9911796707
TMI Blog2001 (4) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... acts : On September 23, 1974, Parliament enacted the Interest-tax Act, 1974. At that time, it applied to scheduled banks, the IDBI, the IFCI, the ICICI and the Industrial Reconstruction Bank. Up to October 1, 1991, the Interest-tax Act, 1974, did not cover the UTI and the LIC. On July 24, 1991, the Finance (No. 2) Bill was introduced in Parliament. Under the said Bill, section 2 of the Interest-tax Act, 1974, came to be amended. Clause (5A) was inserted. It defined "credit institution" to mean a banking company ; a public financial institution as defined under section 4A of the Companies Act, 1956. Under section 4A of the Companies Act, the UTI is a public financial institution. Under the said section, the Central Government is empowered to specify any other institution, as it may think fit, to be a public financial institution. The Finance (No. 2) Act of 1991, came into force on and from October 1, 1991. Therefore, upto October 1, 1991, the UTI was not a credit institution. On and from October 1, 1991, the Interest-tax Act covered the UTI, the LIC and 12 other notified institutions under section 4A of the Companies Act. Further, 18 State financial corporations also came under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not refer to the circular of the CBDT dated October 11, 1991. The nil returns were filed on January 17, 2001. The UTI, thereafter, received a letter from respondent No. 1 dated January 30, 2001. By the said letter, the UTI was called upon to give details of total interest accruing and received by it during the aforestated period. By the said letter, the UTI was informed that the circular dated October 11, 1991, has been withdrawn by the CBDT on January 29, 2001. A copy of the letter of the CBDT withdrawing its earlier circular was enclosed. In the said letter dated January 29, 2001, the CBDT has stated that it has re-examined the position in law and was now of the opinion that interest-tax under the Interest-tax Act was not a tax in respect of income, profit or gains of the UTI and, therefore, its earlier circular dated October 11, 1991, stood withdrawn. Accordingly, by letter dated January 29, 2001, the earlier circular stood withdrawn. On February 8, 2001. the present Writ Petition No. 506 of 2001 was filed. Writ Petition No. 505 of 2001, has been filed by an individual unitholder as a PIL. Pursuant to the orders passed by the learned Chief Justice, the PIL writ petition has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Income-tax Act in support of his contention that the interest received by the UTI can only mean interest income and if interest received by the UTI is its income from loans advanced by the UTI then section 32(1)(a) of the UTI Act (second part) squarely applies. Hence, he contended that the provisions of the Interest-tax Act will not apply to the UTI as the income of the UTI from any source including loans, stands exempted in view of section 32 of the UTI Act. He contended that the word "income" in section 32(1) of the UTI Act represents the gross income. How ever, the said word "income" is placed along with the words "profits or gains". Mr. Dastur contends that the word "income" represents gross income and the word "income", therefore, is required to be read in the widest possible terms and the said word "income" should not be limited by the words "profits or gains". He contended that the court will have to consider and interpret the meaning of the words "income", "computed income", "net income" and "taxable income". Mr. Dastur contended that the word "net income" is only an accounting concept. That, the word "profit" represented a difference. However, the word "profit" ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... widest possible terms and, if so read, whatever comes in, constitutes income. In support of his above contention, learned senior counsel invited our attention to the various provisions of the Income-tax Act. Under section 14, which deals with heads of income, all incomes have been classified under different heads. It was submitted that the word "income" in section 14 has to be read as gross income. That, it will include all receipts. He further contended that salaries constitute one head of income. That, section 15 refers to gross salary whereas section 16 refers to deductions from salaries. He, therefore, contended that if section 15 is seen in the con text of section 16, it is clear that the word "salary" in section 15 refers to gross salary and it is for this reason that section 16 inter alia provides that the income chargeable under the head "salary" shall be computed after making the stipulated deductions. It was, therefore, contended that the word "salary" in section 15 is the gross salary from which certain deductions are required to be made under section 16. That, if the word "Salary" in section 15 represents net income then section 16 would be rendered nugatory. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the UTI from any source would constitute income and, therefore, the word "income" in section 32(1) represents gross income. He contended that it would be wrong to say that the Income-tax Act levies tax only on computed income and not on gross income. In this connection, he invited our attention to section 9(1)(v). He submitted that section 9 refers to income which is deemed to accrue in India. That section 9, inter alia, lays down that incomes shall be deemed to accrue or arise in India in certain cases. That, section 9(1) refers to such cases. That, all cases falling under section 9(1) refers to gross income. Similarly, he invited our attention to section 44D(b) of the Income-tax Act. He submitted that section 44D deals with special provisions for computing income by way of royalty in the case of foreign companies. He contended that under section 44D(b), no deduction in respect of any expenditure is allowable in computing the income by way of royalty for technical services received from the Government after March 31, 1976, which indicates that even under the Income-tax Act, there are sections which do not provide for deductions for expenses as in the case of the Interest-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32 of the UTI Act also gives exemption to all incomes accruing to the UTI. Hence, it was urged that the Interest-tax Act will not apply to the UTI in respect of the interest income accruing to the UTI on loans given by it during the course of business. Mr. Dastur next contended that under the UTI Act, there is a dichotomy between the initial scheme, viz., US64 and the subsequent schemes. In this connection, he invited our attention to section 22 of the UTI Act which refers to the capital of the trust. He contended that under section 22(1), the capital of the trust is the initial capital whereas under section 22(2), the capital of the trust is in relation to the subsequent unit schemes. Similarly, he con tended that under section 23 of the UTI Act, the income of the trust has been defined to consist of income in relation to the first unit scheme, viz., US64, vis-a-vis the income of the trust in relation to the subsequent schemes. Mr. Dastur contended that the word "income" in section 23, therefore, indicates gross income. It cannot represent net income particularly when one reads section 23 along with section 24 and section 25 of the UTI Act which, inter alia, lay down that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applies then one does not have to go to entry 82 of List I of the Seventh Schedule to the Constitution. We invited Mr. Dastur's attention to section 2(28A) of the Income-tax Act which defines the word "interest" to mean interest payable in respect of any money borrowed or debt incurred and which includes any service fee or commitment charges in respect of the credit facility. In reply, Mr. Dastur submitted that section 2(28A) was introduced in the Act by the Finance Act, 1988 because the Government wanted to levy tax on interest under section 9(1)(v) of the Income-tax Act which deals with interest income which accrues or arises in India. He contended that the Legislature has expanded the meaning of the word "income" by virtue of section 2(28A). He contended that such an expansion of the word "income" does not defeat his argument that the word "interest", under the Income-tax Act, represents income. It was, therefore, contended that interest-tax was a tax on income. Mr. Dastur further contended that the provisions of the Interest-tax Act were similar to the provisions of the Hotel Receipts Tax Act, 1980. He relied upon the judgment of the Supreme Court reported in Elel Hotels and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Receipts Tax Act is a tax on income. Therefore, interest does not cease to be income on the ground that no deduction is given under the Interest-tax Act which was also the case in the matter of the Hotel Receipts Tax Act. This concludes the first argument of Mr. Dastur for the UTI. Mr. Dastur next contended that, in the present matter, the impugned notices under section 10(a) of the Interest-tax Act were issued without any authority of law. He contended that the impugned notices dated December 21, 2000, could not have been issued by respondent No. 1 in view of the circular issued by the CBDT on October 11, 1991, which circular was in force when the impugned notices were received by the UTI. Mr. Dastur further pointed out that the circular of the CBDT was withdrawn only on January 29, 2001. He contended that the withdrawal was prospective in nature. He contended that there was nothing in the letter dated January 29, 2001, to indicate that the withdrawal of the CBDT circular of 1991 was retrospective. He contended that for nine long years the circular of the CBDT remained in force right from October 11, 1991. He contended that if the withdrawal is held to be retrospective, it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been repaid. In the circumstances, he contended that the circular should not be read retrospectively. He contended that this court has specifically directed the CBDT to consider the consequences of withdrawal of the circular. He contended that the consequences have not been considered which position is admitted by the CBDT in the affidavit now filed before this court. He further contended that there is no indication in the withdrawal dated January 29, 2001, as to whether such withdrawal is retrospective or not. He, therefore, contended that the withdrawal is prospective and not retrospective. He contended that the provisions of the Interest-tax Act are similar to the provisions under the Hotel Receipts Tax Act. He contended that both the legislations were held to be falling under entry 82 of List I of the Seventh Schedule to the Constitution. He contended that like the Interest-tax Act, the Hotel Receipts Tax Act also seeks to charge hotel receipts as income. That, it has been held by the Supreme Court that the Hotel Receipts Tax Act levies tax on gross income and, therefore, it was contended that the tax levied under the Interest-tax Act also is a tax on gross income and merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001. He contended that such circulars do not interfere in assessment proceedings. He further pointed out that under section 26C of the Interest-tax Act, the credit institution is entitled to vary the agreement in order to increase the rate of interest stipulated to the extent to which the institution is liable to pay the interest-tax under the Act. Mr. Dastur contended that by virtue of the circular of the CBDT dated October 11, 1991, the UTI was prevented from varying the agreement so as to increase the rate of interest stipulated therein. He con tended that if the UTI would have sought to recover the interest-tax from the borrower, it could have been challenged on the ground that the UTI was exempted under section 32 of the UTI Act as construed by the CBDT and, in such an event, the borrower was entitled to challenge the authority of the UTI to charge, levy and recover the interest-tax. He contended that during the aforestated period in nine years 36 schemes of the UTI have matured. The statement of the schemes which have matured is annexed to this judgment as statement X. He contended that under the UTI Act, the income and expenditure accruing stood bifurcated scheme-wise. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of interest in its returns. That, the Assessing Officer has been granting refund on the basis of section 32 of the UTI Act under the Income-tax Act for the last nine years. He contended that the Interest-tax Act has a direct nexus with the Income-tax Act. He, therefore, contends that this is a case of change of opinion and, therefore, section 10(a) of the Act has no application. He, there fore, contended that the writ petition should be allowed. Mr. Aspi Chinoy, learned senior counsel appearing on behalf of the petitioner, in the above PIL writ petition contended that there were three points involved in this case, viz., whether the UTI was exigible to interest tax, whether notices under section 10(a) were bad in law, and whether the Department was entitled to levy penalty and interest under the provisions of the Interest-tax Act for alleged failure to file returns. He contended that the short controversy in the present case which the court has to consider is, as to why exemption was granted by the CBDT on October 11, 1991. In support of his above contentions, he contended that the word "income" in section 32 must be given full plenary content. He further contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the UTI and the petitioner in the PIL writ petition, Mr. Dada, learned senior counsel, contended that the following points arise for determination by the court in the present proceedings. At the outset, learned senior counsel for Department contended that, in this matter, the first question which needs to be answered by the court is that, is the UTI liable under the Interest-tax Act because if there is no liability then no further point arises for determination. He contended that the Interest-tax Act was enacted as far back as 1974. However, the Act was not made applicable to the UTI and the LIC till October 1, 1991. He contended that, originally, the Act was made applicable only to the scheduled banks in respect of loans given by them. He contended that the Interest-tax Act was amended for the first time by the Finance (No. 2) Act of 1980 when the interest-tax was extended to cover the IDBI and other financial institutions. By the said amendment, financial institutions as defined under section 4A of the Companies Act, 1956, were dropped within the ambit of the Interest-tax Act. However, the first amendment of 1980 of the Interest-tax Act did not cover the LIC and the UTI. He cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd distinct from the Income-tax Officer/Assessing Officer under the Income-tax Act. Secondly, he pointed out that the scope of section 3(1C) shows that the interest-tax is chargeable on total gross receipts and even if an assessee under the Interest-tax Act has no income assessable to income-tax still he would be covered by the provisions of the Interest tax Act. Thirdly, he submitted that the said section clearly indicates that the words "income assessable to income-tax" under the Income-tax Act shows that the word "income" in section 32 of the UTI Act can only be read as income assessable to income-tax and not gross income as con tended on behalf of the UTI. Therefore, even if the UTI had no assessable income under the Income-tax Act, still it could be assessed under the Interest-tax Act. He, therefore, pointed out that the interest-tax would certainly supersede the UTI Act and, to that extent, section 32 of the UTI Act stood impliedly repealed. Mr. Dada pointed out that the subject-matter of the Interest-tax Act is the credit institutions and loans given by them. He con tended that in substance interest-tax is a tax on loans and it is not a tax on income. He contended that inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords "income, profits or gains" in section 32 of the UTI Act show that the word "income" must be read in the company of the words "profits or gains". He pointed out that the word "profits" can only mean computed profits. It cannot mean gross profits and if one reads the word "income" with the word "profits" under section 32, it is clear that the provisions of section 32 of the UTI Act only refer to the net income and not the gross income. He contended that each word must be given due weightage. He contended that if the argument of the UTI is correct then the word "profits or gains" in section 32 would be rendered redundant. Mr. Dada pointed out that all the three words should be read in order to ascertain the true meaning of the word "income" in section 32. This argument of Mr. Dada is also proceeding on the alternate basis, viz., that the interest-tax is a tax on income. It is for this reason that he has made the aforestated submission. He further contends in this connection that the UTI Act is enacted with the object of encouraging savings and investments and to participate in the distribution of income accruing to the UTI from acquisition, holding, management and disposal of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t section 22 to section 25B refer to allocation and distribution of income and reserve funds. He contended that the UTI is required to allocate the income and the expenses scheme-wise. However, he pointed out that the income accruing for distribution under section 25A of the UTI Act can only refer to distributable income in the hands of the UTI. This distributable income clearly indicates that the participation by the unitholders is in the distributable income and not gross income. He submitted that distributable income accrues to the corporation and it is the corporation which, there after, distributes such income amongst various unitholders and, therefore, he contended that the words "participation in the income, profits and gains accruing to the corporation" in the long title as also in section 25A as also in section 32 of the UTI Act can only mean net income. Mr. Dada pointed out that at various places under the UTI Act, the Legislature has used the word "income" alone in certain places and under certain other sections the Legislature has used the words "income, profits or gains". Therefore, he contended that section 32 refers to net income and not gross income. Mr. Dada furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument proceeds on the alternate basis and on the assumption that both the Acts deal with the same subject-matter which learned counsel for the UTI does not accept. Therefore, he contended that if both the Acts deal with the same subject matter then on introduction of the Finance (No. 2) Act, 1991, Parliament impliedly,repealed section 32 of the UTI Act by withdrawing the exemption on the interest income. He contended further that it is true that section 32 of the UTI Act begins with a non obstante clause. That, the Interest-tax Act has no such non obstante clause. However, Mr. Dada contended that in view of the judgments of the Supreme Court in a large number of cases it is clear that the provisions of the Interest-tax Act particularly section 4 and section 5 are in the nature of the non obstante clause and if the two Acts are held to be dealing with the same subject matter then the latter Act would prevail over section 32 of the UTI Act to the extent of the interest income earned by the UTI. Mr. Dada relied upon a large number of authorities in support of his above contention. Mr. Dada, learned senior counsel appearing on behalf of the Department next contended that the commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer was entitled to proceed and has rightly proceeded against the UTI under section 10(a) of the Interest-tax Act, 1974. He con tended that the letter of the CBDT dated October 11, 1991, is merely an opinion. It is not a circular. Hence, it has no binding effect vis-a-vis the Assessing Officer. He contended that the circular cannot violate the provisions of laws and if it so violates, effect should not be given to such a circular. He contended that the circular under section 119 cannot be assessee's specific. He contended that under section 28 of the Interest-tax Act an exemption can be granted only by the Central Government in consultation with the RBI. He contended that no such exemption has been given to the UTI under section 28 of the Interest-tax Act. He contended that under section 119 of the Income-tax Act, exemption cannot be granted to an individual assessee. Similarly, he contended that the effect of the circular dated October 11, 1991, would amount to giving exemption to the UTI from payment of interest-tax under section 28 of the Interest-tax Act. He contended that none of the judgments cited on behalf of the UTI show that the circular under section 119 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings then the Assessing Officer is not bound to follow the circular of the CBDT. Mr. Dada next contended that in view of his above submissions both on the interpretation of the Interest-tax Act and also on the interpretation of the provisions of section 119 of the Income-tax Act and section 3(2) of the Interest-tax Act vis-a-vis the circular dated October 11, 1991, the plea of hardship raised by the UTI is not valid. In any event, he contended that there are sufficient reserves with the UTI from which they can discharge the liability arising under the Interest-tax Act. He contended that the reserves can be used for payment of taxes. In the circumstances, Mr. Dada contended that the present petition has no merit and it deserves to be rejected. In rejoinder, Mr. Dastur, learned senior counsel for the UTI contended that the notice under section 10(a) of the Interest-tax Act was without jurisdiction. He contended that the rights of an assessee cannot depend on whether the CBDT has forwarded the circular to the Assessing Officer. If the CBDT fails to forward the circular to the Assessing Officer, that circumstance by itself cannot be held against the UTI particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that the said circular was binding and whether such a circular constituted an opinion or a ruling did not depend upon whether it was publicized or not publicized. He contended that a bare reading of the circular dated October 11, 1991, read with the withdrawal dated January 29, 2001, shows that even the Income-tax Department considered the said letter of the CBDT dated October 11, 1991, as a circular. He contended that it is for this reason that after nine years the CBDT was required to withdraw its circular on January 29, 2001. Therefore, at page 101 of Writ Petition No. 506 of 2001, the CBDT has expressly stated that they have reexamined the matter and that they recommended withdrawal of the letter dated October 11, 1991. Mr. Dastur next contended that the circular under section 119 of the Income-tax Act which is also applicable to the Interest-tax Act cannot alter the law. However, even if the said circular deviates from law the Assessing Officer is bound by it. It may not be binding on the High Court or the Tribunal but the Assessing Officer who functions under the CBDT would be bound by the circular of the CBDT. He contended that there are a large number of cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in each of those matters. However, broadly, the judgments cited on behalf of the Department show that they were concerning circulars which were against the assessee. Under those circulars, the assessees had sought clarification from the CBDT which were turned down and, therefore, those judgments have no relevancy with the facts of the present case. In the present case, he contended that the CBDT gave an interpretation to the Act which interpretation directed the UTI not to recover interest-tax from the borrowers to whom loans were advanced and pursuant to that interpretation the UTI acted for nine years. That, pursuant to the said interpretation the Department acted for nine years. He contended that, in the present case ' the issue is not of hardship. That, in the present case but for the circular, the UTI could have recovered interest-tax from the borrower. That, but for the circular, the UTI had a right to recover interest-tax from its borrowers. However, in view of the said circular dated October 11, 1991, the UTI was disabled and not entitled to recover interest-tax from the borrowers and, therefore, the issue is not of hardship. That, hardship is just a consequence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith effect from October 1, 1991. He pointed out that by the said Act all financial institutions as defined under section 4A of the Companies Act came to be covered. He further pointed out that 12 institutions apart from the UTT and the LIC came to be notified under section 4A of the Companies Act with effect from 1991 and further 18 corporations under the State Financial Corporations Act also came to be notified with effect from October 1, 1991, as credit institutions and, therefore, the repeated emphasis on the part of the Department that the UTI was sought to be covered with effect from October 1, 1991, has no relevancy because it was not a solitary institution which was sought to be covered by the Act. He, however, pointed out that the provision similar to section 32 of the UTI Act granting exemption does not find place in the case of other institutions set up under law. He contended that the UTI in that respect was unique. That, the purpose of section 32 as to give special benefit to the UTI because a large number of small investors were involved and particularly in view of the fact that the UTI Corporation was set up to encourage such savings and investments. Therefore, Mr. Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Hotel Receipts Tax Act are in pari materia with the provisions of the Interest-tax Act. He contended that in the aforestated judgment, the Supreme Court has laid down that the Hotel Receipts Tax Act seeks to levy tax on gross income. Therefore, Mr. Dastur contended that the Interest-tax Act should also be construed to have levied the tax on total income, That, there was no difference between the two enactments. That, under the Hotel Receipts Tax Act the levy of tax is on the chargeable hotel receipts whereas under the Interest-tax Act the levy was on gross receipts of interest. He accordingly contended that the word "income" in section 32 must be read as gross income and not computed income. He further contended that the word "income" has also been repeatedly interpreted by the apex court in the context of entry 82 of List I to the Seventh Schedule of the Constitution. He submitted that in all those cases the word "income" has been read in the widest possible terms. He contended that, therefore, the word "income" in section 32 should be read as gross income. He, therefore, contended that the above dichotomy between the nature of a tax and the measure of the tax do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the word "income" in section 23 of the UTI Act can only mean gross income and it is so clear that one need not go to the long title of the UTI Act. He contended that, in any event, the word "participation" in the long title to the UTI Act is not important and what needs to be emphasised are the words "accruing of income to the corporation" because the said words clearly describe the word "income" as gross income. He contended that it is true that the unitholders do participate in such income accruing to the corporation but that participation is to the extent of the distributional income and, therefore, the words "accruing of income to the corporation" in the long title need to be emphasised. He contended that the words, for the time being in force in section 32(1) of the UTI Act, show that the UTI was not liable to pay tax on income accruing to it from any source and the whole purpose of section 32(l) is to give exemption to the UTI from payment of any tax on its income accruing from any source. Mr. Dastur contended that the unit holders participate in the income accruing to the corporation but only to the extent of the distributed income and, therefore, what accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Findings : Questions Answers (A) Whether the interest-tax under the In the negative,i.e.,in Interest-tax Act, 1974, is a tax on income favour of the Department and, if so, whether interest accruing to. and against the UTI. the UTI from loans advanced by it stands exempted in view of section 32 of the UTI Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the reasons for inflation is excess money supply in the economy. In 1974, the Government's market borrowing was limited as compared to Government's market borrowings during the accounting year 1999-2000 and the accounting year 2000-2001. This aspect is important. After 1991-92, the Government depends on market borrowings to a large extent. Therefore, more and more credit institutions were brought within the ambit of the Interest-tax Act which is clear from the facts enumerated above. This included the UTI. However, as stated above, since 1991, the market borrowings of the Central Government have increased manifold times and, therefore, by the Finance Act, 2000 the levy has been withdrawn after March 31, 2000. During the accounting year ending March 31, 2001, the Government of India had to borrow from market Rs. 1,11,000 crores. Therefore, even in this budget the levy stands withdrawn. The object of giving this preface is only to show that the Interest-tax Act is an economic legislation. The Interest-tax Act is, therefore, required to be construed in the light of the Statement of Objects and Reasons. With this preface, we will now examine the Interest-tax Act, 1974. (ii) (a) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest which is established to have become a bad debt during the previous year : Provided that such interest has been taken into account in computing the chargeable interest of the assessee of an earlier previous year and the amount has been written off As irrecoverable in the accounts of the assessee for the previous year during which it is established to have become a bad debt. Explanation.-For the removal of doubts, it is hereby declared that in computing the chargeable interest of a previous year, no deduction, other than the deduction specified in this sub-section shall be allowed from the total amount of interest accruing or arising to the assessee. (2) In computing the chargeable interest of a previous year, the amount of interest which accrues or arises to the assessee before the 1st day of August, 1974, or during the period commencing on the 1st day of March, 1978, and ending with the 30th day of June, 1980 or during the period commencing on the 1st day of April, 1985, and ending with the 30th day of September, 1991, shall not be taken into account." Section 2(5) defines "chargeable interest" to mean the total amount of interest referred to in section 5 and comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act is made applicable. This clearly shows the difference between section 3(2) of the Interest-tax Act and section 119 of the Income-tax Act which is also made applicable under the Interest-tax Act. The proviso to section 3(2) puts an embargo on the CBDT. It states that the CBDT shall not issue orders, instructions or directions so as to interfere with the discretion and functioning of the sub ordinate interest-tax authorities. Section 4 of the Interest-tax Act is a charging section. Section 4(2) lays down, inter alia, that on and from April 1, 1992, there shall be charged on every credit institution for every assessment year, interest-tax in respect of its chargeable interest at the rate of three per cent. of such chargeable interest. The said section has a proviso. The proviso states that the rate at which interest-tax shall be charged after March 31, 1997, shall be two per cent. Section 5 of the Interest-tax Act deals with scope of chargeable interest. It lays down, inter alia, the meaning of the words "chargeable interest". It lays down the scope of chargeable inter est. It provides that the chargeable interest shall be the total amount of interest accruing to the credit ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of failure on the part of the assessee-UTI to file its return. The said section is not invoked on the ground of omission on the part of the assessee to file its return, Section 12 of the Interest-tax Act provides for levy of interest on the assessee for default in furnishing the return of chargeable interest. Section 18 of the Interest-tax Act deals with deductibility of interest-tax in computing the total income of the assessee under the Income-tax Act. Section 18, inter alia, states that notwithstanding the provisions of the Income-tax Act, while computing the. income of a credit institution chargeable to income-tax under the head "Profits and gains of business or profession" or under the head "Income from other sources", the interest-tax payable by the credit institution under the Interest-tax Act shall be deductible from the income under the said respective heads. Therefore, section 18 shows, firstly, that the Interest-tax Act is a separate enactment from the Income-tax Act. Secondly, it shows that the Interest-tax Act imposes a levy which is separate and distinct. It is a levy on chargeable interest. Thirdly, section 18 shows the meaning of the word "income" as understood b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a bare reading of the Interest-tax Act that it is an Act on gross receipt of interest. It is not a tax on income. That, the two Acts operate in different fields and, therefore, they cannot be equated. (b) Scope of the UTI Act, 1963 : The said Act, 1963, was enacted to provide for establishment of a corporation in order to encourage savings and investments and participation in the income, profits and gains accruing to the corporation from acquisition, holding, management and disposal of securities (see long title). Section 2(cb) defines "first unit scheme". It refers to US64. Section 2(d) defines "initial capital" to mean capital of the trust. Section 2(fa) defines 11 public financial institution" to mean every financial institution specified by or under section 4A of the Companies Act. Section 2(j) defines "subsequent unit scheme" to mean any scheme after the commencement of the Unit Trust of India (Amendment) Act, 1966. Section 2(1) defines the word "trust" to mean Unit Trust of India. Section 2(0) defines the expression 11 unit capital" to mean aggregate of the face value of the units sold under a particular unit scheme and the outstanding. Section 4 of the UTI Act, inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust. Here the word "income" is used without the words "profits and gains" in contradistinction to section 21 and section 32. The reason is obvious. The income of the trust is allocated for the purposes of Chapter V schemewise. In this sense, the word "income" is required to be read as allocable income. Section 24 is a follow up of section 23. It provides for allocation of income to the initial capital and the unit capital in a stipulated proportion. Section 25 of the UTI Act deals with allocation of interest and expenses schemewise and it further provides for charging of the interest/expenses to the initial capital and to the unit capital in the stipulated proportion schemewise, Section 25A refers to distribution of income. It refers to the accrual of distributable income. It states, inter alia, that the income allocated, as stated above, to the initial capital and as reduced by interest and other expenses charged to the initial capital may be distributed among the contributing institutions in proportion to their respective contributions (see section 25A(1)). However, under section 25A(2), it is provided, inter alia, that the income allocated to the unit capital relating to the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not in the gross income. One has to read Chapter V of the UTI Act in the context of allocation and distribution of income and reserve funds. Now coming to the section 32 of the UTI Act, for the purposes of this judgment, we hereby quote section 32(1) to the extent required. "32. Income-tax and other taxes.-(1) Notwithstanding anything contained in the Wealth-tax Act, 1957 (27 of 1957), the Income-tax Act, 1961 (43 of 1961), the Super Profits-tax Act, 1963 (14 of 1963), the Companies (Profit) Surtax Act, 1964 (7 of 1964) or in any other enactment for the time being in force relating to income-tax, super-tax, super profits-tax, surtax or any other tax on income, profits or gains." Section 32 gives exemption to the UTI from payment of tax, inter alia, under the Income-tax Act on its income, profits or gains. It lays down that the UTI shall not be liable to pay income-tax or any other tax in respect of any income, profits or gains derived by it from any source. As stated above, the words used in section 32(1) are "income, profits and gains". Section 32 is not confined to the word "income" alone. As stated above, the word "profit" represents the difference. It refers to a net amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins" as in section 21 and in the long title to the Act in contradistinction of the word "income" alone under section 23 which we have discussed hereinabove. We may also point out at this stage, briefly, that the concept of income even under the Income-tax Act in the context of exigibility of tax and in the context of chargeability is the computed income and not gross income. Therefore, even assuming for the sake of argument that interest-tax falls under second part of section 32(1) of the UTI Act and even assuming for the sake of argument that interest tax is a tax on income still we are of the view that the words "tax on income, profits and gains" in the second part refer to taxable income. As stated above, we are of the view that section 32 has no application because the interest tax is not a tax on income but even if we proceed on the basis that it is a tax on income still section 32(1) refers to the computed income and not the gross income. Section 32 of the UTI Act exempts only the UTI's computed income. It does not exempt the UTI from levies on receipts which are not its income, profits or gains. As stated hereinabove, interest tax is in the nature of indirect levy. It allows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession" is deductible from the income under that head. Therefore, it is clear that interest tax is deductible as expense. Therefore, Interest-tax Act cannot be compared with the Income-tax Act. If one keeps in mind the two concepts, viz., "income" vis-a vis "tax on income", the entire problem stands resolved. Whenever the Legislature uses the words "tax on income" as in the case of section 32 of the UTI Act, it refers to computable income. It cannot refer to gross income. This difference is also noticed by us when we discussed herein above, the scheme of the UTI Act. There is one more way of looking at this problem. The word "income" in section 32(l) of the UTI Act is in the company of the word "profits or gains". The word "profits" represents difference. It does not refer to gross profits. Numerous judgments on lack of legislative competence have been cited before us in which the word "income" has been interpreted by the Supreme Court. However, those judgments have no application to the facts of the present case. In this case, we are not reading the word "income" under any of the entries under the Constitution. The entries in the Constitution refer to the legislative field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not decide the character of the levy. The levy is on the gross receipt of interest. The yardstick is the income. Therefore, such a yardstick cannot convert the Interest-tax Act from a tax on gross receipt into a tax on income. In the case of Elel Hotels and Investments Ltd. v. Union of India [1989] 178 ITR 140 (SC), it has been held by the Supreme Court that the expression "income" in entry 82, List I, cannot be subjected to any restriction. That, while interpreting the word "income" in entry 82 the widest possible interpretation should be given. However, at page 149 of that judgment, the Supreme Court has categorically observed that a particular statute enacted under entry 82 as a matter of fiscal policy can restrict the word "income" to a particular specie of income and in which case the definition would be limited by consideration of the underlying fiscal policy of a particular statute. This note of caution clearly applies to the present case. In the present case, we are not concerned with the word "income" in entry 82. In the present case, we are required to interpret the word "income" in the context of the Interest-tax Act which has been enacted as a matter of fiscal policy. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted income whereas the Interest-tax Act imposes the levy on gross receipt of interest ; Therefore, the scope of the UTI Act is different from the Interest-tax Act. They operate in different fields. There is no conflict between the two. (iv) Findings of the court on the question of conflict between section 32 of the UTI Act, 1963 and the Interest-tax Act, 1974 : In view of our discussion hereinabove, there is no conflict between section 32 of the UTI Act and the provisions of the Interest-tax Act, 1974. As stated hereinabove, the Interest-tax Act is a fiscal and economic legislation. It seeks to levy tax on loans irrespective of Income. It seeks to levy tax on interest and not on income from interest. On the other hand, the UTI Act is based on commercial principles. It is enacted to encourage savings and investments. The objects of the two Acts are different. The nature and substance of the two Acts are different. Therefore, there is no conflict between the two enactments. Moreover, the UTI Act seeks to give exemption to income accruing to the UTI in the course of its business. The income contemplated by section 32 is the taxable income. On the other hand, the interest-tax is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery to secure eviction of unauthorised occupants from public premises. Therefore, the Public Premises Act was held to be the special statute relating to eviction of un-authorised occupants from public premises. In that sense, the Supreme Court held both the enactments to be the special statutes in relation to matters dealt with therein. However, it was held that since the Public Premises Act was a special enactment and not a general statute, the exception contained in the principle that a subsequent general law cannot derogate from an earlier special law cannot be invoked and in accordance with the principle that the later law abrogates the earlier contrary law, the Public Premises Act must be read over the Rent Control Act. (see para. 55). Applying the ratio of the aforestated judgment in the case of Ashoka Marketing Ltd. [1992] 74 Comp Cas 482 (SC), to the facts of this case, we hold, firstly, that there is no conflict between the two laws. Secondly, in any event, the provisions of the Interest-tax Act and the provisions of the UTI Act are special statutes in relation to matters dealt with therein. That, since the Interest-tax Act is a special enactment and not a general en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee would be liable to pay tax on gross receipts. This clearly shows that even if the UTI was to incur a loss in a particular year, it was liable to pay interest-tax on the basis of the gross receipts under the Interest-tax Act. The subject matter of the UTI Act is commercial whereas the subject matter of the Interest-tax Act is fiscal. When Parliament enacted the Finance (No. 2) Act, with effect from October 1, 1991, the UTI and the LIC were brought expressly within the purview of the Interest-tax Act thereby Parliament impliedly repealed section 32 of the UTI Act to the extent of the interest income which is made taxable under the Interest-tax Act. This discussion is only based on the alternate argument that both the enactments refer to tax on income. Accordingly, question No. A is answered in the negative i.e., in favour of Department and against the UTI. Findings on question No. B above : Whether the withdrawal communication dated January 29, 2001, issued by the CBDT is retrospective ? As can be seen from the arguments advanced on behalf of the Department, it has been contended that the circular dated October 11, 1991, cannot constitute an order, instruction or direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Interest tax Act. The Board interpreted section 32 of the UTI Act. The Board came to the conclusion that the UTI was not covered by the Interest-tax Act. This opinion was given way back in October, 1991. It was communicated to the Ministry of Finance. For nine years, the decision of the CBDT was implemented. The Assessing Officer comes under the CBDT. The CBDT comes under the Finance Ministry. During this period, the UTI filed its returns under the Income-tax Act. In view of section 32 of the UTI Act, the UTI was given reliefs under the Income-tax Act. Today, it is being vehemently urged after nine years that the communication dated October 11, 1991, is not binding on the department on the ground that it does not constitute an instruction to the subordinate authority and that it was based on mistaken interpretation of law. The burden is on the Department to show on what basis the said communication of the CBDT dated October 11, 1991, came to be implemented by the Department for nine years. Despite opportunity they have failed to discharge the burden. The circular of the CBDT dated October 11, 1991, is not addressed to the subordinate authorities. It is communicated to the Min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lukmanji v. CIT [1981] 131 ITR 643 (Guj), the facts were as follows. The assessee filed its return of income for the assessment years 1968-69 and 1969-70 on July 31, 1968, and March 31, 1971, respectively. On January 5, 1971, the CBDT issued an advertisement in which it stated that if the original return filed by the assessee is false, the assessee may file a revised return to avoid the consequences of discovery. Pursuant to the said advertisement, the assessee filed its revised returns for the aforestated assessment years on November 9, 1971, showing additional income for the said assessment years. The Assessing Officer accepted the revised returns. However, since the assessee had failed to disclose the correct income in the original returns filed by it, the Assessing Officer initiated penalty proceedings under section 271(1)(c) and levied a penalty thereunder. This order was confirmed by the first appellate authority and the Tribunal. The text of the advertisement is given in the said judgment. It is not addressed to any of the subordinate authorities. It was issued by the CBDT as Department of Revenue, Ministry of Finance. It does not recite that instructions have been given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay Bench, in Income-tax Appeals Nos. 202, 422 and 421 of 1975-76 and I.T.A. Nos. 315 and 355 of 1975-76 in which the same issue arose for decision. The Patna Bench also placed reliance on the communication of the Central Board as evidenced by letter dated December 19, 1978. The Tribunal referred the matter under section 256(1) to the High Court. The Patna High Court held that the decision of the Bombay Bench was based on the material placed before it regarding the constitution of the RSS, the affidavits of the parties and the Central Board of Direct Taxes' letter dated December 19, 1978, and on that basis the Bombay Bench had concluded that Gurudakshina was not assessable to tax. That, the Bombay Bench had categorically come to the conclusion that in view of the letter of the CBDT dated December 19, 1978, it was not permissible for the Revenue to contend that Gurudakshina was liable to income-tax. That, in the said communication of the CBDT, it has been expressly stated that Gurudakshina received from members stood exempted. The Bombay Bench took the letter on record and came to the conclusion that the letter afforded administrative relief to the RSS and the existence of such co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from October 11, 1991. The Department can certainly cure the defect but such rectification can only operate prospectively particularly in the case of benevolent circulars. We do not find any merit in the contention of the Department that the circular dated October 11, 1991, was illegal and, therefore, not binding on the Assessing Officer. In the present case, the circular of October 11, 1991, has been implemented by the Department for more than nine years. We repeatedly inquired from counsel appearing on behalf of the Department as to the basis on which the above circular came to be implemented by the Department. As stated above, the UTI filed its returns under the Income-tax Act. The UTI was given relief under the Income-tax Act on the basis of section 32 of the UTI Act which has been interpreted by the circular dated October 11, 1991. The Interest-tax Act was made applicable to the UTI from October 1, 1991, vide Finance (No. 2) Act of 1991. The Department was fully aware of the Finance Act of 1991. Therefore, it is not open for the Department now to contend that all this was under mistake particularly when the UTI has acted to its detriment. The UTI could have recovered the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urns. That section 10(a) is similar to section 148 of the Income-tax Act as it then stood. That, the old provision of section 148 has been construed by the Supreme Court in numerous judgments. That, in this case, on facts, the Department has invoked section 10(a) on the ground of failure to file returns. That the validity of the notice was a jurisdictional issue. That, in the present case, on the facts, there was no wilful failure on the part of the UTI to file the returns. On the other hand, the Department contended that the notices have been given for omitting to file returns under section 7 of the Interest-tax Act which has resulted in escapement. That, the word "omission" in section 10(a) is a colourless word as interpreted by the Division Bench judgment of this court in the case of Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57. We do not find any merit in the contention advanced on behalf of the Department. In view of the clear language of section 10(a) of the Interest-tax Act, mere escapement is not enough. Such escapement should be by reason of omission or failure on the part of the assessee to file its return under section 7 of the Interest-tax Act. In this case, the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn it is an omission on his part, whether the law casts any obligation upon him to make a return or not. In this case, Department has not invoked the word "omission". In this case, the Department has invoked the word "failure". On facts, in this case, there is no wilful failure. In view of the circular of the CBDT dated October 11, 1991, the UTI could not have recovered interest-tax from its borrowers and, therefore, it was not obliged to make a return under section 7 of the Interest-tax Act. Therefore, the judgment of the Bombay High Court reported in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57, supports the case of the UTI. Accordingly, we answer question No. C in the negative i.e., in favour of the UTI and against the Department. Summary of findings: (i) The Interest-tax Act, 1974, is applicable to the UTI. However, in view of the circular of the CBDT dated October 11, 1991, the Interest-tax Act, 1974, will not apply up to January 29, 2001, when the earlier circular has been withdrawn. (ii) That the withdrawal communication of the CBDT dated January 29, 2001, will operate prospectively and not retrospectively. (iii) That the impugned notices dated December 21, 2000, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
