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TMI Blog2008 (4) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... its return of income under the provisions of the Interest-tax Act, 1974 (hereinafter referred to as 'the Act' for brevity). The assessment in respect of the year 1996-97 was completed by order dt. 19th March, 1999. The chargeable interest declared was accepted. 3. However, the CIT, in exercise of power under s. 19 of the Act, proceeded to hold, after hearing the assessee, by an order dt. 17th Aug., 2000 that a sum of ₹ 2,09,40,087 additional interest collected by the assessee from its customers in respect of loans advanced, was also subject-matter of levy under the Act. It was further held that as per Sch. 11 of the printed accounts of the assessee for the year ended 31st March, 1996, a sum of ₹ 3,76,41,023 was shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollected additional interest by invoking s. 26C of the Act. This additional amount can only be treated as chargeable interest. It is contended that s. 26C was incorporated into the Act only w.e.f. 1st Oct., 1991, in order to facilitate credit institutions to vary the terms of agreements, in respect of term loan transactions entered into before 1st Oct., 1991, so as to increase the rate of interest stipulated therein to the extent to which such institution is liable to pay interest-tax under the Act. The said section cannot be pressed into service in respect of transactions entered into after 1st Oct., 1991. 6. There is no provision under the Act which enables the assessee to collect any amount as interest-tax and as the amounts collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, at pp. 188-189 thereto. It is therefore, prayed that the appeals be allowed and the questions of law be answered in favour of the Revenue. 9. Per contra, Shri G. Sarangan, senior advocate, appearing for the respondents, contends that the decision of the Tribunal does not warrant interference and that appeals be dismissed. It is contended that a plain reading of s. 26C would indicate that was enacted only for a limited purpose of enabling institutions, such as the assessee, of passing on the burden of lax under the Act, to its borrowers. The counsel would submit that if for instance a sum of ₹ 100 lent was charged with a rate of interest of 10 per cent'the interest earned would come to ₹ 10. In terms of s. 26C t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78, but re-introduced in the year 1980. It was again withdrawn in the year 1985. It was re-introduced yet again in the year 1991, by virtue of Finance (No. 2) Act, 1991 (hereinafter referred to as 'the 1991 Act' for brevity). Sec. 26C was inserted w.e.f. 1st Oct., 1991, under the 1991 Act. The same is reproduced here for ready reference : 26C. Notwithstanding anything contained in any agreement under which any term loan has been sanctioned by the credit institution before the 1st day of October, 1991, it shall be lawful for the credit institution to vary the agreement so as to increase the rate of interest stipulated therein to the extent to which such institution is liable to pay the interest-tax under this Act in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts, though collected as additional interest was in fact towards payment of interest-tax, does compel us to hold that the amounts so collected were not interest within the meaning of s. 2(7) of the Act and hence could not be treated as chargeable interest for purposes of the Act. 15. The Tribunal has rightly held that the decision in the case of Bank of Madura (supra), would apply on all fours to the present case. The observation of the Supreme Court in the case of India Banks Association (supra), as to the scope of s. 26C is to the following effect : Sec. 26C of the Act : Parliament by reason of the said Act imposed a tax on the banks and other financial institutions. By reason of the said Act, the appellants were not statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, therefore, receive purposive construction so as to give effect to the purport and object it seeks to achieve [see BBC Enterprise Ltd. vs. Hi-Tech Xtravision Ltd. (1990) 2 All ER 118 (CA) at 122-3; Mohan Kuniar Singhania vs. Union of India AIR 1992 SC 1; Murlidhar Meghraj Loya vs. State of Maharashtra (1976) 3 SCC 684; Superintendent and Remembrancer of Legal Affairs to Government of West Bengal vs. Abani Maity (1979) 4 SCC 85; Khet Singh vs. Union of India (2002) 4 SCC 380; Indian Handicrafts Emporium vs. Union of India (2003) JT 7 SC 446; Ashok Leyland Ltd. vs. State of Tamil Nadu (2004) 3 SCC 1 : (2004) 2 RC 249 and High Court of Gujarat vs. Gujarat Kishan Mazdoor Panchayat (2003) JT 3 SC 50]. In the event, the contention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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