Karnataka High Court
The Commissioner Of Income Tax vs M/S Canfin Homes Ltd on 11 April, 2008
Equivalent citations: AIR 2008 (NOC) 2337 (KAR.) = 2008 (4) AIR KAR R 541, 2008 (4) AIR KANT HCR 541 2009 TAX. L. R. 48, 2009 TAX. L. R. 48
Bench: Deepak Verma, Anand Byrareddy
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DATED THIS THE 11*" DAY..QF APR1%L%2a%o3Li i V % *4
PRESENT; T X T
H0..r°BLE
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Income'-tax, " ' "
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Queens Rbad, ' ~
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£:;\rn1n:3u1lIn I'
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A Indoiiia-tax Assess' ent
"S_pc_L'._i'ai_- Range-6
CL ~~R;'Bui1ding,
AA ; LQu6e'ns'Ruad
' fiangaiore
Shri. M-.V. Seshachulu, Advocate)
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'COMMOIf~I_ j
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AN" :
M./s. Canfin Homes Limited .
Sgxdanti Kutir, ND. 32
2'" Fioor _ w. «.
Race Course Road " _ V A _
Bangalore -- 560 001 IK'jES'7f0Es"1)E}\IT
' -,_CC9MMON
(By Shri. G. Sarangan, Senior A{.i\iueaie' % '
h
9.1-:.e1.g __, Vani and Ramamurthjf;Adié0eate)
31;: "un~:ler«fiVSeelion 260-A 01' I. T. Act,
1961 :V'aArisingV.VVeuifsei' 00100 24.10.2002 passed in ITA;
No.12/Eeng/BOOB. year 1997-98 in I.T.A.Nu.
l24g'2€)Q3 for the Assessment year 1996-97 in
' :.»r.;m.. 1025/20030000 etc.
. wspjieais having been "ea u and reserved and eemhlg
um ibsr' ' pfuhuuiicefiieiii ef Jee'."emee'. Luis day, . .NA_N!)
perlain in the same assesses ---- met 'me-y are in respee£ .3.'
Q
, ll'-3fli'ii3.gitl:1I3ti:5s6SsI5¢3, by an order du'ed l.
_1:m___,_,,. l___a ___-_..-_i__-___.__¢ __.-_-_.- _.":;'.;:-«_.V.'--~1_.r\"c'u; iw;
[WU ulllflrc I Ul-ll CUHSWJUUIIVC $155533" Uni yfiflffi 11351113!)-
and 1997-98, respectively. The controversy and' oi" _
law involved an: identical.
2. The assessee is a financial _ i13stitution.:T he iassessee had
Iiled its return o1'IncoIr1e_Iii1de:f [lie vgarevisions 01' the Interest Tax
A ,.. tn»-ta :rr.,,.,:,,,,n.,,, 9., Li: 1' I '1 \ rm _
flfil, mm {_1'161"G.7l':lfl.ll.t5I' retested Lees me 'Act 10!' brevity). we
assessmentfin of the y.ear--._"i 9.96-97 was completed by order.
dated 1.9.3.. Tlc;e_chiiigealiie--inl.ei'est declared was accepted.
3.9 However. Cerintniissiouer of Income tax, in exercise
of power under. Section 19 of the Act, proceeded to hold, alter:
4'! n «Ann .1 . . 0
I .G.£.UUU lflfll. H Sllfll U1
additional interest collected byithe assessee
met! 1' I I' levy under t_-e
frcrii itlscostomers in res ct ofloans advanced, was also sub'ect
. ._ P6
Act It was fit .!1er held that 9.
. I"I
--_. . .. ....... - - . .. .... .. r-
.'-ad
Schedule 11 of the printed accounts of the ass-essee for the year
ended 31.3.1996,-a sum urns. 3,75,41,o23/-- was shown but the
same was not examined by the Assessing Oflicer. And
accordingly he was directed to examine wheihef ii"
chargeable as per the provisions 917» the _
uppurtunity to the assessee. The asseasee: had ll
ta: the Inesme Tax Apwllate .-nbamal agasmat t_..e"a*"ve "filer.
The Tribunal having V allpwed""'lile'j' appeal, ltlie* Ftevenue has
preferred the appeal in
4. ::.I'a"" the year 1997-93, the:
Assessment hekltptllatll amauilts collected by the assessee
E
n '. V ~ > 'n._ n a I _ \
J6": :_ts_deb'.urs_ tagvzgrae. Ha I1-..%_.,:l:ty '.9 pay Interest tax lemme pa. .
of the chalgeableViVntefeell'within the meaning u1'Seetion 2 (5) read;
5 ti'1'e"Aet. This was challenged by the asses:-zee
"Commissioner - Income tax, unsuccessfully. On a
1.... "f'_iL..... I
I
l'u1~"-i.__herV_ vappeel by the befiire the ribuiial, 'um 1: until
A in favour of the assessee. It is this which is under
ll 'plrallenge in the connected appeal no. ITA 124/2003.
The questions of law that are raised in these appeals are:'
3
"{i} '. -=* er the rim" is en es. in law in. _!1";1;i.=i,.e"-
that the order passed under Section 3(2) of the.V;éte=t i
Assessing Oflficer is not prejudieie-i to the iri-tereitt A
revenue and is not erroneous, arid .. :tl1eief'ore:"' tire
Commissioner has no jurisdiction ut1lr'i*e;;i'w,x:ctiontVi?9 tiie .
A--tt- 'lTiflg tire - . it ' " i
(ii) Whether the law inilllolicling
that interest 'of Ra. 2,(i9,i4Q,'0ii the debtors
I I ......_._
n
V
'3:
is not eilargeujre io ' ii'? ;.:e'*_uri.26§C" tire Ii'z'"r'st
'i'a.-.A.«:-t'??**V l A i H A
5;' o:1lBehuill' of the Revenue that the
1: in ' >--.,:iii*s-"ii" Ii.' . . .. 1... :_____.1_:___. c1__._.:_.__ rush
flSS{§SS6t.iIll:l£.l UI.)l~l¢.'r'l-."r'i.¢3.(1Viit'}-(..'_|lt3.,(')l"Vi-'Ell lI1|.6l'GSl. Dy lIlVU1&1ilg DUUIIDII 4-01.:
of Aetl' aiiditional urnount can only be treated as
GllVii.'i§e£z.i3leinterest§i """ is contended that Section 26C was.
to';t'eeiiiteieeeredit institutions to vary the terms of agreements, in.
respeet'ofterin loan transactions entered into before 1.10.1991, so
increase the rate of interest stipulated therein to the extent to
....n
under the .-$.21. The said ....-.:|.'-.n s:-a..not _- in.to..:siinfv1t:o
in respect of transactions entered into oftgsr » i
6. Thcre is no provision undisr this 'wihioli i
asses:-we to collect any amount snrintereot Vlaxiarsd aotho. nrnoun!.s'-
could not have placed.
relianoo on this i the case: of Commissioner of Income-_. .
i. ._ V' _l; i"~:...: .. -
Tux Vs. l3t£n1L~u)f I'v€ud.u1'a:.._L::::itssd, 215 ITR 928, the sea... can-'.3
Lu lhi$i"ae;se,-ssment yours 1975-76 and 1976-77 when
i ..ijr'ovisiu11 similar to Section 26 C. Furthur the lhotfs
3:5 also _lii_§+;<;iic_ent »- in Lhnti the bank, in that case, was collecting
AAinterést_. from its borrowers and paying the saint: i." th"
i 'oifioviornment. The Court held that there was no prohibition to do
---iso. It was held that the amount of tax collected would not
the bank was eullecting interest tax_fiTtJI_I_1 its v"()nx.vtl1e.
other hand, in the present case, the aisse9'see'3h:is._ett!leeted"i1)té:rest
at a higher rate and that no deduetiun euhttlala hegi-yefliifi' respect of
;;_-.t
such amounts white computing the rhargeable il
auttlolgisedm fxxriflseeks to draw sustenance from
the deeisipii 91" the "Court in the ease of Indian Banks
Asse;1eiai.ion'4_V"Devsi;at;t Consultancy 267 ITR 179, in this
Ael, at pages 188-189 thereto.
a It:2i.s.'there1bre, prayed that the appeals be allowed and the
nqt1esl.iu11s uflaw be answered in favour of the Revenue.
6
l'\
:2. Per contra, Sini. G. Surungan, Senior
appearing for the respondents, euntends__ti1ut.'il.]ieittie' .
Tribunal does not warrant interlerenee 1:. is £:!....1L'-I'.£.'.e£.i Li¢*£'é..it%'*ii"!}l%'.iIli would indicate that was . u itiIni'te<ii3purpose of enabling institutions, passing on the burden of tax u114ier:iI'tl1e Act; The Counsel would submit that J' Fer tnsteizee a mini" Va-a'i'R*s. 10% tent was charged with a rate a'._)f interest. et".'..0'§*' interest earned would come to Rs. 10/-. In ilierltlt-1 of interest tax payable thereon is at 3%_er"30 «Appliying this to the mnounts eelleeted .3; th, accounts inuintained by it, which have been serutinii2ed"_'by':tIiei'Revenue, would clearly disclose that out of Rs. 10.5019 eelleeited as interest on every Rs. 100, the sum ul'30 paise L11'! In "If! pfllignag as Ininr:-I51 _ taX_ The- nfiditionai interest so euiieeled is in accordance with the enabling provision namely Section 26C and the assessee having acted in terms of the same -- the Revenue seeking to treat the total sum ut'_ & \.r has therefore, rightly allowed the appeal
10. it is also contended_ that' decivsioni Eanis; Madhura (supra) having been with: retfierenceito a-point of time when Section 26 C not eaten 'in_'ei{i'sitence, the ratio of that decision would iippiy ,with greater at ate the of 'me assessee. by the Revenue on a sentence in _ise]ati<§n, ,_in -»l_he__decisi.on, of Indian Bank's Association is elearly iuintezzabie... -_'LiI.!gi!! to be dawn out -1' context.
it i' _ hence that the appeals be dismissed. it u these contentions -- we may tirstly, note that the; 2 ~ ilntexestiiiliayt Act was ena_'_ed by Parliament with effect Iron}; $1974. The object of the Act was to impose tax on the totai amount of interest received by Scheduled banks and credit institutions on loans and advances. The Act was withdrawn in the 10' year 1978, but re-introduced in the year 1980. withdrawn in the year 1935. It was re--introduee;3]yet ii!' _. .:_-._ .r' : ______ .- ._ V 1 ' 1. Fiuzuluu 113:-L,._ 1991 referred to as 'the 1991 Act' 1'orh'brevilyV).S'eetion with effect from 1.10.1991 same is by day of October, 1991, i_t._shal_I"'t1e" fer' "e:'.sr:.di£ etnstitution to van; the 2:agreen1ei1it'.so..;;:§'«to in:ei*e,§.je_ the rate of interest stipulated the-tetra. the such institution is liable to pay this A": E1 "l*'£r"1 ta the amaurut ' Gf.interest' temms loan which is due to the credit iI1'stiti1'tign."
Ftom a plain reading a Section 26 C it is clear that the said previsiun vests a credit institutiutl with power to vary an:
nt with e lxrrruwer in mggeet Lf :1 I -m it » m.- it per _ _ _-__ - 7 .. _ _... -_ vw--.-. ya--- nu... p Q; . --
"Hpriur to H991, tu increase the rate 01" interest slipuiuted to the 2% as.-ssssec .u-as," ' 'antic. a 11 'II I .. .. m ...... ..: H . . . .. *..1.':'.. -1' ....... .. -r - 6}-'J6 at uf 1u\2uul.lu|5 ua U 1';
iiiijy in iu'u'.m::s'L the burden of the tax on its borrowers .... .. _
13. The argument of Revenueiithut be construed as a charging 2 a1i¢l"thst' 'tl1e}suid section having been introduced-«. the hardship of the . :1 .. .. .,: Lin 1h 'i m.iu.u.1unn nu 4'5 l.)GU[..'£U »'r V 1 .J,l;_,_1_)"' E ciedii loan iraiisactiuns it':
7. so that such institutions' can reimburse themselves on account..o[ u:ltiinaitely»il'r¢)1n the borrowers. 'ii "14.. liglit u finding by the Tribunal that the '* "'i"eeinents e"ecu'te¢i subsequent to the period I§'i.Q.«l9'9:l;;incoiiiiorstcd a term imposing an obligation on its ' toipuy to it such amounts as are payable by the assessee V. to the Central or State Governments on nct:t....Int L- any L..- 1'-'!'$"'E...'d on interest on the loan by such Government, is signilicant. The circumstance that the assesses having collected the liability of Interest--tax from its borrowers in terms of the contractual 12 ._.. 1... .. ._-..._ L ..r ,'".'.".;':«,.-'.;._ G":n 11 'um ail ugiu i.11_.--S__uu'11uJ,i ----4.'.i')L_«
--> s...
material. And the further circums_l_am:_t_:' 1 . maintained a separate account in re:i'pac"i_i_ioi'i tho'oit:o'unls,i_i"ti1oo;gh collected as additional interest-.y§aa,9g in iiititti ia_.»wa:r:i's:.' ';y1i1-nt oi _, V ,. V' I. were not "interest" within' 2(7) of the Act- and hence ccJult.l':1ot_'bo t:featoel~':as'oliéitgoziiilis interest for purposes 15; .__'i'hc hold that lheidecision in the casoiof Bankioi'MaiiI1Lira, isupra, would apply on all tours to the 'I llll'l_h 1 LI 4- AIAIGMIII :---r- 1- !-=- ---"--"--'-'--- "---- :"- --" '-"'i' ' V *"'.'."fibt:'.'1.t yang. ::_i'iu ubau: vu'uuu uf 'um Supi um Cuuli ll! iilu Lube oi iilniiia Assiwiuliou, supra, as to the scope ot'Sc:uiion 26C is to tile zfoiiowiiilg effect:
A' ' "Siéctio11 26C of the Act:
Parliament by reason of the said Act imposed aitax on the banks and other financial institution. By mason of the said Act, the appellants were not statutorily empowered to pass ''1: biird' 1 me bofrowers or reaiise the
- -----v----', 5 q.-
iu "fi3st--tax, does uompoi us to :!'i()is'i iiiiaiiéilc aniountoso colieutocio 13 terr-..1.s of the agreem Ant o. he term lmm *5 n -r 5 unit Illlllll
-tuna, nae u*!5IIv.I.Iuan'_§""-._ were not entitled to charge interest at a higher_ra_te_"than agreed one. Section 26C was, tlterefhre, .enri.4cted.co' to V enable the bankers to realise the an1ouni"ut"'itaxiwhich' 7 A were liable to recover on_tlte_ charge_ahie intereet;V. ::The appellants have proceeded one-the'-thesis thef it-"f7in_g regarri to the definition of __"chargeabie:'i1tereet" eel cc.ntai_.fi in section 2(5) of the the aciiiiditieajlai ~--.i_ntereet_ will have also to be calculated for the with of tax must he 4.cala.:t1latc'dV' 'which; as noticed i1ereinheiiore.l;¥i'es;tlted .ir1€addi11.gV for the purpose Qf NF fir-I: . 9 "Eu" P' nil.
_A How _?eit1iament.___thought of the matter is the tieestion. .'i'i1e.i"U:iioni"ef' Inciia does not agree with the contention; ot't..e'a,o§eeil5a1:teito:'d we. The action on tue H ' part: of the appellants suggests that they had put the cart l1eforet- the horeeL"""Fhe action of taiun' g recourse to section " T arise only when the chargeable interest is « celcix£ate'ci;'Whereupoi1 only the incidence of tax under the .w'a;; of additional interest. The entire a,;:» :-l "L. ...--..-.---.--.I -- 2--
eem is requued to he pumwu at Ll! *"e borrowers by 1-1-
-ae.1 ' the ajjpellants was based on a wrong premise. The said Act, is a taxing statute. The Union of India under the said Act cannot direct or permit the bankers or the financial institutions of raise interest. The Act must, therefore, it ' I-'I-' ,4 4... :1...
,....,......... c....e.....ct:u.. so as w five meet I!) me urpott and object it seeks to achieve. (see BBC Enterprise '$5 14 T {A 'II' I-I:='-FAA!' 'r"I"ll1];fl:l\I"£ I fr' I100 WI 7: 11.! 195'] 1' 3' a o All 121: mg rra-£\«... " :_.
in 1.3% \.Il2__fVV -. _ at 122-3; Mohan Kumar Singhania v. Union of_India, AIR i 1992 sc 1; Murlidhar Megl1rsj'""Loya _.st_£ue_or'v.."V Maharashtra [1976] 3 SCC 684; 5$i1per'inter1de1.1t:"
Remembraneer of Legal Affairs to Govemnter-1' West 3 1'-|--___I s- .l|.....-'. 11;-.L_ rcnn-up as n,r'I,r1 .n,s_-q 1}-"IL ,,;.".t-g-_,,V'-,1, Dflngal V. HD3111 IVE" y 113' I5"j_>"|' DLLI UJ',..l\.fl§I_ DEE" V. I_I;;s_n_ 9:' indie {gong} . S£1;'--._.LI1diar_"Iria__IA;diere_i'£s Emporium v. Union ---offj--Indi:a_ '7»s_c 446; Ashok Leyland Ltd. v. State of 3 SCC 1;
[2004] 23:1 249 ¢os}:.V9r'eGqs:;rat v. Gujarat i<ishan4.I€iazd§§6rs'r'a;j¢sa5,st"{sees} 5 50) V .... _ ;svent,_j"'fl1e' eontentioil of the appellants is :.sccepted,'5fne_sar11e would_ give rise to incongruous results. Such an interpre;ts.t_io:1._:iVasis--weil-icnowri, must be avoided, :4' M', :.1;J.t¢. ' 1.1-.'..+I;ss..."=....., .. ..+,.r..+,..... :.....,_..+ ........+ I..._ ll IIVfi!|«|fll-7.I\h .L|o|'L.IuIl\fl'..I.I'l\JI§J, H B Ilnllollly I-IIIEJIJHI lllufll. UV 'definite. regard to article 265 read with article 36fi(23)A of the tiehstinrtion of India nothing is realisable as 1 way of recovery of tax or any action akin « iliereio vriiieia is not permitted bylaw. ii 4' It is neither in doubt nor in dispute that section 26C enabling provision. It has "to be so construed, having 4' regard to the term "lawful" used therein. It merely prevails over an agreement under which any term loan has been sanctioned by fire credit institution before October 1, 1991. It was "lawfinl" for the purpose of recovering the amount of tax which was payable 'by the 2% 'A id' "3' A" _ '~_'_______ ______'_u____ __ _' . rulu Etlfilfitivtfilluc scan lg u 1 15 appellants and a forttori-nothing over and above fit¢"'8an1Ye .~ ;_. it ' Such increase in the rate of interest would be (Ea)-._:tov jtiaevvn extent to which such institution is liable. tn intetettt tax; (b) in relation to the aittouitttgf iitteseistttcani che'--~¢erm;-t,__ it ioan; and (0) which is due totime credit---in§titution.» . . A " ° Increase in the rate of itinteiest in te'r:11_£t inf section 26C of the Act, thus; a esiitéct néxiis-.wifl1 tlidstatiitory impost. The action on'tt1cvpait_ _oi'fti.ie épgieiitiitts in r landing 9*'? m"t!1.e l.r:te::"es., .h!!%';,v-Wfifl whet! I'Iii:1ntifi¢_2--:3; D I .. .. ...,, ..._,._.. -.nc_:s !t !_ held that;mdi'§§ée in inte1?esst":in 'avjtistiiiat.)1eTfn1aI1nen' pertains to'par3st|t'g_««.oit~- iihg contention that the gang: * batik in exercise of its .r_eja-citéd. A taxing statute must ,.1.i:... _ .. 1.. .. ......s . .., .131'-.' J.'_.Ul.l|l.IIg U 1 UV IU llfllill U3' Wily ctrrpstsnbad Essen """*'-' "" ~ of _ or _a|(..ti_:_ tt1e1~etqt"which has not been authorised by ' Patrtianien. .h''' '' " V ia:§'_:3.i.wt'i;t6nal:lc. The assussee has not collected any amount not authorised or expressly prohibited.
16. We, thertstiirc are of the firm upiniun that the appellant
-"has not made out any cast: on merits. The appeals are hence h-I O'.
dismissed. The questions of law are answered i11'V.'..l_'e_'14*.I.LVV)"L'11E ;)'l"'«tV.l1¢:
assess:-.6 and against the Revenues. 11 :
IDIIIV