Commissioner Of Income Tax vs Aaspas Investment Pvt. ... on 26 November, 2014

[Cites 18, Cited by 1]

Gujarat High Court

Commissioner Of Income Tax vs Aaspas Investment Pvt. ... on 26 November, 2014

1. These appeals arise out of the common judgment and order passed by the Income Tax Appellate Tribunal and also involve common questions on law and facts and therefore, they are decided by this common judgment.

2. These Tax Appeals u/s.260-A of the Income Tax Act, 1961 has been filed against the common judgment and order dated 24.02.2005 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench in ITA No.60/AHD/2014 to 64/AHD/2014 whereby, all the appeals filed by the assessee were treated as allowed for statistical purposes. For the sake of convenience, Tax Appeal No.1805/2005 is taken as the lead matter.

3. Briefly stated, the facts are that on 14.03.2002 the respondent-assessee was served a Notice u/s.10 of the Interest Tax Act, 1974 asking to file a return of chargeable interest since it was noticed that the assessee-company Page 2 of 12 O/TAXAP/1805/2005 JUDGMENT was a Finance Company earning interest income from loans advanced by it. The said Notice was duly served upon the assessee on 22.03.2002. During the year under consideration, total interest received was Rs.64,24,776/- and u/s.5 of the said Act, the assessee was liable to pay interest tax on the interest income received.

4. In response to the Notice, the assessee filed reply stating that the company does not fall within the definition of Finance Company u/s.2(5A) and 2(5B) of the said Act. The assessee-company did not file the return of chargeable interest in the given time. Therefore, fresh Notices u/s.8(1) as also u/s.23 of the said Act was issued to the assessee.

5. Thereafter, the return of chargeable interest was filed on 26.02.2003 declaring total chargeable interest of Rs.48,69,303/-. In response to that, Notice u/s.8(2) of the said Act was issued and served upon the assessee. Thereafter, vide order dated 20.03.2003, the A.O assessed interest u/s.8(2) of the said Act and directed to charge interest u/s.12, 12A and 12B of the said Act and to initiate penalty proceedings u/s.13 of the said Act.

6. Being aggrieved by the aforesaid order, the Page 3 of 12 O/TAXAP/1805/2005 JUDGMENT assessee filed appeal before the CIT(A). The CIT(A) passed the order dated 20.10.2004 whereby, the appeal filed by the assessee was partly allowed. Against the aforesaid order, the assessee preferred appeal before the Appellate Tribunal.

7. After hearing both the sides, the Appellate Tribunal allowed the appeals filed by the assessee for statistical purposes, vide common impugned judgment and order dated 24.02.2005, which is under challenge in these appeals.

8. These Tax Appeals were admitted by this Court vide common order dated 07.09.2006 on the following substantial questions of law;

"(A) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to exclude the interest earned by the assessee company on the deposit made with other concerns while computing the chargeable interest of the assessee u/s.4 of the Interest Tax Act, 1974?

(B) Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to include the net interest only received by the assessee company on refinancing, for the purpose of computing the total chargeable interest under the Act, despite the clear provisions of Explanation to section 6 of the Interest Tax Act, 1974?"

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O/TAXAP/1805/2005 JUDGMENT

9. We have heard learned Senior Standing Counsel appearing for the Revenue. The questions of law raised in these appeals are already concluded by the decision rendered by a coordinate Bench of this Court in Tax Appeal No.1523/2005 to 1528/2005 decided on 24.08.2006. The question no. (A) raised in this group of appeals is akin to question no.(4) whereas, question no.(B) is akin to question no.(2) in the aforesaid group of appeals.

"The following substantial questions of law are proposed for admission of these appeals.

1. Whether the Appellate Tribunal is right in law in holding that the interest on debentures cannot be equated with advancement of loans and thereby, not chargeable to Interest Tax under the Interest Tax Act, 1974?

2. Whether the Appellate Tribunal is right in law and on facts in holding that the respondent is liable to interest tax only on the net interest received by it and not the gross interest?

3. Whether the Appellate Tribunal is right in law and on facts in excluding the amount of upfront fees and other income received by the respondent in calculating the chargeable interest under the Income Tax Act, 1974 ?

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O/TAXAP/1805/2005 JUDGMENT

4. Whether the Appellate Tribunal is right in law in holding that the amounts given to other corporations would be deposits and the interest thereon would not be chargeable interest under the Interest Tax Act, 1974 ?

So far as the Question No.1 is concerned, the tribunal has considered the issue as under :

We find force in the contention of the Ld. Counsel. Section 2(7) of the Income Tax Act defines as under :

7) Interest means interest on loans and advances made in India and includes -

(a) commitment charges on unutilised portion of any credit sanctioned for being availed of 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 (IB) of Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934) :

(ii) discount on treasury bills :

(S) "Prescribed" means prescribed by Rules made under this Act :

(10) all other words and expressions used herein but not defined and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act.

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O/TAXAP/1805/2005 JUDGMENT

9. Thus, investment in debenture could never be equated with the advancement of loans made in India. Hence, following the decision of ITAT, we find no merit in this ground of appeal, it is rejected in all the Asst. Years."

So far as the Question No.2 is concerned, the tribunal has considered the issue as under :

"We have duly considered the rival contentions and perused the finding of the Ld. CIT (Appeal). The ITAT in the case of Karur Vyasys Bank Ltd. has held that loans given by the assessee to ultimate borrowers were part of an overall scheme laid down and controller by IDBI / SIDBI and the assessee has no discretion in respect of any part of the transaction, therefore, such transaction was considered as an integral and the interest accruing to the assessee was considered as arising from the entire transactions. It has been further held that the assessee is liable to interest tax only on the net interest received by it. Therefore, in view of that, we are of the opinion that the learned CIT (A) has deleted the addition after following a number of decisions. We find no error in the order of learned CIT (A). Hence, this ground of appeal is rejected in all the Asst. Years."

So far as the Question No.3 is concerned, the tribunal has considered the issue as under :

"Before us, the learned DR relied upon the order of Assessing Page 7 of 12 O/TAXAP/1805/2005 JUDGMENT Officer, whereas learned counsel for the assessee relied upon the finding of the learned CIT (A). On perusal of record, we find that amount received by the assessee in the shape of fees ý cum ý service charges cannot be equaled with interest as received on loan and advances. Therefore, in our opinion, the learned CIT (Appeals) has rightly observed that these charges are not in the nature of interest and not liable to be included in the chargeable interest. Hence, the learned CIT (Appeals) has rightly deleted the above additions, both the grounds in all the appeals are rejected."

So far as the Question No.4 is concerned, the tribunal has considered the issue as under :

"In the Cross Objections, first grievance of the assessee relates inclusion of interest earned from deposits made with other Corporations / Finance Institutions. According to assessee, there is a distinction between loans and deposits. The interest earned from loan is only includable in the total chargeable interest as contemplated in the definition of ýSinterestýý provided in this Section 2(7) of the Interests Act. However, the learned Revenue Authorities below did not accept this contention of the assessee and included the interest from deposits with the Financial Institutions in the total chargeable interest of the assessee for the purpose of Interest Tax Act.

Before us, the learned counsel for Page 8 of 12 O/TAXAP/1805/2005 JUDGMENT the assessee relied upon three decisions of ITAT reported in 09 ITD 520(DEL) in the case of Oriental Insurance Co., 82 ITD 749 (Mum) in the case of Life Insurance Corporation and 87 ITD 11 (Del) in the case of Punjab National Bank wherein the Tribunal has pointed out disparity in expression ýSLoans and Depositsýý while discussing the difference of meaning in the expression ýSLoans and Depositsýý, the Tribunal in the case of Oriental Insurance Co., vs. DCIT reported in 89 ITD 520 (Del) (Supra) observed as under -

"In view of the above provisions, the case of the revenue is that deposits with banks and other institutions would fall within the ambit of the word ýSloansýý. While the case of the assessee is that 'loans' and 'deposits' are different expressions having different meanings and, therefore, interest on deposits is not chargeable to tax. Out study reveals that 'loans' and 'deposits' are not mutually exclusive terms inasmuch as (i) both are debts repayable (ii) in both the cases, money passes from one hand to another, (iii) in both the cases, there is relation of debtor and creditor;

(iv) there is liability to return the money depending upon the terms and conditions between the parties. Still there is fine distinctions between the two. In the case of the deposit, it is made at the instance of the Page 9 of 12 O/TAXAP/1805/2005 JUDGMENT depositors whereas the loan is given at the instance of the borrower for his use with or without compensation.

Consequently, the deposit is repayable only on demand by the depositors without the debtor having to seek out the creditor, while in the case of the loan, the obligation to repay is forthwith incur (though the obligation may have to be discharged in future) and the borrower must seek out the lender to repay the loan. Even the Legislature has made distinction between these two terms. Limitation Act prescribes the different period of limitation, i.e. three years from the date when the loan is made, while in the case of deposit, it is three years from the date when the demand is made. Even the Income Tax Act, 1961, has made distinction between these two terms. Section 269SS prohibits acceptance of loan or deposits in cash exceeding the prescribed limit.

Section Z69T prohibits the repayment of the deposits in cash exceeding the prescribed limit. It is apparent from these provisions that repayment of the loan in cash is not prohibited. Consequently, no penalty is leviable under Section 271E where repayment of loan is made in cash. On the other hand, penalty is leviable under Section 271E, if deposit is repaid in cash exceeding the prescribed limit.

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O/TAXAP/1805/2005 JUDGMENT Thus, it is apparent from these provisions that even the legislature has recognizes the distinction between the loan and deposit."

Following the above decision, we find merit in this ground and we allow it. We direct the Assessing Officer to exclude the interest earned by assessee on the deposits made with the Financial Institutions while computing the total chargeable income of the assessee."

The Tribunal has considered all the issues in light of the definition given in Clause (7) of Section 2 of the Interests Act. Considering the definition of interest given in the Interest Act, we see no infirmity in the order of the Tribunal.

These appeals stand dismissed at admission stage."

10. Since the questions of law raised in this group of appeals are already answered in Tax Appeals No.1523/2005 to 1528/2005, we are not assigning elaborate reasons while disposing off the present group of appeals. Accordingly, we answer both the questions in favour of the assessee and against the Revenue. The appeals stand disposed of accordingly.

(K.S.JHAVERI, J.) Page 11 of 12 O/TAXAP/1805/2005 JUDGMENT (K.J.THAKER, J) Pravin/* Page 12 of 12

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