9911796707
TMI Blog2004 (7) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... the Chit Funds Act, 1982, that a return declaring total chargeable interest at Nil was filed; that in the course of assessment proceedings, it was stated on behalf of the assessee that the business carried on by it was that of conventional chits and hence it was not a credit institution as defined in section 2(5A) read with (5B) of the Interest Tax Act, 1974 (hereinafter called the Act) and hence the subscriptions received in respect of chit fund were not covered within the ambit of the Act. The Assessing Officer agreed that the assessee was a chit fund company and the income by way of auction of the chits was by way of mutuality and hence not chargeable to tax. However, the contention that the assessee was not a financial company, as defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Non-Banking Company, falling under section 2(5B)(va), therefore, interest on loans is chargeable to tax. On the contrary, it has been strenuously argued on behalf of the assessee that it is not a "Credit institution" and, therefore, the interest on loans cannot be put to tax. The primary question that falls for our consideration is to decide as to whether the assessee is a "Credit institution". If it is answered in the affirmative then obviously, the interest on loans would be subjected to tax and vice versa. Section 2(5A) defines the "Credit institution". Clause (iv) refers to "any other financial company". Sub-section (5B) defines "financial company" to mean a company, other than a company referred to in sub-clause (i),(ii) or (iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to the agreed terms and conditions, payable not in the specific money deposited but in an equal sum sometimes interest added to it. It shows that the "deposit" is essentially repayable with or without interest subject to the terms and conditions. 6.1 Adverting to the facts of the instant case, it is found an admitted proposition that the assessee is a Chit Fund company in terms of the Chit Funds Act, 1982. Section 2(b) of this Act defines "Chit" to "mean a transaction whether called Chit, Chit fund, Chitty, Kuri or by any other name and by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money or certain quantity of grain instead, by way of perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amongst five subscribers, who will either receive Rs. 18 each in cash or contribute the next instalment of Rs. 100 at Rs. 82. This process will go on till the group is completed after five months. This system of working of the chit fund company divulges that no subscriber is entitled to the amount contributed by him in chits. He is only entitled to the prize amount. The subscribers who lift the chit earlier will evidently suffer a little loss vis-a-vis those who take the chit amount later as they would tend to gain by way of proportionate reduction in the monthly instalments. The Assessing Officer has treated the receipt of instalments of subscription from the members as "Deposits". It is seen from the example cited supra that the instalmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned to it in clause (b) of section 2 of the Chit Funds Act, 1982. This definition leaves no scope to contend that the amount received by way of subscription in respect chit, cannot be construed as "Deposit". 6.5 All the Non-Banking Companies are subject to the control of the Reserve Bank of India. In 1987, the Reserve Bank of India, Department of Financial Companies, has vide notification, issued directions to the Residuary Non-Banking Companies. These are called Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. Part-II of these directions states its applicability to every Residuary Non-Banking Company. Such a company has been defined to be a company which receives any deposit under any scheme or arrangement, by whatever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -banking company which receives any deposit under any scheme or arrangement etc., cannot be held to be applicable to such Chit Fund Company. As the Assessing Officer agreed in the opening part of the assessment order that the assessee is chit fund company, governed by the Chit Funds Act, 1982, we, therefore, find no hesitation in holding that it is not covered in section 2(5A) read with (5B) and is accordingly out of the ambit of the Interest Tax Act ex consequent, there is no scope of framing any assessment on the assessee under the Act. In the final analysis, we set aside the impugned order and direct that the assessee cannot be subjected to tax under the Act nor there is any question of charging consequential interest under sections 12 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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