9911796707
TMI Blog2025 (4) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... ant is a 'credit institution' as defined in Section 2(5A) r.w. Clause (va) of Section 2(5B) of the Interest Tax Act, 1974? 2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in concurring with the views of the Commissioner (Appeals) and holding that mere acceptance of monies as deposits without any 'scheme or arrangement' as contemplated in the Reserve Bank directions/notification will attract the provisions of the Interest Tax Act?" 3. In the present case, originally, Assessment Order under Section 8 read with Section 10 of the Interest Tax Act, 1974 (for brevity, hereinafter referred to as the "1974 Act") was passed on 08.11.1999 determining the interest tax payable by the Appellant/Assessee for the Assessment Years 1994-1995, 1995-1996, 1996-1997 & 1997-1998. Challenging the said Assessment Order dated 08.11.1999, the Appellant/Assessee preferred an Appeal before the Commissioner of Income Tax (Appeals). By an Order dated 28.02.2000, the Commissioner of Income Tax (Appeals) held that the Appellant/Assessee was not liable to pay interest tax since the Appellant/Assessee could not be treated as a "credit institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. u/s. 12 Rs.24,892/- Int. u/s. 12B Rs.50,614/- Rs.75,506/- Total Interest Tax Payable Rs.1,58,482/- 7. Aggrieved over the aforesaid Assessment Orders dated 26.12.2006, the Appellant/Assessee filed appeals in I.T.A.Nos.13 to 16/2006-07/A-III before the Commissioner of Income Tax (Appeals) III, Chennai. However, the Commissioner of Income Tax (Appeals) III, Chennai dismissed the tax appeals on 29.02.2008. Challenging the order dated 29.02.2008 of the Commissioner of Income Tax (Appeals) III, Chennai, the Appellant/Assessee preferred Appeals in I.T.A.Nos.009/Mds/2008, 0010/Mds/2008, 0011/Mds/2008 & 0012/Mds/2008 before the ITAT. 8. By the Impugned Common Order dated 15.05.2009, the ITAT affirmed the Order dated 29.02.2008 passed by the Commissioner of Income Tax (Appeals) III, Chennai and thus, dismissed the Appeals filed by the Appellant/Assessee in I.T.A.Nos.009/Mds/2008, 0010/Mds/2008, 0011/Mds/2008 & 0012/Mds/2008. Hence, the Appellant/Assessee is before this Court. 9. Assailing the Impugned Common Order 15.05.2009 of the ITAT, the learned counsel for the Appellant/Assessee submitted that the ITAT has erred in holding that the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny" under Section 2(5B) of the 1974 Act. 10.2. The learned Senior Standing Counsel for the Respondent/Assessing Officer further submitted that in the present case, based on an oral arrangement entered between the parties, periodical interest was also paid by the Appellant/Assessee to the depositors and therefore, the 1974 Act would apply and that the Appellant/Assessee was liable to pay interest tax on the interest paid on the aforesaid amount received as deposits. 10.3. It is further submitted that all the depositors had given identical confirmation letters that they were receiving interest from the Appellant/Assessee and the word used was "periodical interest" and therefore, a fixed pattern existed on the amounts paid by the Appellant/Assessee. 10.4. The learned Senior Standing Counsel for the Respondent/Assessing Officer further submitted that since all the fact finding authorities have decided the issue against the Appellant/Assessee and since there is no question of law arising in these Appeals, it is stated that these Tax Case Appeals are liable to be dismissed. 10.5. In support of his submissions, the learned Senior Standing Counsel for the Respondent/Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax proposals, dealing first with proposals in the field of direct taxes. As a part of the anti-inflationary package, I propose to levy a tax on the gross amount of interest received by scheduled banks on loans and advances made in India. The banks would be expected to adjust their functioning to this tax and reimburse themselves to the extent necessary by making appropriate adjustments in interest rate charges from borrowers. The proposed tax will have both a monetary and a fiscal impact in that it will serve the purpose both of raising the cost of borrowed funds and of supplementing Government revenues. The proposed tax will be levied at the rate of 7 per cent of the gross amount of interest earned by the banks. This would imply on an average an increase of about 1 percent in the cost of borrowing from the banks. Interest on Government securities, as also debentures and other securities and statutory corporations will not be included in the tax base. Interest received on transactions between scheduled banks will likewise be exempted from the proposed levy." 17. What was in contemplation was only a tax on the "chargeable interest" of a 'scheduled bank'. 18. The legislative int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 Section 4 of the Interest Tax Act, 1974 with effect from 01.04.2001 4. Charge of tax.- 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. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 29. "Interest" as defined under Section 2(7) of the 1974 Act is chargeable to tax under Section 4 of the 1974 Act only if it arises directly from a loan(s) or advance(s) given by a "scheduled bank" or a "credit institution" to borrowers. 30. The Hon'ble Supreme Court, in M/s.State Bank of Patiala Vs. Commissioner of Income Tax, Patiala, (2015) 15 SCC 483 : (2016) 383 ITR 244, though in a different context, held that the definition of "Interest" as defined in Section 2(7) of the 1974 Act was exhaustive as it uses the expression 'means and includes' but would not only on a very narrow taxable event which does not include within its keen interest payable on default in payment of amounts due under a discounted bill of exchange. 31. The Hon'ble Supreme Court, in Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions" with retrospective effect from 01.10.1991. 34. Section 5 of the 1974 Act as amended by the Finance Act, 1991 as in force from 01.10.1991, prescribes the 'Scope of Chargeable Interest' whereby interest on loans and advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking. 35. As per Section 5 of the 1974 Act, "chargeable interest" of any previous year of a "credit institution" shall be the total amount of "chargeable interest" accruing or arising to the "credit institution" in that previous year. 36. In fact, Proviso to Section 5 of the 1974 Act also makes it clear that any interest in relation to categories of bad or doubtful debts referred to in Section 43D of the Income Tax Act, 1961, shall be deemed to accrue or arise to the "credit institution" in the previous year in which it is credited by the "credit institution" to its profit and loss account for that year or, as the case may be, in which it is actually received by the "credit institution", whichever is earlier. 37. Section 6 of the 1974 Act which provides machinery for "chargeable interest" also makes it clear that computation of chargeable intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 April, 1985 and ending with the 30th day of September, 1991 shall not be taken into account. 40. Amendments to the 1974 Act in 1991 have not authorized a levy of interest tax on the interest paid or the liability incurred by a "scheduled bank" or "credit institution" under Section 4 of the 1974 Act. 41. Even if the Appellant/Assessee is covered under the ambit of the definition of "credit institution" in Section 2(5A) of the 1974 Act read with Section 2(5B) of the 1974 Act as it includes any other "financial company" as defined in Section 2(5B) of the 1974 Act, would not mean that the Appellant/Assessee was liable to pay interest tax on the interest paid on deposits collected from its Directors, Shareholders or its Group Companies. 42. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
