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TMI Blog2015 (7) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Tribunal was right in holding that interest tax is not leviable on interest on bonds and debentures? (II) Whether in view of clear instruction No.1923 dated 14.3.1995 of the CBDT and the provisions of section 2(7) which removed the specific exclusion clause in the definition of chargeable interest, interest on bonds and debenture should be included as chargeable interest under the Interest Tax Act?" Although the revenue has proposed two questions, there is only one question which is the question no.1. Question no.2 indicates the reason why according to the revenue interest earned from bonds and debentures should be open to taxation under the Interest Tax Act. The learned Tribunal, in deciding the matter, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy is expected to have a monetary impact. It is only by making credit costlier, its flow in the market can be restricted and have the desired monetary impact. A similar impact cannot be achieved by taxing interest on securities. Further, the physical impact sought to be achieved by the levy is by way of collection of interest tax revenues. On the other hand, however, interest on government securities is to be taxed, it will have an adverse impact on the fiscal aspect. This is because the credit institution cannot vary the rate of interest on securities and hence the tax burden will fall on the credit institution itself. This will make investment in government securities an unattractive proposition and adversely affect the government's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removed the aforesaid exclusion. Therefore, it follows that merely because interest earned from debentures or bonds is chargeable to tax under the Income Tax Act, it cannot be said that such interest is immune from the applicability of Interest Tax Act, 1974. She, in support of her submission, relied upon a departmental instruction being Instruction No.1919, dated 14th March, 1995, which reads as follows: "Interest-tax Act, 1974, was last revived with effect from 1-10-1991. Some credit institutions have sought clarification as to whether interest received on debentures etc. is subject to interest tax under the present provisions of the Act. Such interest was not subject to interest-tax under the earlier version of the Act. 2. The latest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is as follows: "(7) "interest" means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills;" From a plain reading of definition, it is clear that an investment made by an assessee either in bonds or in debentures was not contemplated. What has been contemplated is loans and advances. The investment made in bonds and debentures can by no stretch of imagination be considered to be eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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