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TMI Blog2014 (9) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of calculating the chargeable interest under the Interest Tax Act – Held that:- CIT(A) has given a clear finding that notional interest can never be considered as part of chargeable interest - the notional interest brought to tax under Interest Tax Act has never been considered as part of interest accrued or arisen in the books of account, namely, profit and loss account and therefore, the question of adding notional interest was declined - The Tribunal has not gone into the issue at all – CIT(A) was correct in deleting the addition of notional interest - Revenue has not shown any provision whereby, notional interest can be included for the purpose of tax – Decided against revenue. - Tax Case (Appeal) Nos.1110 & 1111 of 2004 & Tax CMP No.1 of 2014 - - - Dated:- 10-9-2014 - R. Sudhakar And G. M. Akbar Ali,JJ. For the Appellant : Mr. T. Ravikumar Standing counsel for Income Tax JUDGMENT (Delivered by R. Sudhakar,J.) The above Tax Case (Appeals) filed by the Revenue as against the order of the Income Tax Appellate Tribunal for the assessment years 1993-94 and 1994-95 were admitted by this Court on the following substantial questions of law: 1. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arefully considered the arguments of the learned counsel and the reasons adduced by the AO for effecting the addition. Debentures are essentially in the nature of bonds issued by companies and in the instant case, it is essentially investment. Because firstly these debentures came to be allotted to the appellant on amalgamation of the company where share the appellant held. Secondly, these debentures were fully converted into shares of M/s.Herbertson Limited on a later date. Such debentures clearly falls outside the purview of loans and advances mentioned in the interest tax act. I have also gone through the decision of the Hon'ble High Court of Madras in the case of CIT v. Lakshmi Vilas Bank reported at 138 CTR 230 wherein the Hon'ble High Court has clearly held that debentures are distinctly different from loans and advances. Respectfully following the decision of the Hon'ble High Court, the issue is decided in favour of the appellant. The addition made on this count is deleted. 4. Insofar as the addition of notional interest is concerned, the assessee contended that the notional interest was an item which was never received or was receivable by the assessee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Aggrieved by the order of the Income Tax Appellate Tribunal, the Revenue has filed the present Tax case (Appeals) raising the substantial questions of law referred supra. 7. Though the respondent was not served, since the appeal is of the year 2004 and the issue was considered at length by the Supreme Court, we are proceeded to dispose of the appeal. Heard learned Standing Counsel appearing for the Revenue and perused the materials placed before this Court. 8. The first issue relates to the applicability of Interest Tax Act in respect of the interest earned on debentures. The Commissioner of Income Tax (Appeals) as well as the Tribunal relied upon the decision of this Court in the case of CIT v. Lakshmi Vilas Bank reported in (1997) 228 ITR 697. At the time of hearing, we find that subsequent decision rendered by the Supreme Court reported in (2010) 321 ITR 371 (SC) (Commissioner of Income-Tax V. Sahara India Savings and Investment Corporation Ltd.), dealt with the issue, wherein the issue under consideration is as follows: Whether interest which the assessee earned on bonds and debentures was chargeable to tax in view of the definition of the term interest in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, discount on promissory notes and bills of exchange but not to include interest referred to under section 42(1B) of the Reserve Bank of India Act, 1934, as well as discount on treasury bills . Sec-tion 2(7), therefore, defines what is interest in the first part and that first part confines interest only to loans and advances, including commitment charges, discount on promissory notes and bills of exchange. Pausing here, it is clear that the interest-tax is meant to be levied only on interest accru-ing on loans and advances but the Legislature, in its wisdom, has extended the meaning of the word interest to two other items, namely, commit-ment charges and discount on promissory notes and bills of exchange. In normal accounting sense, loans and advances , as a concept, are different from commitment charges and discounts and, keeping in mind the differ-ence between the three, the Legislature, in its wisdom, has specifically included in the definition under section 2(7) commitment charges as well as discounts. The fact remains that interest on loans and advances will not cover under section 2(7) interest on bonds and debentures bought by an assessee as and by way of investment . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. One of the ways by which the cost of borrowing can be reduced is to see that companies like the respondent herein are made to invest in bonds and securities so that the Government is able to borrow monies at a cheaper rate as compared to its borrowings in the market. It is precisely for this reason that the Reserve Bank of India, which is a regulator and which is responsible for the credit management of the economy and which is empowered to issue directions from time to time not only with the object of regulating the credit but also to control businesses like non-banking financial companies and residuary non-banking companies by issuing directions under Chapter III-B of the Reserve Bank of India Act, issues directions and one of such directions which has been issued in the present case is called the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 . These Directions have been issued under sections 45J and 45K of the Reserve Bank of India Act, 1934. 13. Therefore, the decision in the case of CIT v. Lakshmi Vilas Bank reported in (1997) 228 ITR 697, in effect, has been affirmed by the Supreme Court. Hence, following the above-said decision of the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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