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TMI Blog2002 (8) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... lidated order. 2. The grounds raised in interest tax appeal No. 2/Del/98 read as under:-- "1. That the order is against law and facts of the case. 2. That the learned CIT (Appeals) has erroneously ignored the definition of interest chargeable to tax as given in section 2(7) of the Interest Tax Act. 3. That the definition of "interest" under section 2(7) of the Interest Tax Act restricts the scope of chargeable interest to interest on loans and advances. It is prayed that interest on debentures, bonds and securities does not per se amount to interest on loans and advances and therefore interest amounting to Rs. 927,16,43,213 being interest on securities, bonds and debentures be directed to be excluded from the chargeable interest. 4. That the learned CIT (Appeals) was not justified in upholding the inclusion of Rs. 19,17,224 received towards "Export Subsidy" as interest chargeable to Interest Tax. It is prayed that the same be excluded not being interest per se." 3. Ground No. 1 in the above appeal is general in nature and requires no adjudication. 4. The relevant facts pertaining to ground Nos. 2 & 3 raised in appeal No. 2/Del/98 are that the assessee filed its return declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o considered the fact that CIT(A)-17 in assessee's own case for 199394 assessment year had confirmed the entire addition on identical facts. 7. Aggrieved by this, the assessee came in appeal before the first appellate authority. 8. It was contended that from the definition given of interest under section 2(7) of Interest Tax Act, it could be concluded that only interest on loans and advances inIndiacould be charged to interest tax. Interest on securities, debentures and bonds cannot be classified as interest on loans inasmuch as these are not loan per se. 9. It was further contended on behalf of the assessee that since the Act particularly and clearly lays down that interest chargeable to interest tax would be only and only interest on loans and advances made in India and by no stretch of imagination, interest on debentures, bonds and securities could be treated or classified as interest on loans and advances and subjected to interest tax. 10. Reliance was also placed upon the definition of interest on securities and debentures as a separate category of income under section 2(28b) of the I.T. Act. 11. Apart from that, reliance was also placed upon the observation of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in carrying on the business of banking) accruing or arising to the credit institution in that previous year." 20. On the plain reading of the above section, the CIT(A) concluded that the chargeable interest of any previous year of a credit institution shall be the payable amount of interest accruing or arising to the credit institution in that previous year and the only exception is the charging of interest on bad and doubtful debts in the year of its actual receipt as envisaged in the case of financial institution under section 43D of the IT. Act. 21. He further considered that section 6 of the Interest Tax Act which provides the method of computation of chargeable interest stipulates that the only deduction in computing the chargeable interest of the previous year shall be the amount of interest which is established to have become a bad debt during the previous year which has been further clarified by the Explanation below the proviso to sub-section (1) of section 6 of the Interest Tax Act which too was reproduced by him and which reads as under:-- "Explanation for the removal of doubts, it is hereby declared that in computing the chargeable interest of a previous year, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities for the purpose of charging the same under the Interest Tax Act. 27. The order of the Bangalore Bench of the Tribunal in the case of Canara Bank Ltd.--Interest Tax Appeal No. 5678 (Bang.) of 1997 of 16-9-1997 was also relied upon. Our specific attention was invited to the copy of the above order which was placed in the paperbook placed before us. It was vehemently contended that the debentures are not loans and advances but are investments. This contention was supported by the learned AR by the fact that the non-inclusion of interest on securities in the present Act was due to the fact that the head of income on interest on securities under the I.T. Act, 1961 in section 18 to 21 was omitted by the Finance Act 1988 w.e.f. 1-4-1989. Thus, it was contended that it would be redundant to exclude the said interest on securities under the definition of 'interest' under section 2(7) of the present Act. 28. Heavy reliance was placed by the learned AR on the speech of the Hon'ble Finance Minister in 1991 wherein the intention of the Parliament can be gauged and understood that it was to enlarge the coverage of this tax. It was further contended that this enlargement of the covera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ganesan that the subsequent notification by the Government of India by which the interest on securities under section 2(7) of the Act had been exempted clearly showed that the Parliament never intended to tax interest on securities. It was further contended that this view is fully supported by the decision of the Madras High Court in the case of Lakshmi Vilas Bank Ltd. and the earlier decision of the same High Court in the case of CIT v. Nachimuthu Industrial Association [1982] 138 ITR 5851 wherein it was held that debentures is to acquire the same species of property which would bring an income to the investor and, therefore, interest on debentures do not fall within the ambit of section 2(7) of the Interest Tax Act. Reliance was also placed upon the decision of the Bangalore Bench of the Tribunal in the case of Canara Bank Ltd. in which decision it was contended that all the possible arguments which the Revenue could advance have been duly considered and met and the interest on securities was held to be not coming within the purview of Interest Tax Act. 33. Regarding the contrary decision in the case of State Bank of Hyderabad v. Dy. CIT [1998] 66 ITD 464 of the Hyderabad Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest earned on government securities/debentures falls within the charging provisions or not. Relying upon the decision of the Apex Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345, wherein the observations were cited for approval that the only rule of construction of a taxing statute which could be applied is as laid by Justice Rowlat in J. Cape Brandy Syndicate v. IR [1921] 1 KB 64: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be assumed, nothing is to be implied. One can only look fairly at the language used." 38. It was further submitted by the learned special counsel for the Revenue that theApex Courtin Smt. Tarulata Shyam s case further observed that "there is no scope for importing into the Statute words which are not there. Such importation would be not to construe, but to amend, the statute. Even if there be a casus omissus the defect can be remedied only by legislation and not by judicial interpretation." 39. Hence, the submission was that once it is shown that in the present case the assessee comes within the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest earned on the Securities/Debentures earned by the holders thereof constitute "loans and advances" within the meaning of section 2(7) of the Interest Act as it governs the years under the appeals. For this purpose, it was submitted what is first necessary and important are the provisions of the Security Contracts (Regulation) Act and Public Debts Act 1944 and the Companies Act 1956 which provide for Government borrowings by issuing securities and other market loans and those by companies by way of debentures. 45. It was further submitted that in some of the decisions pronounced by the Hon'ble Tribunal relating to the same issue they have swiftly drifted from close examination of the definitions contained in the said Acts and instead relied upon the rule of interpretation of "Means and includes" as explained by the Supreme Court in different context and facts thereby ruling out the inclusion of Government securities and debentures and loans and advances from section 2(7) of the Interest Act. It was vehemently contended that there is no dispute about the true construction of the said expression whatever it may be as enunciated by the Supreme Court but it was argued it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan segment but left out other segments such as securities and debentures. It was contended that the undue emphasis laid on presentation of certain loans and advances in the balance sheet of the bank is misconceived, as it has totally ignored the presentation of the securities in the Budgetary papers where they are clearly shown as market loans. 46. The contention was also put forth that an essential distinction between a loan and investment is that whereas loan is always taken as money obtained in hand and payable back as money in hand an investment is not repayable back in terms of money alone, money loan is to be realised as money but money invested may be realised in various forms. 47. With regard to the submissions made by Mr. Ganesan on behalf of the assessee bank whereby the assessee is trying to raise a doubt on the issue whether interest on securities falls within the meaning of interest as interest on loans and advances made in India, our attention was invited by Mr. Sharma to the definition of Government securities as defined in section 2(b) of the Security Contract (Regulations) Act and Public Debt Act 1944. On the basis of which, it was contended that the matter can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand the payments and the substance of a debt is a liability upon the debenture to repay the money. In other words, whereas in the hands of the creditor, it may be described as a loan to theCo.in the hands of theCo.its liability owed by the debtor to repay the loan" 50. Regarding the reliance placed upon by the learned AR on the case of Laxmi Vilas Bank and of the Bangalore Bench of the Tribunal for the proposition that government securities are in the nature of investment and not loans advanced by the holder of the debenture or the owner of the government securities. It was contended on behalf of the Revenue that investment is only placement of one's capital with another person generally with a view to earn income on it although it may not always be so. Investment, on the other hand, is an expression of a very wide import whereas loan is a word of narrower concept. It was further contended that every investment need not be a loan but every loan is an investment. Thus, both of them would appear on the asset side of the balance sheet but the description in the balance sheet would not determine their intrinsic character. 51. Regarding the arguments on behalf of the assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Mumbai Bench on the order in the case of Life Insurance Corporation of India. 53. Vide the written submissions filed on behalf of the Revenue, it was further submitted that the Bombay Bench of the Tribunal had no occasion to consider the effect of notification of the CBDT (SO II 2557 dated 11-9-1995) read with amendments made to the Interest Act w.e.f. 1-10-1991, the applicability thereof from the assessment years 1992-93 to 1995-96. As such, the decision in the present case should be based on the peculiar facts of the case itself. 54. Regarding the decision of the Madras High Court in the case of Lakshmi Vilas Bank Ltd., it was contended by the learned counsel that it was rendered in the context of Interest Tax Act as it stood on the Statute for 1975-76. As such, it was not relevant in the relevant assessment year where the Act had been amended. 55. It was further contended that at that time, charging section 4 of the Interest Tax Act did not cover "credit institutions" which came on the Statute Book w.e.f.1-10-1991. The meaning assigned to "Loans and Advances" have to be harmonized in the case of the banks as well as the credit institutions, and the matter cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his books was not decisive of its taxability. Yet, the High Court took the view that since debentures were required to be shown as investments in the Bank Balance sheets, they could not be classified as loan. It was further submitted that one of the reasons for the Madras High Court to approve the decision of the Tribunal was that in that case, debentures also constituted securities which were then expressly excluded from the definition. It was further contended that at the relevant point of time, section 18 of the I.T. Act was also relied upon and the fact cannot be ignored that the relevant assessment years in that case was 1975-76 also was different. 60. Heavy reliance was placed on the fact that the post history of the notification dated 11-9-1995 which has been reproduced in 217 ITR 5 which has been issued by the Central Government expressly exempts interest on securities w.e.f. the financial year 1995-96 i.e. 1996-97 assessment year from charge of interest tax. It was vehemently contended that there is no question of issuing a lawful notification within the powers conferred upon the Central Government under section 28 of the Act, if otherwise interest on securities was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appeals to it. The said submission was rejected on the Bench itself on the ground that the issue is a one time issue pertaining to the three assessment years and, as such, can be decided by the Bench itself and, accordingly, no purpose would be served by referring the matter to the Special Bench. 65. At this juncture, it is appropriate to reiterate that though at the time of hearing, the order of the Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank was not referred to by the ld. AR on behalf of the assessee but in the written submissions filed with the consent of the Bench, the same has also been relied upon on behalf of the assessee and a copy of the said order has been appended in our paper book. Perusing the written submissions on behalf of the Revenue, it is seen that specific reference to the Mumbai Bench in the case of Life Insurance Corpn. of India has been made on behalf of the Revenue and it has been canvassed that the said decision has no relevance as it is in the context of the LIC Act and has no relevance to the Banks. 66. It may be pertinent to state that the Delhi Bench in the case of ANZ Grindlays has relied upon the order of Mumbai Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also considered appropriate to reproduce the definition of "interest" under section 2(7) as it stands for interpretation before us:-- "'interest' means interest on loans and advances made inIndiaand includes-- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of inIndia; and (b) discount on promissory notes and bills of exchange drawn or made inIndia, but does not include-- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills". 70. The speech of the Hon'ble Finance Minister while introducing the Interest Tax Act, 1991 at the floor of the House is as under:-- "In view of the binding fiscal constraints and the need to mobilise resources, I propose to revive the Interest-tax which was first introduced in 1974 and withdrawn in 1978, re-introduced in a modified form in 1980 and finally withdrawn in 1985. I am enlarging slightly, the coverage of this tax. The new tax will be levied on the gross amount of interest received by all banks, financial institutions and non-banking financial companies in the corporate sector or loans and advances made inIn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctioned for being availed of inIndia. (b) Discount on promissory notes and bills of exchange drawn or made inIndia; But does not include: (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934). (ii) Discount on treasury bills'. In terms of the above definition it is only the interest on loans and advances made inIndiawhich could be charged to Interest Tax. Interest on securities, bonds and debentures could not be classified as "interest on loans and advances". Investments in securities, bonds and debentures are different from loans and advances. The distinction between the two have been elaborately and appropriately discussed by the ITAT Bombay Bench, Bombay in its order dated 20-3-2001 in the case of LIC of India, Bombay vide Interest Tax Appeal No.9 /Bom/96 etc. Although, admittedly securities, bonds and debentures are forms of raising loans for the borrower but for the credit institution or that matter any other subscriber/purchaser, they are investments. These investments are different and separate from giving loans and advances. Further the Ld. Counsel rightly pointed out that the words 'means' included and lastly 'bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. 14. The Ld. Counsel for the assessee again rightly pointed out that from the provision of the Act, Finance Minister's speech and the RBI Circular to the scheduled bank for passing on the incidence of the Interest Tax pro rata to the borrower, it was clear that the incidence of the Interest Tax was not to be borne by the bank. As in the case of securities, bonds and debentures there is no scope for passing on the incidence of the Interest Tax to the borrower, the burden of the Interest Tax on interest from securities, bonds and debentures if imposed would fall on the bank. The rates of interest on security bonds, debentures cannot be modified to cover the incidence of Interest Tax. Thus the provisions of the Act, the Finance Minister's speech and the RBI's Circular would stand circumvented and violated and there would be discrimination effect if Interest Tax were imposed on interest on securities, bonds and debentures. No materials were brought on record to show that assessee had passed on incidence of interest tax where investments were made in securities, bonds and debentures etc. on their private placements by borrowers or otherwise. 15. The ld. counsel for the assessee ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of the Hyderabad Bench of the Tribunal in the case of State Bank ofHyderabad. The Hyderabad Bench of the Tribunal held that the amount has to be included in view of the amended definition of the interest on securities in the definition under section 2(7) of the Act as follows: "When the Act was introduced in Parliament, the intention was that interest on government securities as also debentures and other securities issued by local authorities, companies and statutory corporations would not be included in the tax base. Thus, any amount chargeable to income tax, under the Income-tax Act, under the head 'interest on securities' was specifically excluded for the purposes of the term 'interest' as defined in section 2(7). However, with effect from 1-10-1991, section 2(7) has been substituted and, therefore, the provision as contained in the original secti9n cannot come to the rescue of the assessee, nor can be Statement of Objects and Reasons, as given at the time of introduction of the bill, be of any assistance in the matter. The fact that the exclusionary clause has been deleted with effect from1-10-1991is a sufficient indication that interest as securities has now been includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ambiguity, the view of the majority of decisions of different Benches of the Tribunal is followed. 79. Even assuming that the interest under the Interest Tax Act, 1974, includes interest on securities and debentures etc., it is seen that the government by Notification dated11 September, 1995exempted the banking companies from the levy of interest tax in respect of their income from interest on securities w.e.f. the financial year 1995-96. The Notification has been issued in public interest. Firstly, the Parliament exempted interest on securities etc. from the levy of Interest Tax Act on the ground that the incidence of tax would not be passed on to the customers. In that view of the matter, if the interest on securities is subject to tax under the Income-tax Act, 1961 under the head "interest on securities" then the same has to be excluded from interest chargeable to tax under the Interest Tax Act, 1974. With the omission of sections 18 and 19 of the Income-tax Act which deal with the assessment of interest on securities under the Income-tax Act, consequent omission was made in the definition of interest under section 2(7) of the Interest Tax Act without considering the uninte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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