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TMI Blog1996 (2) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... i and (3) Prime Invest. The different investors, under the terms and conditions of offer memoranda place the funds with the assessee, against which the assessee issues a certificate of investment, a specimen copy of the same has been annexed by the assessee in the paperbook. Thereafter the funds go to the accounts of the scheme, namely, Viswapriya Funds Management--A/C Bank Guaranteed Investments. This account will be operated by the fiduciary and custodian and/or their constituted attorneys. In the present case M/s. Fraser Ross, Chartered Accountants and M/s. Price Waterhouse Associates, Chartered Accountants are acting as fiduciary and custodian of the assessee-company. These custodians invest the amount of the investors in different schemes so that it may fetch highest amount of profit having considered the security aspect of the investors. According to the assessee, the funds are invested in such a way that a monthly return of not less than 1.5% can be paid to the investors. Apart from the aforesaid amount of return, i.e., 1.5% per month, the investors were entitled to the profit accumulated in each scheme. When the money of the investors are deposited in bank the fiduciary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer. It was held by the first appellate authority that the relationship of debtor and creditor was established between the company and the investors and further the company could not prove that the various schemes/funds had separate existence and they were managed by independent trustees without the intervention of the appellant company. Hence, it was held that the assessee-company is liable to deduct tax at source under section 194A. 4. Shri Ramamani, the learned counsel for the assessee, has submitted that the assessee-company rightly did not deduct tax under section 194A of the Act. It was submitted that the benefit which the investors were getting from the assessee-company cannot be termed as interest to attract the provisions of section 194A of the Act because there was no creditor and debtor relationship between the investors and the assessee-company. According to the learned counsel for the assessee 'interest' has been defined in section 2(28A) of the Income-tax Act, according to which the question of payment of interest will arise only in the case of borrowal of money or debt incurred. It was submitted that the assessee-company was receiving funds fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 19 (Delhi). 5. On the other hand, the learned departmental representative has submitted that the authorities below have rightly held that tax should have been deducted at source by the assessee-company under section 194A of the Act. It was submitted that the relationship between the investor and the assessee-company cannot be said to be principal and agent because the assessee-company is taking deposits and against the said deposits the assessee-company issues certificates of investment to the investors. The assessee-company by its memorandum of agreement guarantees a fixed return of 1.5% per month to the investors. The fiduciary and custodian is appointed by the assessee-company, who is the agent of the assessee-company. In the case of investment of the funds by the fiduciary the investors have no role to play, which is entirely left to the fiduciary, i.e., to the assessee-company. According to the learned departmental representative under the aforesaid circumstances when the assessee-company is paying some return to the investors it may be termed by the assessee in any way, but it is nothing but interest under section 2(28A) of the Income-tax Act. The relationship between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acility which has not been utilised. " From the aforesaid definition it is clear that the interest is payable not only in respect of moneys borrowed or debt incurred but the definition has been further extended by including a deposit, claim or other similar right or obligation and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised. From Sampath Iyengar's Law of Income-tax, Eighth Edition, page 440, the following comment is quoted below :-- " The definition in the clause widens the scope of the expression 'interest' for the purpose of the Act. It was inserted by the Finance Act, 1976 with effect from 1 June, 1976. It is intended to ensure that it includes (a) not only interest on debts, properly so-called, but also interest on any type of obligation and (b) not only interest described as such but also service fee or other charges made in connection with such obligations. The definition continues in the statute, although the Choksi Committee recommended its deletion on the ground it is an entirely artificial definition. " Under the aforesaid circumstances it cannot be ruled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation amount cannot be termed as interest within the meaning of section 2(28A). Hence tax cannot be deducted. The facts of the present case are quite distinguishable. 7. We have already held that the assessee should have deducted tax at the time of credit or payment of interest to its investors. We find that the assessee-company wanted to innovate a new scheme following the western countries. We find support for the same from the fact that in the offer memorandum the assessee has inserted clause XVI, wherein it has been provided that the funds received from the investors are proposed to be invested in areas where return is not subject to tax deduction at source. But in the event of TDS being applicable the same shall be deducted by the assessee-company. The aforesaid provision of the offer memorandum has been accepted by the investors of the assessee-company. Therefore in our opinion the conduct of the assessee cannot be said to be mala fide. The assessee has bona fidely believed that in terms of offer memorandum and the manner of investing and fund management assisted by qualified Chartered Accountant firms, it was only acting as agent of investors and as such there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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