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TMI Blog2002 (2) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies in the form of loans and advances. The Government is rendering financial help to various subsidiary companies on the basis of their requirements as appraised by the Government and hands over the funds to the assessee-company and directs the assessee-company to release the funds to those subsidiary companies on the basis of the directions and stipulations suggested by the Government. The assessee-company is receiving substantial amounts by way of interest on such loans and advances disbursed by it to various subsidiary companies as suggested and directed by the Government. The Assessing Officer was of the view that the interest received by the assessee-company against those loans and advances disbursed to various subsidiary companies were liable to the levy of interest-tax. Accordingly, notices were issued under section 7 of the Interest-tax Act for both the assessment years under appeal. The assessee-company filed Nil returns in compliance of those notices. It was the contention of the assessee-company before the Assessing Officer that the assessee-company was not benefited in any manner from those transactions relating to the disbursement of loans and advances to the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany should be the business of acquisition of stock and shares, bonds and debentures, etc. The Commissioner (Appeals) also found that this could be determined only if one examined the accounts of the assessee-company and verified the various sources of income enjoyed by the assessee-company. On such an examination of accounts and transactions of the assessee-company, the Commissioner (Appeals) came to a conclusion that the assessee-company did not earn any income by carrying on the business of acquisition of stocks and shares. The Commissioner (Appeals) found that even though the assessee-company had made investments in equity shares of subsidiaries and other public companies, such shares were not sold by the assessee-company during the relevant previous year. He found that those investments were made for the purpose of promoting public sector concerns. In view of the nature of the activities carried on by the assessee-company, as noted above, the Commissioner (Appeals) held that the assessee-company could not be characterised as an investment company and therefore it would not come under the purview of a credit institution, and so the levy of interest-tax would not be permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n object as 'to carry on the business of an investment company' and as such was a credit institution as defined in section 2(5A) of the Income-tax Act. 3. The ld. Commissioner (Appeals) ought to have seen that the interest collected and paid to State Government is in pursuance of the objects of the company. The learned Commissioner (Appeals) ought to have therefore considered the assessee as a credit institution falling within the definition under section 2(5A) of the Interest-tax Act. 4. The learned Commissioner (Appeals) erred in relying on the decision of the Kerala High Court in the case of South Indian Bank Ltd. 212 ITR 652. The ld. Commissioner (Appeals) ought to have found that the facts of the case under consideration were distinguishable from the facts in the case of South Indian Bank Ltd. relied on by him." 8. We heard Shri P.I. John, the learned Senior Departmental Representative appearing for the Revenue and Shri C.K. Nair, the learned counsel appearing for the assessee-company. The learned Departmental Representative contended that the assessee-company is an independent entity, both under the Companies Act and under the Interest-tax Act. Despite the various const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, the assessee-company could not be considered as an investment company for the reason that in fact the assessee-company never made any investments of its own. All the advances and loans and investments made in the equity shares were made for and on behalf of the Kerala Government and in such circumstances the assessee-company was discharging its duties as a holding company, and being a Government company it was only executing the directions issued by the Government. Therefore, by the nature of the constitution of the assessee-company itself and also by the nature of the activities carried on by it, there is no basis for the Assessing Officer to hold that the assessee-company was an investment company. As the assessee-company could not be considered as an investment company, it can neither be considered as a Credit Institution for the purpose of levy of interest-tax. 10. The learned counsel continued to argue that the assessee-company did not make any profit out of the interest collected from the subsidiary companies. The interest collected from its subsidiary companies had to be handed over to the Government and it was only acting as a necessary middle-man and therefore there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment owned Companies in the State instead of a Bureau of Public Enterprises on the Central pattern." On the basis of the above G.O., the assessee-company was established as a Government Holding Company and thereafter the Government had been from time to time releasing funds to the assessee-company for the purpose of transmitting the funds in the form of loans and advances to various subsidiary companies, also owned by the Government of Kerala, to meet the requirements of funds for project and working capital requirements. These are all made on the basis of the larger policy of the Government. These matters have been made clear through a letter of the Commissioner and Secretary to Government, Industries Department, dated 19-2-1996 sent to the Chairman and Managing Director of the assessee-company. A perusal of the copies of various Government Orders placed before us show that the assessee-company has been disbursing funds to its subsidiary companies, like Kerala Soaps Oils Ltd., Kerala State Detergents Chemicals Ltd., Kerala State Drugs Pharmaceuticals Ltd., Travancore Plywood Industries Ltd., Kerala State Salicylates Chemicals Ltd., etc., from time to time on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment respectively." 13. The above conditions stipulated by the Government clearly demonstrate the fact that all the investments hitherto made by the assessee-company in the equity share capital of its authorised subsidiaries were in fact made only for and on behalf of the Government of Kerala and not for its independent and voluntary investment purpose. As stated by the Managing Director of the assessee-company in his affidavit filed before us, the assessee-company had not earned any income from channelising Government funds to its subsidiary companies and the assessee-company was not in fact dealing with investment of shares and securities, as contemplated in section 2(5B) of the Interest-tax Act. In the circumstances, we are of the considered view that the assessee-company could not be held as an investment company vis-a-vis a Credit Institution under the Interest-tax Act, as rightly held by the Commissioner (Appeals). It is not proper for the Assessing Officer to hold that the assessee is an investment company only for the reason that the objects clauses stated in its memorandum of Association permit the assessee-company to carry on business as an investment company, if i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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