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TMI Blog2012 (11) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... antial question of law: Whether the Tribunal was correct in holding that the assessee is not a credit institution as per Sections 2(5A) and 2(5B) of the Interest Tax Act as the main business activity of the assessee relates to income from leasing, merchant banking, brokerage, interest on security profit on sale of security, interest on investment, dividends on investments profit on sale of investment and interest on loans etc.? 3. Assessee is a Company registered under the Companies Act and even as its name suggests, it is a Company providing financial services under the caption Canbank Financial Services Limited". For the period relevant for the assessment year 1998-1999 the assessee had filed a return of tax under the provisions of the Act to claim its total chargeable interest as nil on the ground that it is not a 'credit institution within the meaning of expression as it occurs under section 2(5A) of the Act. 4. The Assessing Officer, who had occasion to look into the return was of the opinion that the taxable interest and the tax thereon is required to be computed as under: "6. Other interest assessee letter dated 11.10.2000 amounts to Rs. 78.09,904, which consists of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter and therefore, the order passed by the Tribunal is not sustainable. 9. Mr. Kamaladhar also submits that the assessee having styled itself as a "financial services limited" and even in terms of its memorandum of association having shown its main object to be one of equipment leasing and even the second main object being one of carrying on business of merchant banking and all its activities being either in the nature of leasing activity or merchant banking activity and earning from these activities being part of the business income of the assessee, and earning dividend income by way of investments in securities and by way of interest on loan provided to its customers through all such activities, which come within the scope of one or the other activities as indicated in Section 2(5B) of the Act and therefore, the Tribunal has erred in opining that the provisions of the Act are not applicable to the assessee. 10. It is also submitted that from the material made available by the assessee, it could be Inferred that it is a loan institution coming within the scope of Section 2(5B) of the Act and the opinion expressed by the Tribunal to the effect that the assessee-company does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(5A)(i) of the Act and therefore, the view taken by the Tribunal to exclude assessee-company from the scope of the applicability of the Act for other reasons is neither valid nor justifiable. 15. On the other hand the submission of Sri Suryanarayana, learned counsel for the respondent assessee is that the scope of charge and the person on whom, the charge is to be fastened, is delineated within the provisions of Sections 4 and 5 read with Section 2(5A) and 2(5B) of the Act, that the assessee - company is not one which fits into either the definition of a 'Credit institution' within the meaning of Section 2(5A) of the Act or a 'Financial Company' within the meaning of Section 2(5B), of the Act and therefore, submits that there is no liability at all on the assessee - company for levy of tax under the provisions of the Act. 16. With reference to the provisions of Section 2(5A) and 2(5B) reading as under: "2(5A) "credit institution" means,- (i) a banking company to which the Banking Regulation Act. 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act) 2[***]; (ii) a public financial institution a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any within the meaning of Section 2(5A)(i) of the Act; that though a subsidiary Company of M/s. Canara Bank, by itself, it is not a banking company. Section 2(5A)(i) of the Act does not apply as this provision of law applies only to a subsidiary bank and not to all subsidiaries of a banking institution. It is consequently urged that even assuming for argument sake that a leasing transaction can be taken within the scope of loan transaction, but not conceding the point, as the view taken by the Delhi High Court has been reversed by the Supreme Court in the case of Motor & General Finance Ltd. v. CIT [2011] 334 ITR 33/200 Taxman 10/12 taxmann.com 23 and the Supreme Court having set aside the judgment rendered by Delhi High Court and the matter having gone back to the High Court and in turn, to the lower forum, the High Court and in turn, to the lower forum, the matter is not conclusive one way or the other to hold that a Company carrying on leasing activity is also in the nature of a loan Company and in addition, submits that assuming that it is so, even as per the finding of the Assessing Authority, leasing activity of the assessee constitutes only about 29 per cent of the total bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be a lease transaction can also be brought within the scope of a loan transaction, it becomes a loan Company only if such activity is the principal business activity of the assessee and not otherwise. 21. In the instant case, it is not in dispute that even as per the revenue, leasing transactions of the assessee constitutes only 29 per cent of the business activity of the assessee - company. 22. Therefore, the assessee company cannot passibly be brought within the scope of section 2(5B) clause(iv) of the Act. While the Learned Counsel for the revenue has urged that it can be brought within the scope of section 2(5B)(vi). We find it rather difficult to bring the assessee - company within the scope of this provision also, and as pointed out by Mr. Suryanarayana, even a Miscellaneous Finance Company should have its exclusive or almost exclusive activity in two or more kinds of business referred to in clauses (i), (ii), (iii), (iv), (v) and (va) or (vi) of Section 2(5B) of the Act and even a subsidiary non-banking Company can also be brought within the scope of a Finance Company and it is only subject to fulfilment of the conditions. 23. On facts as revealed from the record, we ..... 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