9911796707
TMI Blog2004 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... of Undertakings) Act, 1980. Factual matrix: The Interest-tax Act was enacted by Parliament with effect from August 1,1974, with an object of imposing tax on the total amount of interest received by scheduled banks/credit institutions on loans and advances. It, however, was withdrawn in the year 1978, but reintroduced in the year 1980; where after it was again withdrawn in the year 1985. The said tax, however, was reintroduced with effect from October 1,1991, by reason of the Finance (No.2) Act, 1991. The Reserve Bank of India by its circular letter dated September 2,1991, advised all the scheduled commercial banks that the incidence of interest tax should pro rata be passed on to the borrowers wherefor a uniform practice should be followed in consultation with the first appellant herein. The first appellant purported to be acting pursuant to or in furtherance of the said circular as also with a view to formulate a structure of uniform interest rate chargeable after including the interest-tax payable, which was passed on to the borrowers by the concerned banks, advised them that the rate of interest be loaded with interest tax of 3 per cent. and rounded off to the next higher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing on behalf of the Canara Bank, would submit that: (a) having regard to the provisions contained in sections 4 and 5 of the Interest-tax Act read with section 26C thereof, as interest tax was payable on the total chargeable interest which was enhanced on the loan in terms of section 26C as also, in terms of the contractual provisions of other term loans, a great deal of difficulties had arisen as calculations therefor were required to be made in several steps. An example" in respect thereof has been placed before us which is as under: Step I : * Cum Tax Interest to be earned in an attempt to retain Rs. 10 post interest-tax 10.30 * Interest-tax payable on Rs. 10.30 (since whole of the amount collected is assessable to interest-tax) 0.309 Step II * Cum Tax Interest to be earned in an attempt to retain Rs. 10 post interest-tax &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealised interest in terms of section 26C which was authorised by the Reserve Bank of India; (f) In any event, increase in the rate of interest being of not much significance, the doctrine of de minimis should be applied; (g) As the appellants have merely collected a higher rate of interest to which they were entitled in terms of the loan agreements, as the Reserve Bank of India only fixes the minimum rate, the same had no nexus with collection of tax within the meaning of article 265 of the Constitution of India and, thus, the finding of the High Court to the effect that the appellants have collected excess amount of tax must be held to be bad in law; (h) In any view of the matter, as pursuant to or in furtherance of the circular letter issued by the Reserve Bank of India, the borrowers had been given notice and the terms of the loan agreement having been altered, no writ application was maintainable; (i) The writ petition suffered from gross delay and laches on the part of the writ petitioner and, thus, the same should not have been entertained. Reliance in support of the aforementioned contentions have been placed on Dhanyalakshmi Rice Mills v. Commissioner of Civil Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled 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; 4. Charge of tax.-(1) Subject to the provisions of this Act, there shall be charged on every scheduled bank for every assessment year commencing on or after the 1st day of April 1975, a tax (in this Act referred to as interest-tax) in respect of its chargeable interest of the previous year at the rate of seven per cent. of such chargeable interest: Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1983, shall be three and a half per cent. of such chargeable interest. (2) Notwithstanding anything contained in sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the previous year at the rate of three per cent. of such char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of April, 1985, and ending with the 30th day of September, 1991, shall not be taken into account. 26c. Power of credit institutions to vary certain agreements.-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 the amount of interest on the term loan which is due to the credit institution. Explanation.-For the purpose of this section, 'term loan' means a loan which is not repayable on demand." The relevant provisions of the Banking Regulation Act, 1949 are as under: "35A. Power of the Reserve Bank to give directions.-(1) Where the Reserve Bank is satisfied that- (a) in the public interest; or (aa) in the interest of banking policy; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion so as to give effect to the purport and object it seeks to achieve. In the event, the contention of the appellants is accepted, the same would give rise to incongruous results. Such an interpretation, as is well known, must be avoided, if avoidable. Furthermore, a statutory impost must be definite. Having regard to article 265 read with article 366(28) of the Constitution of India nothing is realisable as a tax or by way of recovery of tax or any action akin thereto which is not permitted by law. It is neither in doubt nor in dispute that section 26C is an enabling provision. It has to be so construed, having regard to the term "lawful" used therein. It merely prevails over an agreement under which any term loan has been sanctioned by the credit institution before October 1,1991. It was "lawful" for the credit institution to vary the agreement as regards the rate of interest only for the purpose of recovering the amount of tax which was payable by the appellants and a fortiori-nothing over and above the same. Such increase in the rate of interest would be (a) to the extent to which such institution is liable to pay the interest tax; (b) in relation to the amount of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut therefor the first respondent or the Reserve Bank of India were not competent. In this case, the stand of the Union of India also runs counter to the contentions of the Appellants. A plain reading of section 26C of the Act leaves no manner of doubt that the same was enacted only for a limited purpose, namely, to pass on the burden of tax to the borrowers. The amount of tax must be calculated having regard to the contractual rate of interest as then obtaining and not upon in addition of the purported interest by way of tax or otherwise. Once section 26C is read in a meaningful way, no difficulty arises in giving effect to subsection (2) of section 4 and sections 5 and 6 of the Act. If the provisions of the Act are read in a manner in which we have made an endeavour, for an amount of Rs. 100 charged and the rate of interest charged by the bank being 10 per cent., the interest thereon having been earned would come to Rs.10, and, thus, the borrower would be bound to pay only Rs.10.30 and not Rs.10.50, which is said to be the effect of calculation at various steps as referred to by the appellants. The appellants are, thus, not correct to contend that they have exercised the power t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountants. As an expert in accountancy and auditing, it must have come across several cases where its client had to pay a higher amount of interest to the banks pursuant to or in furtherance of the impugned action of the appellants. By reason of such an action on the part of the appellants as also the Reserve Bank of India, as noticed hereinbefore, the citizens of India had to pay a higher amount of tax as also a higher amount of interest for no fault on their part. The same had been recovered from them without any authority of law. While entertaining a public interest litigation, this court in exercise of its jurisdiction under article 32 of the Constitution of India and the High Courts under article 226 thereof are entitled to entertain a petition moved by a person having knowledge in the subject matter of the lis and, thus, having an interest, therein as contradistinguished from a busy body, is the welfare of the people. The rule of locus has been relaxed by the courts for such purposes with a view to enable a citizen of India to approach the courts to vindicate legal injury or legal wrong caused to a section of people by way of violation of any statutory or constitutional righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rotect their rights and to secure probity in public life. Pro bono publico constituted a significant state (sic) in the present day judicial system. They, however, provided the dockets with much greater responsibility for rendering the concept of justice available to the disadvantaged sections of the society. Public interest litigation has come to stay and its necessity cannot be overemphasized. The courts evolved a jurisprudence of compassion. Procedural propriety was to move over giving place to substantive concerns of the deprivation of rights. The rule of locus standi was diluted. The court in place of a disinterested and dispassionate adjudicator became an active participant in the dispensation of justice." Furthermore, even where a writ petition has been held to be not entertainable on the ground or otherwise of lack of locus, the court in larger public interest has entertained a writ petition. In an appropriate case, where the petitioner might have moved a court in his private interest and for redressal of the personal grievance, the court, in furtherance of public interest, may treat it a necessity to enquire into the state of affairs of the subject of litigation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not at all relevant. The appellants could not have suo motu taken recourse to rounding off of interest for the purpose of obtaining a higher amount of interest or otherwise. The purported practical difficulty sought to have been put forth by the appellants is a self created one. If such practical difficulty existed there was apparently no reason as to why the Reserve Bank of India refused to grant such approval since 1997. In any view of the matter, the purported directions contained in the letter dated September 2,1991, of the Reserve Bank of India are not even in the nature of executive instruction under the said Act. It was not binding on the banks, far less on the borrowers. In any event by reason of a misplaced and misapplied construction of statute, a third party cannot suffer. Furthermore having regard to the provisions contained in article 265 of the Constitution of India read with article 366(28) thereof the purported demand from the borrower for a higher amount of tax and consequently a higher amount of interest by way of rounding off was wholly illegal and without jurisdiction. We also fail to understand as to why in this modern electronics age, this difficulty wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only bind the banks and not the third parties. The submission was that by contravening the direction contained in the said circulars, the contracts which were entered into between the banks and the third parties could not be invalidated and the only result of such contravention would be the levy of penalty under section 46 of the said Act" The question which arose for consideration therein does not arise in the instant case. In Central Bank of India [2001] 107 Comp Cas 416 (SC), this court, inter alia, held that sections 21 and 35A of the Banking Regulation Act confers a power coupled with duty to act. The question which arose for consideration related to many phrases, namely, "the principal sum adjudged", "such principal sum" and "such" occurring in section 34 of the Code of Civil Procedure. This court held that a long-established banking practice of charging interest at reasonable rates on periodical rests and capitalizing the same on remaining unpaid should not be found fault with and in that context the circular letter issued by the Reserve Bank of India under sections 21 and 35A was commented upon (449 of 107 Comp Cas): " . . . The Reserve Bank of India is the prime bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks concerned be directed to deposit the excess recovered by it, if no direction is issued by us that the same be returned to the borrowers. Interestingly, the Union of India has not volunteered, which as "a State" it should have done, to suo motu undertake the exercise of identifying the borrowers and refund the excess amount recovered, a part whereof had been deposited by way of interest tax by the concerned banks. Furthermore, directing the Union of India to refund the excess amount collected through the banks and consequently ask the banks to refund the same to the borrowers whether with the amount retained by them by way of rounding off of interest invariably would take a long time. We, therefore, are of the opinion that a fund may be created for the benefit of the disadvantaged people. Parliament has enacted the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (the 1995 Act). Chapter V of the 1995 Act deals with education. Section 28 provides for research for designing and developing new assistive devices, teaching aids, etc., for disabled persons. Section 29 mandates appropriate Governments to set up teachers' trai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such persons, to evolve a procedure for appointment of guardians or trustees for such persons requiring protection. We are, furthermore aware that the Ministry of Social Justice and Empowerment had taken the following actions to implement the provisions of the aforementioned Acts: (i) notification of Central Co-ordination Committee as per section 3 of the Act; (ii) notification of Central Executive Committee as per section 9 of the Act; (iii) creation of post of Chief Commissioner, Deputy Chief Commissioner, and staff for office of Chief Commissioner; (iv) five core groups of experts and officials of relevant Ministries have been set up to make recommendations and formulate schemes to give effect to various provisions of the Act. These are (a) group on prevention, early detection and intervention; (b) vocational training and employment; (c) education, including pre-school education; (d) barrier free environment; (e) women and children with disabilities; (v) National Fund for People with Disabilities set up on August 11,1983, has been activated and assistance has been sanctioned to non-Government agencies. 17 projects have been sanctioned under the scheme; (vi) a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suffering. Therefore, merely granting him pension would not suffice, but there must also be an attempt to secure him alternative employment. Despite the progressive stance of the court and the initiatives taken by the Government, the implementation of the Disabilities Act is far from satisfactory. The disabled are victims of discrimination in spite of the beneficial provisions of the Act. We are, therefore, of the opinion that in the larger interest a fund for the aforementioned purpose should be created with the amount at the hands of the Union of India and the appellants and other concerned banks, which may be managed by the Comptroller and Auditor General of India. We would request the Comptroller and Auditor General of India to effect recoveries of all the excess amount realised by the Union of India by way of interest tax and interest by the banks and other financial institutions and create the corpus of such fund therefrom. The appellant and other concerned banks are also hereby directed to contribute to the extent of Rs.50 lakhs each in the said fund. The Comptroller and Auditor General of India would be the chairman of the said Trust and the Finance Secretary and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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