2000 (12) TMI 226 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-company is a 'credit institution' within the meaning of section 2(5A) of the Interest-tax Act.
2. Whether interest income from loans and advances to sister concerns is chargeable interest under the Interest-tax Act.
3. Whether 'hire charges' earned by the assessee can be treated as 'chargeable interest' under the Interest-tax Act.

Summary of Judgment:

Issue 1: Credit Institution
The assessee argued that it was not a 'credit institution' as defined u/s 2(5A) of the Interest-tax Act, claiming that hire purchase was not its principal business. However, the Tribunal noted that the Profit and Loss Account indicated that hire purchases were the principal business of the appellant. The Tribunal held that the assessee was a 'financial company' and thus a 'credit institution' under the Interest-tax Act, rejecting the assessee's contention.

Issue 2: Interest Income from Sister Concerns
The Tribunal examined whether the interest income from loans and advances to sister concerns was chargeable under the Interest-tax Act. The Tribunal upheld the Assessing Officer's decision, stating that such interest income is indeed chargeable to interest tax as it falls within the definition of 'chargeable interest' u/s 5 of the Interest-tax Act. The Tribunal dismissed the assessee's argument that the interest was not in the ordinary course of business.

Issue 3: Hire Charges as Chargeable Interest
The Tribunal analyzed whether the 'hire charges' could be considered 'chargeable interest'. The Tribunal referred to various CBDT Circulars and concluded that hire charges are distinct from interest and cannot be treated as interest on loans and advances. The Tribunal found that the hire purchase agreements were genuine and not camouflaged loan agreements. Therefore, the hire charges earned by the assessee were not chargeable to interest tax.

Conclusion:
The appeals were allowed in part. The Tribunal upheld the chargeability of interest income from sister concerns but ruled that hire charges were not chargeable interest under the Interest-tax Act.