2016 (8) TMI 267 - HC - Income Tax

Income from interest on inter corporate deposit - chargeablility to tax under the Interest Tax Act - Held that -Commissioner of Incometax v. Visisth Chay Vyapar Ltd., 2011 (8) TMI 783 - Delhi High Court wherein, it has been held that the expression advance occurring in section 2(7) along with the expression loan should take its colour from loan and cannot be given wider interpretation to include deposit as well, otherwise, money deposits given for investments, etc., would also qualify as advances and interest thereon would become exigible to the Interest-tax Act. Such a situation was never contemplated by the legislature. Hence, intercorporate deposit is not in the nature of loan or advance within the meaning of section 2(7) and therefore, not chargeable to the interest-tax under section 5.

Summary

Issues:
1. Interpretation of the Income Tax Act regarding the taxability of income from interest on inter-corporate deposit.
2. Determination of whether an inter-corporate deposit can be treated as a loan or advance for tax assessment purposes.
3. Assessment of penalty levied under section 13 of the Interest Tax Act.

Analysis:
1. The Tax Appeals were filed against the order passed by the Income Tax Appellate Tribunal regarding the taxability of income from interest on inter-corporate deposit under the Income Tax Act. The assessee had not filed interest tax return for the relevant assessment year. After assessment proceedings, the Assessing Officer passed an order holding the assessee liable to pay interest tax. The CIT(A) dismissed the appeals, leading the assessee to file second appeals before the Tribunal, which ultimately allowed the appeals based on the interpretation of the law.

2. The High Court considered the settled judgment of the Delhi High Court in a similar case, which held that the expression 'advance' in the law should be interpreted in conjunction with 'loan' and not given a broader meaning to include deposits. The Delhi High Court's decision clarified that inter-corporate deposits do not fall under the definition of loan or advance as per the law. Therefore, interest on inter-corporate deposits is not chargeable under the Interest Tax Act. The High Court concurred with this interpretation and ruled in favor of the assessee against the Revenue.

3. As the main issue regarding the taxability of income from inter-corporate deposit was decided in favor of the assessee, the consequential issue of penalty levied under section 13 of the Interest Tax Act was also resolved in favor of the assessee. Consequently, all the appeals were dismissed by the High Court, with no order as to costs.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the reasoning behind the High Court's decision in favor of the assessee.