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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 ..... e promotion of industries in the State of Tamil Nadu. 2.2. The Assessing Officer, on facts, found that the assessee was claiming benefit under Section 36(1)(viii) of the Income Tax Act, which applies to financial corporations engaged in providing long-term finance for industrial or agricultural development. In such view of the matter, the Assessing Officer held that the assessee is a financial corporation advancing loans to other institutions for earning interest falling within the purview of Section 2(5B)(iv) of the Interest Tax Act and, therefore, it is liable to pay interest tax. 2.2. Aggrieved by the said decision, the assessee filed appeals to the Commissioner of Income Tax (Appeals), who also concurred with the view of the Assessing Officer. The Commissioner of Income Tax (Appeals), after going through the nature of the transactions in details, came to the conclusion that the business conducted by the assessee would come within the ambit of any other financial company and, thus, it is a credit institution under Section 2(5A)(iv) of the Interest Tax Act and therefore, they are liable to pay tax on the interest as per the provisions of the Interest Tax Act. 2.3. Assail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 42(1B) of the Reserve Bank of India Act and discount on treasury bills will not form part of the chargeable interest. Interest earned by a credit institution on loans and advances made to another credit institution will also not form part of the chargeable interest. The rate of tax is three per cent of the gross amount of interest received by the credit institution two percent on chargeable interest accruing or arising after March 31, 1997. Interest-tax levied under the Interest-tax Act is allowed as a deduction in computing the income of the credit institution chargeable to income-tax under the head 'Profits and gains of business or profession'." (emphasis supplied) 6. Section 4 of the Interest Tax Act provides for charge of tax and the same reads as under: "Section 4. Charge of tax: (1) Subject to the provisions of this Act, there shall be charged on every scheduled bank for every assessment year commencing on or after the 1st day of April, 1975, a tax (in this Act referred to as interest-tax) in respect of its chargeable interest of the previous year at the rate of seven per cent. of such chargeable interest: Provided that the rate at which interest-tax shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 sub-clause (i), (ii), (iii), (iv) or (v)], that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or (vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses. (emphasis supplied) 8. In the light of the said provisions, we perused the Memorandum and Articles of Association of the assessee company and it will be apposite to refer to the following clauses contained in the Memorandum of Association of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 10,83,94,730 21,55,39,560/27,51,42,066 1996-97 12,40,16,121 11,71,81,860 24,11,97,981/26,23,79,557 1997-98 14,36,37,718 12,19,15,341 26,55,53,059/26,88,99,088 Asst. Year Loans & Advances Investments Total Asset 1993-94 87,08,33,791 1,55,10,33,433 2,46,73,41,865 1994-95 1,28,51,11,533 1,71,08,83,878 3,05,06,28,777 1995-96 75,54,13,844 1,80,34,80,884 2,73,46,01,667 1996-97 82,89,69,075 1,96,09,25,552 2,89,83,09,712 1997-98 1,14,18,37,651 1,87,78,57,985 3,13,99,82,520 10. On going through the Table above, it would be clear that the dominant receipt is from Interest on Loans and Advances in all the assessment years except in the asst. year 1995-96 wherein the interest income and the dividend income are almost the same. However the figures in the Balance Sheet are compared in respect of assets represented by Loans and Advances and investments. It would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of Section 2(5A)(iv) of the Interest Tax Act. 12. The above said reasoning of the Commissioner of Income Tax (Appeals) that the assessee company would come within the purview of financial company in terms of Section 2(5A)(iv) of the Interest Tax Act, which is more fully defined under Section 2(5B) of the Interest Tax Act, is justified. We find that the Tribunal has misdirected itself to conclude that the primary intention of the assessee company is to promote development of industries and not financial company. A bare reading of the Memorandum and Articles of Association of the assessee company, in no uncertain terms, makes it clear that one among the primary objects of the assessee company is to grant loans or advances to any company. In such view of the matter, the reasoning given by the Tribunal on an interpretation of the term financial company does not appear to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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