2006 (1) TMI 112 - HC - Income Tax

Interest Tax Act, 1974 - Interest on Securities - total chargeable interest - whether interest on securities can be taken into consideration for the purpose of assessing chargeable interest - in view of the definition of the interest held that the interest on securities cannot be taken to be interest within the meaning of section 2(7)

Summary

Issues:
- Challenge to order passed by Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal
- Assessment of total chargeable interest
- Initiation of penalty proceedings
- Inclusion of interest on securities for assessing chargeable interest
- Interpretation of section 2(7) of the Interest-tax Act

Analysis:
The High Court of Allahabad heard an appeal filed by the Revenue challenging the order passed by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The assessing authority had assessed the total chargeable interest at Rs. 68,10,23,228 under section 8(1) of the Interest-tax Act and directed for initiating penalty proceedings under section 13 of the Act. However, this amount was significantly higher than the total chargeable income declared by the assessee-company in its return, which was Rs. 2,28,11,919.

The main issue raised in the appeal was whether interest on securities could be considered for assessing chargeable interest. The appellant's counsel argued that the amended definition of interest under section 2(7) of the Interest-tax Act should now include interest on securities, as the provision excluding interest on securities had been removed in the subsequent definition. However, the Court referred to a previous judgment by the Allahabad High Court which held that interest on securities cannot be considered as interest within the meaning of section 2(7) of the Act. The Court also cited a Bombay High Court case which clarified that the deletion of the clause excluding Government securities did not mean that interest on securities was included in the definition of interest.

Another judgment cited by the respondent's counsel was from the Bombay High Court, where it was held that loans and advances do not include interest on securities, bonds, and debentures, and therefore, such interest is not liable to tax under the Interest-tax Act. The Court answered the question in favor of the assessee and against the Revenue. Additionally, a case from the Madras High Court was referenced in a similar context.

In conclusion, the High Court upheld the previous judgments and found no substantial question of law in the appeal. Therefore, the appeal was dismissed, affirming that interest on securities cannot be considered for assessing chargeable interest under the Interest-tax Act.