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TMI Blog2002 (10) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ., K. RAVIRAJA PANDIAN. JUDGMENT The Judgment of the court was delivered by R. JAYASIMHA BABU J.-The question requiring our consideration in these references is as to whether the payment made by the assessee which is a company engaged in retail finance services, corporate advisory services, securities trading and assets securitisation to the persons who had invested in a scheme floated by the assessee under which the investor was guaranteed a minimum return of 1.5 per cent. a month, is "interest" as it is defined in section 2(28A) of the Income-tax Act, 1961. The assessment years are 1993-94 and 1994-95. That definition reads as under " 'interest' means interest payable in any manner in respect of any moneys borrowed or debt incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performance obligation; as to whether the Tribunal was right in holding that the applicant was liable to pay tax under section 201(1) of the Act, and last as to whether the Tribunal was right in holding that the applicant is liable to pay interest under section 201(1A) of the Act. Mr. Vaish, learned senior counsel submitted that the assessee, for the first time in the country, had brought to the retail investors the concept of securitisation of investments and by this innovative scheme it had enabled individual investors to entrust their funds for management by the assessee with a guarantee from the assessee that it would so manage the funds as to ensure a minimum return of 1.5 percent per month to the investor even while ensuring that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction of tax at source and, therefore, when the amounts were distributed among the investors, no tax was deducted at source as the returns on the investments made from the fund were received by the fiduciary and the custodian. Counsel also submitted that the opinion of counsel had been obtained before devising the scheme and deciding not to withhold any tax on the payments made to the investors who had invested the money in the fund organised by the assessee-company. Counsel submitted that there was no provision for obtaining advance rulings when the scheme was commenced, which could have been resorted to by the assessee to ascertain the precise extent of its liability for tax and its obligation with regard to the deduction of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , will be operated by the fiduciary of the scheme and/or the constituted attorneys. It further provides that the funds of the investor will be invested either singly or jointly with the funds of others, that the investment shall be redeemable within a maximum period of three years, that the named firm of chartered accountants will function as fiduciary and custodian who will be responsible for the safe custody of documents and for ensuring that the funds collected are deployed in accordance with the condition stipulated in the memorandum, ensuring that the bank guarantees are invoked in cases of default by the borrowers from the fund; that monthly payments are collected and distributed to the investors, the payment of management time of red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The memorandum also sets out that investments that are proposed to be made from the fund will be investments which do not attract the provision regarding tax deduction at source, that in case tax is deducted at source, the same would be deducted from the gross income earned by the investor. In this scheme, an invitation is extended to the prospective investor to entrust his or her moneys to the assessee with the assurance that the moneys would be returned to the assessee at the end of the period of three years when the certificate of investment issued by the assessee is to be redeemed by the assessee and that during the tenure of that scheme, the investor is to receive a return of 1.5 per cent. per month. The moneys entrusted under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even amounts payable in transactions where money has not been borrowed and debt has not been incurred are brought within the scope of the definition as in the case of a service fee paid in respect of a credit facility which has not been utilised. Even in cases where there is no relationship of debtor and creditor or borrower and lender, if payment is made in any manner in respect of any moneys received as deposits or on money claims or rights or obligations incurred in relation to money, such payment is by this statutory definition, regarded as interest. The scheme under which the assessee induced investors to entrust their moneys to the assessee, under the very terms of the scheme, imposed an obligation on the assessee to repay the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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