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TMI Blog2004 (6) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... y of interest earning deposits, to other companies for a fixed term on which interest income is earned. Such deposits have not been made in response to any invitation to make such deposits by the other companies. The transactions have been finalized through brokers. The object and purpose of Interest Tax Act is to levy tax on interest income earned on loans and advances. Even the Bombay High Court in the case of Durga Prasad Mandelia [ 1985 (9) TMI 282 - HIGH COURT OF BOMBAY] has observed that in certain circumstances loan may include a deposit and a deposit may include a loan . It has also been observed that the term loan is a generic term which includes a deposit also. Further, the scope of the definition u/s 2(7) is also enlarged as it includes interest not only on loans, but also on advances. There is no specific provision in the Interest Tax Act, which grants exemption in respect of interest on inter-corporate deposits. Thus, we hold that interest tax is leviable on the interest income earned by the assessee company from inter-corporate deposits. The CIT(A) has already directed the Assessing Officer to exclude interest for the period up to 30-9-1991. Therefore, on this issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,369 (b) Interest received from 1-10-91 Rs. 4,47,353 (c) Interest on interest pertaining to the period up to 30-9-91 Rs. 1,49,568 Rs. 14,47,290 "Ground No. 2 is against charging Interest-tax Act on interest of Rs. 14,47,290 being inter-corporate deposits. The appellant has pressed the same arguments as advanced in the case of interest on debentures and bonds. For the reasons given above, it is held that the interest on inter-corporate deposits represent interest on loans and advances and accordingly the provisions of section 2(7) of the Interest Tax Act, 1974 applied to such interest. The appellant has also raised an alternative plea that interest received up to 30-9-91 amounting to Rs. 8,50,369 ought to have been excluded from the chargeable interest in view of the fact that the amendment to the Act was effective from 1-10-91. I am inclined to agree with the counsel for the appellant that in so far as the interest received up to 30-9-91 is concerned, the same is to be excluded from the charging of interest tax. The Assessing Officer is directed to verify and modify the same accordingly." From the above, it is seen that the ld. CIT(A) held that interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company and borrowed by those companies, they had to be considered as deposits for the purposes of section 370. Section 371 laid down penal consequences for failure to comply with the provisions of section 370. Since non-compliance involved penal consequences, section 370 could not be given an interpretation wider than that warranted by the actual words used therein. Without any provision to that effect, the word 'loan' as used in section 370 could not be given a wider interpretation so as to include deposits. The dividing line between a loan and deposit is undoubtedly thin; the two, however, are not synonymous. Sections 58A and 227(1A)(d) indicate that it may not be possible to interchange the terms 'loan' and 'deposit' under the Companies Act unless there is an express provision to that effect or the context makes it clear that the terms are interchangeable. It is true that both in the case of a loan and in the case of a deposit, there is a relationship of a debtor and a creditor between the party giving money and the party receiving money. But, in the case of a deposit, the delivery of money is usually at the instance of the giver and it is for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6. The ld. DR supported the orders of the Revenue authorities and submitted that the definition of 'interest' contained under section 2(7) is inclusive definition. As per this definition, 'interest' means interest on loans and advances and also includes some other receipts as mentioned thereunder. It is argued that the term 'loan' and 'advance' is very clear and unambiguous and there is no question of beneficial interpretation in assessee's favour when the provisions of law are clear. For this proposition, he has relied on the Karnataka High Court decision in the case of Mysore Silk Industries Ltd. - 185 CTR 417. The ld. DR submitted that the cases decided by the Bombay High Court and relied upon by the ld. counsel for the assessee arose under the relevant provisions of the Companies Act, 1956 and therefore have no relevance for the purpose of the Interest Tax Act. It is submitted that the provisions are materially different. It is submitted similarly that the cases which arose under section 269SS or 269T cannot be applied to the provisions of the Interest Tax Act. 7. In his rejoinder, the counsel for the assessee submitted that the Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, there is a clear distinction between the term 'loan' and deposit. Section 370(1) only refers to 'loan' and it was held by the High Court that the term 'loan' as appearing in section 370(1) will not include a 'deposit'. It should also be kept in view that the Hon'ble Bombay High Court was concerned about the consequences of contravention of section 370 of the Companies Act and therefore the provisions had to be construed very strictly. It is significant that the term 'advance' has neither been considered nor dealt with by the Hon'ble Bombay High Court in the above cases. In view of the specific provisions of sections 58A and 227(1A)(d) of the Companies Act, it was held by the High Court that it may not be possible to interchange the terms 'loan' and 'deposit' under the Companies Act, unless there is an express provision [o that effect or the context makes it clear that the terms are interchangeable. It may be mentioned that the section 227(1A)(d) also makes a distinction between a 'loan' and a 'deposit'. It has also been observed by the High Court that some 'loans' may be 'deposits' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -corporate deposits. Considering the entire facts and circumstances and the provisions of law, we hold that interest tax is leviable on the interest income earned by the assessee company from inter-corporate deposits. The CIT(A) has already directed the Assessing Officer to exclude interest for the period up to 30-9-1991. Therefore, on this issue, the finding of the ld. CIT(A) is confirmed. 10. The last ground of appeal is as under: "On the facts and circumstances of the case and in law, the appellant submits that Section 26C of the Interest Tax Act gives power to the credit institutions to vary the rate of interest so as to include the interest tax and the interest tax has been levied on the gross interest received and accordingly as per the principles of diversion of income by over-riding title, the interest tax liability ought to have been computed at 3/103 of the amount of interest received and not 3/100 of the interest received." 11. The ld. counsel for the assessee submitted that this issue is covered in assessee's favour by the ITAT, Pune Bench order dated 3.8.2000 in the case of United Western Bank Ltd. in Interest Tax Appeal No. 13 and 14/Pn/96. A copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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