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TMI Blog2001 (6) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of the previous year. 2. An interesting question in these appeals arise and that is with regarding to the scope of applicability of provision of Interest-tax Act, 1974 to a company which is not a financial company, in its ordinary meaning. The assessee in these cases are engaged in manufacture of bearing, rubber goods, wagons, textile machines and other engineering items manufacturing Sugar; tea plantation or growing agricultural produce, etc. These companies, however, issued debentures and received deposits from employees and in some case also from public, to finance their day to day requirement of running the aforesaid businesses carried on by them. 3. The claim of the Revenue is that the assessee-company received deposits by way of contribution to debentures under a scheme or arrangement and, therefore, it is a residuary non-banking financial company and, consequently, a credit institution within the meaning of section 2(5A), read with sub-section (5B)(va) of the Act and, therefore, liable to tax on their interest income earned on loans and advances given. In some of the cases, the deposits have been received from the employees of the assessee-company and on that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) an investment company, that is to say, a company which carried on, as its principal business, the acquisition of shares, stock, bonds, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; (iii) a housing finance company, that is to say, a company which carried on, as its principal business, the business of the financing of acquisition or construction of houses including acquisition or development of land in connection therewith. (iv) a loan company, that is to say, a company [not being a company refer-red to in sub-clauses.(i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise; (v) a residuary non-banking company [other than a financial company referred to in sub-clause (i), (ii), (iii), (iv) or (v)], that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or (vi) a miscellaneous finance company, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a close reading of the definition of the financial company, we find that each clause includes the particular company in this definition of financing company only when the company carries on a business of that nature 'as its principal business', except in clause (va), viz., in clause (i) the principal business of hire-purchase transaction; in clause (ii) the principal business of acquisition of shares, stock, etc.; in clause (iii) the principal business of financing of acquisition or construction of houses; in clause (iv) the principle business of providing finance by -making loans and advances or otherwise; in clause (v) the principal business of acceptance of deposits from members to be Nidhi or mutual benefit society; and in clause (vi) the carrying. on of two or more businesses referred to above either exclusively or almost exclusively. It is only clause (va) which is silent about the requirement of carrying on the business. Normally, therefore, it should be taken that a company receiving deposits is covered by this clause, but if it is read with the other clauses, particularly clause (vi), ie., a miscellaneous finance company which carries on either exclusively or almost exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in or under section 6A of the Industrial Development Bank of India Act, 1964 (18 of 1964) or, (a) any other institution that may be specified by the Bank in this behalf. (v) amounts received In the ordinary course of business, by way of (a) security deposit; (b) dealership deposit; (c) earnest money; or (a) advance against orders for goods, properties or services,, (vi) any amount received from an individual or a firm or an association of individuals not being a body corporate, registered under any enactment relating to money lending which is for the time being in force in any State; and (vii) any amount received by way of subscriptions in respect of a chit. Explanation I - 'Chit' has the meaning assigned to in clause (b) of section 2 of the Chit Funds Act, 1982. Explanation II. - Any credit given by a seller to a buyer on the sale of any property (whether movable or immovable) shall not be deemed to be deposit for the purposes of this clause;" The authorities have proceeded on this definition and since debenture is not excluded from the definition of deposit, like share capital, security deposit, dealership deposit, earnest money, advance for goods, etc., de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g loans and advances in order to earn income from such deposits as a business activity. 12. If we carefully note the term used in clause (vi), i.e. 'two or more classes of business referred to in the preceding sub-clauses', which includes sub-clause (va) as well and read the provision of clause (va) as covering a company irrespective of the fact whether it carries on the activity of receiving deposits as part of its business, it would make clause (vi) unworkable. In other words, if clause (va) does not talk of a business, then how clause (vi) can include the activity of clause (va) in its ambit, the activity being not earned on exclusively or almost exclusively as the business. In our opinion, therefore, the various enumerations of business in other clauses of section 2(5B), and more particularly clause (vi) gives an indication of a proposition that there must be business of receiving deposits under a scheme or arrangement referred to in clause (va). 13. As clause (va) to section 2(5B) was inserted by Finance Act, 1992 w.e.f. 1-4-1993 and a reference to the RBI's guidelines has been made by the Finance Minister and in the memorandum explaining the budget, let us understand th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently, would not be subjected to charge under the Interest Tax Act; the issue of debenture or the receipt of deposit by way of contribution to debentures is not being part of its business. The assessees in the present appeals, as aforesaid, are sugar manufacturing company, engages in manufacturing bearings, textile machinery or other engineering goods, etc. Some of them are carrying on the activity of agriculture. That it is almost an admitted fact that none of these companies are carrying on the business of receiving deposits by issue or subscription to debentures or of receiving of deposits from the employees. They have raised loans by issuing debentures or by accepting the deposits from the employees for the use of the money for carrying on their sugar or other goods manufacturing business or to carry on the activities of agricultural operations. 14. In the Revenue's appeals in Interest Tax Appeal Nos. 23 to 25 (Cal.) of 1999 and 13 (Cal.) of 2000 in the case of Nilgiri Plantations Ltd., the CIT(A) had granted relief to the assessee on the ground that the agricultural profit was much more than that the other income and on the basis of this criterian the investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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