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TMI Blog2011 (7) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery, there exists a distinct feature from all those transactions of financing on hire purchase and leasing that an exception has to be made in respect of the amount advanced by the assessee for the purpose of purchase of machinery - On the delay in delivery, the manufacturer had paid interest - As already pointed out, going by the fact - a fact which is not disputed by the Revenue, that the amount given by the assessee was towards the purchase of machinery as advance, held that the case of the assessee does not fall for consideration under sub-clause (iv) of Section 5(B) - Therefore no hesitation in holding that the Interest Tax Act does not stand attracted to the facts of the case. On the admitted facts, the assessee had financed for the purpose of purchase of machinery - Decided against the assessee. - 524 of 2004 - - - Dated:- 6-7-2011 - MRS.JUSTICE CHITRA VENKATARAMAN, MR.JUSTICE M.JAICHANDREN, JJ. For respondent : Mr.R.Vijayaraghavan JUDGMENT CHITRA VENKATARAMAN, J. The Revenue is on appeal against the order of the Income Tax Appellate Tribunal Madras 'C' Bench, dated 19.01.2004 in Int.Tax Appeal No.9/Mds/97, raising the following substantial ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention of the assessee or the recipient to treat it as a loan. Thus the advance could not be treated as loan to attract the provisions of the Interest Tax Act. 5. The said contention of the assessee was however rejected by the Assessing Officer, who held that the interest earned on the advances/loans lent to parties for entering into hire purchase and lease were liable to be assessed under the Interest Tax Act. On appeal before the Commissioner of Income Tax (Appeals), the Appellate Authority reaffirmed the view of the Assessing Officer holding that interest as defined under the Interest Tax Act mean "interest on loans and advances" and it included trade advances. Thus holding, the Commissioner of Income Tax (Appeals) rejected the appeal. Aggrieved by the same, the assessee appealed to the Income Tax Appellate Tribunal. 6. The assessee contended before the Income Tax Appellate Tribunal that the interest received related to the advances made for the purchase of goods and was never treated as a loan. The assessee pointed out that the object of advancing money to the manufacturer was for purchase of goods and the same was not a loan. There was never an intention to recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was adjusted in the cost of the machinery payable by the assessee. He pointed out that the assessee claimed depreciation on the machinery purchased, which was later on given under hire purchase agreement to the customer. Thus even though the assessee is a credit institution, going by the nature of the transaction, the advance made not being by way of loan to be repaid by the recipient, the interest on the trade advance does not partake the character of interest on loan. Consequently, no exception could be taken to the decision of the Tribunal. 10. Heard learned counsel and perused the records. 11. In the decision reported in [2000] 244 ITR 266 (A.M.Shamsudeen Vs. Union of India and others), this Court had an occasion to consider the distinction between "loan" and "deposit". Although this was in the context of Section 269SS and Section 269T of the Income Tax Act, 1961, yet, the elucidation therein is of relevance to the facts of the case. The facts therein were that the assessee repaid two loans in cash. For the violation of Section 269T, the Deputy Commissioner levied penalty under Section 271E. On the question as to whether Section 269T would apply to a case of repayment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of such transactions; (ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith; (iv) a loan company, that is to say, a company not being a company referred to in sub-clauses (i) to (iii) which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise; (v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; (va) a residuary non-banking company other than a financial company referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gories alone would make the company a financial company. 15. As far as the present case is concerned, the question herein is not as to whether financing was the principal business or not. The assessee does not deny as a matter of fact that it is a credit company. Being engaged in the business of hire purchase and financing, the assessee does not dispute that the principal business does fall under the enumerated clause under Sub clause (4). However, the question raised by the assessee is that the trade advance made by the assessee company for the purchase of machinery, however, does not fit in with loans, advances or otherwise as given under sub clause (4) of Section 2(5B). 16. The question whether "advance" or "otherwise" would include trade advance, hence, need to be seen in the context of the setting of these phrases. In the decision reported in [2009] 318 ITR 462 (Commissioner of Income Tax Vs. Shri Raj Kumar), the Delhi High Court considered the question as to whether trade advance would also amount to deemed dividend under Section 2(22)(e) of the Income Tax Act. Listing the object behind treating the "loans and advances" given to the shareholders of a closely held comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct from loans and advances. What is taxable under the Interest Tax Act is interest on loan and advance only and the character of an overdue bill is not synonymous with loans and advances. We do not think there could be any second thought on this line of thinking. We respectfully agree with the views expressed by the Delhi High Court and Kerala High Court. 19. Going by the facts, we hold that the assessee's case does not fall for consideration under sub-clause (iv) of Section 2(5B). The assessee is a credit institution. As a finance company engaged in hire purchase and leasing transaction, the assessee also does not deny that its activities in respect of financing, falls for consideration under sub clause (iv). The Assessing Officer has assessed the transactions relating to hire purchase financing. However, as rightly pointed out by the assessee, when the payment of money as advance was towards the purchase of machinery, there exists a distinct feature from all those transactions of financing on hire purchase and leasing that an exception has to be made in respect of the amount advanced by the assessee for the purpose of purchase of machinery. On the delay in delivery, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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