Income Tax Appellate Tribunal - Delhi
Tulip Star Hotels Ltd. vs Income-Tax Officer on 11 April, 2008
ORDER
K.G. Bansal, Accountant Member
1. The only ground taken by the assessee in this appeal is that on the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in upholding the finding of the Assessing Officer that investments in shares on the Mumbai Stock Exchange were at par with loans and advances and consequently income form such investments amounted to interest chargeable under the Interest-tax Act, 1974.
2. In this connection, it is mentioned in the assessment order that the assessee received income of Rs. 21,67,902/- from Vyaj Badla transactions conducted at Bombay Stock Exchange. This amount was not included in the chargeable interest. It was explained that under the Act what can be brought to tax is interest on loans and advances. Income from investment at Bombay Stock Exchange for Vyaj Badla transactions was on account of purchase and sale of shares and, thus, it did not amount to interest on loans and advances. The AO considered the facts of the case and the submissions made before him. On perusal of the contract notes issued by M/s VAR Shares & Stock Pvt. Ltd., a member of Bombay Stock Exchange, it was found that the word "interest" was used. Therefore, his finding was that Viaj Badla income was nothing but interest income. Accordingly, the impugned amount of Rs. 21,67,970/- was included in the chargeable interest.
3. The assessee repeated more or less the same facts before the learned CIT(Appeals). It was explained that badla finance was required by buyers and sellers of shares, who had outstanding positions on the date of the settlement. In the case of over-bought positions, the seller wanted to effect the delivery of shares exceeding the requirement of the buyer. Therefore, finance was required, which is known as Vyaj Badla finance. In such a case, the transaction was carried forward and Vyaj Badla financiers receive the difference in price prevailing on the date of settlement and the rate of sale in the next settlement. The position was the opposite in the case of Undha Badla or Teji Badla. Thus, Vyaj Badla finance was a short-term investment for say about a week. The yield would vary from scrip to scrip on the settlement date and also on the general condition of money market. Such a finance did not amount to a loan or an advance for the reason that the Badla financiers stepped into the shoes of one of the parties to the transaction on the settlement date and, therefore, the transaction was in the nature of purchase and sale of shares although involving a fixed rate of return depending upon the market conditions etc. prevailing on the date of a particular settlement. The learned CIT(Appeals) did not accept the submissions of the assessee. He referred to the decisions of Hon'ble Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 , in which, according to him, it was held that where the assessee deposited its funds in another concern without right of participation in profits, at a fixed rate of interest, and the value of the investment did not fluctuate, such deposit could be termed as loan within the meaning of Section 13(2)(a) of the Act. It was pointed out that the assessee had made short-term fund available to the contracting parties on Bombay Stock Exchange on the date of settlement with a view to earn a fixed rate of interest. This rate may vary from transaction to transaction and from settlement to settlement. But the amount was advanced at a fixed rate of interest without leading to fluctuation in the amount or right of participation in the profits of either of the contracting parties. Accordingly, it was held that the transactions were in the nature of loans and advances and interest thereon was includible in the chargeable interest.
4. Before us, the learned Counsel for the assessee referred to the findings of the AO and the learned CIT(Appeals), which have been summarized by us. Thereafter, he referred to page 49 of the paper book, which gives the details of all the transactions, numbering 53, leading to profit of Rs. 21,67,902/-. He also referred to various bills in respect of these transactions placed in the paper book at pages 50 to 73. In particular, reference was made to page 56, being an illustrative transaction narrated in the bill. The bill showed purchase of shares of 7 companies for a consideration of Rs. 91,66,645/-. According to him, the delivery of these shares was taken by the broker of the assessee. These shares were subsequently sold to the party who was having an over-bought position and consequently the delivery was given to him. Therefore, his case was that the transaction amounted to purchase and sale of shares with pre-determined rate of return. Since the transaction involved the purchase and sale of shares, the return could not be said to be interest even if the return was pre-determined. He referred to the provision contained in Section 5 of the Act, under which the chargeable interest shall be the total amount of interest (other than interest on loans and advances made to other credit institutions or to any cooperative society engaged in carrying on the business of banking) accruing or arising to the credit institutions. The term "interest" is defined under Section 2(7) to mean interest on loans and advances made in India. The definition contains certain exceptions, which are not relevant for our purpose. Reliance was placed on the order of Hon'ble ITAT, Delhi Bench "E", (Special Bench) in the case of Housing & Urban Development Corporation Ltd. v. JCIT (2006) 5 SOT 918, in which a reference was made to the decision of Hon'ble Allahabad High Court in the case of Sahara India Savings Corporation Ltd., wherein it was pointed out that it was open to the legislature to define a word and if that has been done, that meaning has to be followed and meaning to the word given in common parlance will not be applicable. Thus, the meaning of the word "interest" means only interest on loans and advances and this meaning could not be extended. As contended by the learned Counsel for the assessee, it was his case that although the finance is known as Viyaj Badla finance, which carries a pre-determined rate of return in respect to a particular settlement and a scrip, yet the return is in respect of transactions in shares. Therefore, the income so earned is not interest on loans and advances. In reply, the learned D.R. relied on the order of the learned CIT(Appeals) and in particular on the decision in the case of Sarladevi Sarabhai Trust No. 2 (supra).
5. We have considered the facts of the case and rival submissions. The case of the assessee was that the transactions were in the nature of purchase and sale of shares, for which the delivery was taken and given by the broker. We find that there is no evidence of taking or giving delivery by the broker of the assessee as distinctive number of shares have not been mentioned in the contract notes filed before us. Notwithstanding this deficiency, we are of the view that taking and giving delivery by the broker of the assessee does not by itself lead to the conclusion that the transactions were for purchase and sale of shares. The reason is that the essence of Vyaj Badla Transaction is not purchase and sale of shares but to provide finance for smooth carry over of the transactions on the settlement date in respect of persons who are in over-bought or over-sold position. In such a situation, even if the delivery is taken, it would be only a security for the finance provided by the assessee as there was never any intention to purchase the shares and subsequently sell them. Therefore, we are not in agreement with the learned Counsel that the income was business income from purchase and sale of shares. In fact, it will be more correct to say that the income was for providing finance to one of the contracting parties for a short period for carrying over the transaction to the next settlement period.
6. Accordingly, we are of the view that it is a case of extending loan, the income from which will be interest from loan, includible in the chargeable interest.
7. In the result, the appeal is dismissed.
The order was pronounced in the open court on 11 April, 2008.