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TMI Blog2014 (9) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... l company - the facts culled out by the CIT(A) and the claim made by the assessee u/s 36(1)(viii) of the Act make it clear that the character of the assessee company is also a financial company , as defined u/s 2(5B) of the Interest Tax Act - the nature of business conducted by the assessee and the transaction of finance, for which interest has been received for all the assessment years running to several crores of rupees, establishes that the assessee is also engaged in the business of financial company - the interest earned by the assessee company is liable to tax under the provisions of the Interest Tax Act - the assessee is a credit institution falling within the definition of financial company u/s 2(5B) of the Interest Tax Act – Decided in favour of revenue. - T. C. (A). Nos.1401 to 1405 of 2007 - - - Dated:- 27-8-2014 - R. Sudhakar And G. M. Akbar Ali,JJ. For the Appellant : Mrs. Hema Muralikrishnan For the Respondent : Mr. C. V. Rajan for M/s. Subbaraya Aiyar JUDGMENT (Delivered by R. Sudhakar, J.) These appeals are filed by the Revenue challenging the order of the Income Tax Appellate Tribunal Chennai 'B' Bench, dated 4.9.2006 made in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, the Tribunal was right in holding that the assessee does not fall within the definition in either Section 2(5A) or 2(5B) of the Interest Tax Act? 2. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee is not liable to interest tax as its main object is promotion of industry within the state, even though such promotion is done by means of advancing loans? 3. We have heard the learned counsel on either side and perused the orders passed by the Tribunal and the authorities below. 4. As the issues raised in these appeals are entwined, we deal with them together. 5. For the purpose of considering the issues raised in these appeals, it will be useful to refer to the scope and ambit of the the Interest Tax Act, which reads as under: The tax is levied on the gross interest income of 'credit institutions', that is, banks, including co-operative societies engaged in the business of banking (except co-operative societies which provide credit facilities to farmers or village artisans), public financial institutions, state financial corporations and financial companies. For this purpose, financial companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution used in Section 4(2) of the Interest Tax Act is defined under Section 2(5A) of the Interest Tax Act and the term finance company is defined under Section 2(5B) of the Interest Tax Act. The said provisions read as under: Section 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); (ii) a public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956); (iii) a State Financial Corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); and (iv) any other financial company. Section 2(5B) 'financial company' means a company, other than a company referred to in sub-clause (i), (ii) or (iii) of clause (5A), being-- (i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions; (ii) an investment company, that is to say, a company which carries on, as its princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , shares bonds, debentures by any company, association or concern engaged or proposing to engage in any industry. (19) To retain as part of its assets any stock, shares, bonds or debentures which it may have to take up in fulfillment of its underwriting liabilities. (20) To take, subscribe, hold shares, debentures, securities in any company, association or concern engaged or proposing to engage in any industry. (emphasis supplied) 9. On leafing through the Memorandum and Articles of Association of the assessee company, we find that though principally the assessee company is embarked in the promotion of industries in the State of Tamil Nadu, it assists and finances any industrial undertaking, project or enterprise; and also grants or guarantees loans or advances to any company, association or concern engaged in any industry. 10. The said objects of the assessee company have been considered by the Original Authority as well as the Appellate Authority threadbare. We are inclined to refer to paragraphs (9) and (10) of the order passed by the Commissioner of Income Tax (Appeals), as the figures referred to therein are self-explanatory in respect of the issue under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen that the majority of the fund of the appellant lies as investments. As explained earlier, the fund deployed in investments represents such shares which the appellant had acquired in the companies promoted by it. Similarly, the fund shown as Loans and Advances is such amount which remained lent to such companies promoted by the appellant whose shares have not been acquired so far. The dividend income is from the shares of the companies promoted. Similarly, the interest income is derived from the Loans and Advances made to the company promoted. Since both the investments and the loans and advances are made in course of its business of promotion and development of industries in the State of Tamilnadu, the dividend income and also the interest income are claimed as business receipts by the appellant and also, held so by the appellate authorities including the Hon'ble ITAT. The shares acquired by the appellant are thus business assets and profit on sale of such shares is, therefore, admitted as business income and credited to P L A/c. of respective years as and when sold. 11. On such premise, the Commissioner of Income Tax (Appeals) came to the conclusion that for almos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be correct. Moreover, the facts culled out by the Commissioner of Income Tax (Appeals) and the claim made by the assessee under Section 36(1)(viii) of the Income Tax Act make it clear that the character of the assessee company is also a financial company , as defined under Section 2(5B) of the Interest Tax Act. 13. The learned counsel for the assessee relied upon a decision of the Supreme Court in Commissioner of Wealth-tax v. Ellis Bridge Gymkhana and Others, [1998] 229 ITR 1, wherein it is held that the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section and no one can be taxed by implication. There is no dispute with regard to the said legal proposition. In the case on hand, the nature of business conducted by the assessee and the transaction of finance, for which interest has been received for all the assessment years running to several crores of rupees, establishes that the assessee is also engaged in the business of financial company. Therefore, the interest earned by the assessee company is liable to tax under the provisions of the Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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