appeal under section 260A of the Income-tax Act, 1961 against the order passed by the Income-tax Appellate Tribunal, Lucknow, for the assessment year 1995-96. The appellant had shown interest on G.P. notes, which the Assessing Officer included in the chargeable interest. The respondent argued that interest on securities and bonds should not be taxed under the Interest-tax Act as it was not interest on loans and advances. The Commissioner of Income-tax (Appeals) sided with the respondent, stating that "Interest on securities" cannot be equated with loans and advances. The Income-tax Appellate Tribunal referred to a decision of the High Court of Madras and held that interest on Government securities is not taxable under the Interest-tax Act, ultimately dismissing the appeal of the Income-tax Department.

The main question of law for the assessment year 1995-96 was whether 'interest on securities' is chargeable to interest-tax under the Interest-tax Act. The appellant argued that interest on securities should be taxed as the exclusionary clause was deleted, bringing it within the scope of "interest on loans and advances." On the other hand, the respondent relied on a judgment of the Division Bench of the Bombay High Court, which highlighted the distinction between investments and advances in the balance sheet of banks, supporting the view that banks do not hold securities as stock-in-trade.

In light of the arguments presented, the court observed that the issue raised in the appeal was covered by the decision of the Division Bench of the Bombay High Court in a similar case, where it was held that banks do not hold securities as stock-in-trade. Consequently, the court upheld the decision that 'interest on securities' is not chargeable to interest-tax under the Interest-tax Act for the assessment year 1995-96. The appeal was dismissed, with no order as to costs.