Bombay High Court
Unit Trust Of India And Anr. vs P.K. Unny And Ors. on 19 April, 2001
Equivalent citations: [2001]249ITR612(BOM)
Author: S.H. Kapadia
Bench: S.H. Kapadia, V.C. Daga
JUDGMENT S.H. Kapadia, J.
1. The following questions of law arise for determination in the aforesaid two writ petitions :
"(A) Whether the interest-tax under the Interest-tax Act, 1974. is a tax on income and, if so, whether interest accruing to the UTI from loans advanced by it stands exempted in view of Section 32 of the UTI Act, 1963 ?
(B) If the answer to question No. (A) is in the negative then whether communication dated January 29, 2001, withdrawing the letter/circular dated October 11, 1991, issued by the CBDT was retrospective and whether Interest-tax Act, 1974, was applicable for the accounting years 1991-92 to 1998-99 ?
(C) Whether, on the facts and circumstances of the case, the Department was right in invoking Section 10(a) of the Interest-tax Act, 1974, for failure on the part of the UTI to file returns under the Interest-tax Act, 1974 ?"
Facts :
2. On September 23, 1974, Parliament enacted the Interest-tax Act, 1974. At that time, it applied to scheduled banks, the IDBI, the IFCI, the ICICI and the Industrial Reconstruction Bank. Up to October 1, 1991, the Interest-tax Act, 1974, did not cover the UTI and the LIC. On July 24, 1991, the Finance (No. 2) Bill was introduced in Parliament. Under the said Bill, Section 2 of the Interest-tax Act, 1974, came to be amended. Clause (5A) was inserted. It defined "credit institution" to mean a banking company ; a public financial institution as defined under Section 4A of the Companies Act, 1956. Under Section 4A of the Companies Act, the UTI is a public financial institution. Under the said Section, the Central Government is empowered to specify any other institution, as it may think fit, to be a public financial institution. The Finance (No. 2) Act of 1991, came into force on and from October 1, 1991. Therefore, upto October 1, 1991, the UTI was not a credit institution. On and from October 1, 1991, the Interest-tax Act covered the UTI, the LIC and 12 other notified institutions under Section 4A of the Companies Act. Further, 18 State financial corporations also came under the Interest-tax Act as they were notified under the State Financial Corporations Act. On August 8, 1991, the UTI addressed a letter to the Central Board of Direct Taxes seeking a clarification from the CBDT whether the UTI was liable to interest-tax under the said Act, 1974, in view of Section 32 of the UTI Act. On October 11, 1991, the CBDT addressed a letter dated October 11, 1991, to the Ministry of Finance stating that the interest-tax levied under the Interest-tax Act is a tax on income and in view of Section 32 of the UTI Act, it was not liable to pay tax under the Interest-
tax Act. This decision was taken almost after two months from the letter dated August 8, 1991, addressed by the UTI. In view of the circular of the CBDT dated October 11, 1991, the UTI did not file its returns under the Interest-tax Act from the accounting year 1991-92 upto the accounting year ending March 31, 1999. On December 21, 2000, the Income-tax Officer (respondent No. 1 herein) issued notices to the UTI under Section 10(a) of the Interest-tax Act, 1974, in respect of the aforestated period. Pursuant to the said notices, the UTI was called upon to furnish its returns of chargeable interest under the Interest-tax Act within 30 days. By letter dated January 13, 2001, the UTI informed the first respondent that it was not liable to pay the interest-tax in view of Section 32 of the UTI Act, 1963, which exempted all income, profits or gains of the UTI from the charge of tax. By the said letter, the attention of respondent No. 1 was also invited to the circular of the CBDT dated October 11. 1991. Accordingly, respondent No. 1 was requested to drop the proposed proceedings under Section 10(a) of the Interest-tax Act. Without prejudice, the UTI filed nil returns under the Interest-tax Act in order to comply with the impugned notices issued by respondent No. 1. The said returns were also filed by the UTI in order to know the reasons for invoking Section 10(a) of the Interest-tax Act by respondent No. 1. The said reasons are given at page 158 of the paper-book. The reasons indicate that Section 10(a) of the Interest-tax Act has been invoked by respondent No. 1 for failure on the part of the UTI to file its returns under Section 7 of the Interest-tax Act for the aforestated period because he had reason to believe and that thereby chargeable interest had escaped assessment. The said reasons do not refer to the circular of the CBDT dated October 11, 1991. The nil returns were filed on January 17, 2001. The UTI, thereafter, received a letter from respondent No. 1 dated January 30, 2001. By the said letter, the UTI was called upon to give details of total interest accruing and received by it during the aforestated period. By the said letter, the UTI was informed that the circular dated October 11, 1991, has been withdrawn by the CBDT on January 29, 2001. A copy of the letter of the CBDT withdrawing its earlier circular was enclosed. In the said letter dated January 29, 2001, the CBDT has stated that it has re-examined the position in law and was now of the opinion that interest-tax under the Interest-tax Act was not a tax in respect of income, profit or gains of the UTI and, therefore, its earlier circular dated October 11, 1991, stood withdrawn. Accordingly, by letter dated January 29, 2001, the earlier circular stood withdrawn. On February 8, 2001, the present Writ Petition No. 506 of 2001 was filed. Writ Petition No. 505 of 2001, has been filed by an individual unitholder as a PIL. Pursuant to the orders passed by the learned Chief Justice, the PIL writ petition has been tagged with the main Writ Petition No. 506 of 2001. Accordingly, both the above writ petitions are heard together.
3. Looking to the importance of the matter, the court decided to hear the entire matter finally in its entirety. The learned advocates on both sides agreed. Accordingly, the pleadings were completed. The matter was finally heard and is being disposed of by this judgment.
Arguments :
4. At the outset, in a nutshell, it may be stated that the argument of the UTI is that interest-tax is a tax on income just as income-tax is a tax on income ; that just as income-tax is a tax on gross income, interest-tax is a tax on gross receipt. Hence, we are taken through the Income-tax Act to draw a parallel between the Income-tax Act and the Interest-tax Act; that if the interest-tax is a tax on income like in the case of income-tax then Section 32 of the UTI Act will also exempt the UTI from interest-tax. In support of the above argument, Mr. Dastur, learned senior counsel for the UTI, contends that the interest-tax under the Interest-tax Act, 1974, is a tax on income and, therefore, it is covered by Section 32 of the UTI Act. He submitted that the words "in respect of" occurring in Section 32(1) are words of widest amplitude. He contended that the Interest-tax Act falls under the second part of Section 32(1) of the UTI Act which exempts the UTI from tax on income from any source under any other enactment. He contended that the income accruing to the UTI under the Income-tax Act is exempted from the Income-tax Act. Similarly, the UTI is given exemption from payment of tax on its income under any other enactment (hereinafter referred to for the sake of brevity as "the second part" of Section 32(1)). Mr. Dastur contends that the Interest-tax Act falls within the second part. He further contends that interest accruing to the UTI is its income ; that it is income from any source as mentioned in Section 32(1)(a). He, therefore, contends that the Interest-tax Act falls within the expression "any other tax" in respect of any income, profits or gains derived by the UTI from any other source. He contends that the word "income" in Section 32(1) refers to gross income/total income and not the computed income. Mr. Dastur contends that the word "income" under the UTI Act must be read as income defined under the Income-tax Act. He, therefore, relied upon various sections of the Income-tax Act in support of his contention that the interest received by the UTI can only mean interest income and if interest received by the UTI is its income from loans advanced by the UTI then Section 32(1)(a) of the UTI Act (second part) squarely applies. Hence, he contended that the provisions of the Interest-tax Act will not apply to the UTI as the income of the UTI from any source including loans, stands exempted in view of Section 32 of the UTI Act. He contended that the word "income" in Section 32(1) of the UTI Act represents the gross income. However, the said word "income" is placed along with the words "profits or gains". Mr. Dastur contends that the word "income" represents gross income and the word "income", therefore, is required to be read in the widest possible terms and the said word "income" should not be limited by the words "profits or gains". He contended that the court will have to consider and interpret the meaning of the words "income", "computed income", "net income" and "taxable income". Mr. Dastur contended that the word "net income" is only an accounting concept. That, the word "profit" represented a difference. However, the word "profit" cannot limit the word "income". He contended that the word "income" under the UTI Act must be read as interpreted by the Supreme Court in numerous decisions under the Income-tax Act. He contended that the Interest-tax Act like the Income-tax Act is a tax on income and, therefore, they are connected to each other. He, therefore, contended that the word "income" in Section 32 of the UTI Act should be read as occurring in the Income-tax Act. He contended that under the Income-tax Act, the word "income" is defined in Section 2(24) so as to include profits and gains which clearly show that the word "income" is defined in the widest possible terms ; that the word "income" includes profits and gains and, therefore, it was urged that "profits and gains" are words which cannot limit the word "income" and, therefore, while interpreting Section 32 of the UTI Act, the word "income" should be read as gross income. Mr. Dastur, therefore, invited our attention to various sections of the Income-tax Act in support of his contention that the word "income" represents gross income but what is chargeable to tax under the Income-tax Act is the computed income. In other words Mr. Dastur contended that the income as exigible under the Income-tax Act is the gross income but when the income-tax seeks to levy tax, it does so on the total income as computed under the Income-tax Act. In this connection, he placed reliance on the definition of the word "income" in Section 2(24) of the Income-tax Act read with Sections 4 and 5 of the Income-tax Act. He submitted that Section 4 of the Income-tax Act is a charging section. That, under Section 4, the tax is levied on the total income as computed under the Income-tax Act. That the word "total income" is also defined under Section 2(45) of the Income-tax Act which refers to computed income. Section 2(45), therefore, refers to gross income but it is the income computed under the Income-tax Act. So also, Section 5 of the Income-tax Act, according to learned counsel, seeks to levy income-tax on the gross income as computed. Therefore, learned counsel submitted that the word "income" includes profits and gains as defined under Section 2(24). It also includes gross income as computed under the Income-tax Act. According to learned counsel, there is a difference between computed income and the word "income". That, the word "income" must be read in the widest possible terms and, if so read, whatever comes in, constitutes income. In support of his above contention, learned senior counsel invited our attention to the various provisions of the Income-tax Act. Under Section 14, which deals with heads of income, alt incomes have been classi-
fied under different heads. It was submitted that the word "income" in Section 14 has to be read as gross income. That, it will include all receipts. He further contended that salaries constitute one head of income. That, Section 15 refers to gross salary whereas Section 16 refers to deductions from salaries. He, therefore, contended that if Section 15 is seen in the context of Section 16, it is clear that the word "salary" in Section 15 refers to gross salary and it is for this reason that Section 16 inter alia provides that the income chargeable under the head "salary" shall be computed after making the stipulated deductions. It was, therefore, contended that the word "salary" in Section 15 is the gross salary from which certain deductions arc required to be made under Section 16. That, if the word "salary" in Section 15 represents net income then Section 16 would be rendered nugatory. Similarly, it was submitted that Section 22 seeks to tax income from house property. It was contended that Section 22 seeks to charge the annual value of the property. That, annual value of the property is the rent received/receivable by the owner. That, the annual value represents the gross amount. However, such income under the Income-tax Act is required to be computed and, therefore, Section 24 represents computed income. This analogy has been multiplied by way of illustrations by learned counsel in respect of various heads of income under the Income-tax Act. It is not necessary to further multiply the illustrations in this judgment. The only point which learned counsel seeks to make is that the word "income" under the Income-tax Act includes profits and gains. However, the word "income" under the UTI Act is placed along with the words "profits and gains" and, therefore, the words "profits and gains" are equated with the word "income" under Section 32 of the UTI Act whereas the word "income" in Section 2(24) of the Income-tax Act includes profits and gains. Learned counsel, therefore, submitted that the word "income" in Section 32(1) of the UTI Act must be read as the word "income" under the Income-tax Act and the interpretation given by the decisions of the Supreme Court under the Income-tax Act would apply with equal force to the word "income" under the UTI Act vide Section 32 and, therefore, the words "profits and gains" should not limit the word "income" in Section 32(1) and, on the contrary, the said words should be read in the widest possible terms and, if so read, it must refer to gross income and it cannot refer to income as computed under the Income-tax Act. It was submitted that under the Income-tax Act, the word "income" is different from word "computed income". That the word "income" under the Income-tax Act denotes gross income under Section 2(24), Section 15 and Section 22 whereas the word "income" in Section 16 which deals with deductions and Section 24 which also deals with deductions, refer to computed income. Mr. Dastur, therefore, contends that the word "income" in Section 32 represents gross income and not computed income. He contends that whatever is received constitutes income. He contends that the purpose of Section 32 is to give exemption to the UTI from income and looking to the purpose of Section 32, it is clear that all receipts accruing to the UTI from any source would constitute income and, therefore, the word "income" in Section 32(1) represents gross income. He contended that it would be wrong to say that the Income-tax Act levies tax only on computed income and not on gross income. In this connection, he invited our attention to Section 9(1)(v). He submitted that Section 9 refers to income which is deemed to accrue in India. That Section 9, inter alia, lays down that incomes shall be deemed to accrue or arise in India in certain cases. That, Section 9(1) refers to such cases. That, all cases falling under Section 9(1) refers to gross income. Similarly, he invited our attention to Section 44D(b) of the Income-tax Act. He submitted that Section 44D deals with special provisions for computing income by way of royalty in the case of foreign companies. He contended that under Section 44D(b), no deduction in respect of any expenditure is allowable in computing the income by way of royalty for technical services received from the Government after March 31, 1976, which indicates that even under the Income-tax Act, there are sections which do not provide for deductions for expenses as in the case of the Interest-tax Act and, therefore, it was urged that Section 44D refers to gross income and it is not correct to say that the Income-tax Act only deals with computed income. Similarly, our attention was invited to Section 44AD which deals with special provisions for computing profits and gains of business in civil construction. It was submitted that under Section 44AD, the tax levied is at the rate of eight per cent, of the gross receipts. Therefore, it was urged that even under the Income-tax Act, there are provisions which seeks to levy the tax on gross income and that it is not right to say that the Income-tax Act seeks to tax only the computable income. Mr. Dastur further urged that under Section 32 of the UTI Act, the words used are "income, profits or gains derived from any source" and, therefore, the word "income" has to be read as gross income. He contended that the interest accruing to the UTI is nothing but income derived from loans given by the UTI in the course of its business and, therefore, it is income. Therefore, the word "income" in Section 32 has to be read as gross income. Mr. Dastur further contended that Section 32 of the UTI Act is in two parts. That, the income-tax computations are taken care of by the first part whereas the second part refers to tax on income from any other source and, therefore, in the present case, we are concerned with the second part. He contended that the words "from any other source" come only in the second part of Section 32(1) and, therefore, the word "income" in that second part can only mean the total income. He urged that the interest-tax is a tax on income from any source and, therefore, the Interest-tax Act will not apply to the interest income derived by the UTI in the course of its business. Mr. Dastur made it very clear that, in this case, his arguments are restricted to the UTI's case. That he does not seek to argue on behalf of other credit institutions because Section 32 of the UTI Act is a unique provision which does not find place in other enactments. Mr. Dastur relied upon various judgments under the Income-tax Act. He contended that the object of the Income-tax Act as well as the Interest-tax Act is the same viz., to tax income. Therefore, he contended that the word "income" in Section 32 must be interpreted as gross income. It was urged that the interest-tax is a levy and a special tax on interest received but Section 32 of the UTI Act also gives exemption to all incomes accruing to the UTI. Hence, it was urged that the Interest-tax Act will not apply to the UTI in respect of the interest income accruing to the UTI on loans given by it during the course of business. Mr. Dastur next contended that under the UTI Act, there is a dichotomy between the initial scheme, viz., US64 and the subsequent schemes. In this connection, he invited our attention to Section 22 of the UTI Act which refers to the capital of the trust. He contended that under Section 22(1), the capital of the trust is the initial capital whereas under Section 22(2), the capital of the trust is in relation to the subsequent unit schemes. Similarly, he contended that under Section 23 of the UTI Act, the income of the trust has been defined to consist of income in relation to the first unit scheme, viz., US64, vis-a-vis the income of the trust in relation to the subsequent schemes. Mr. Dastur contended that the word "income" in Section 23, therefore, indicates gross income. It cannot represent net income particularly when one reads Section 23 along with Section 24 and Section 25 of the UTI Act which, inter alia, lay down that the income of the trust in any year arising out of the capital relating to the first unit scheme shall be allocated to the initial capital and also to the unit capital in the proportion indicated in Section 24. Therefore, learned counsel contended that the income accruing to the trust in a given year is allocable between the capital of the first unit scheme and to the capital of the subsequent unit schemes. Therefore, it was submitted that the income accrues schemewise. Learned counsel further invited our attention to Section 25 which allocates interest and other expenses also schemewise. He, therefore, contended that the word "income" in Section 23 can only mean gross income because it is only from the gross income accruing to the trust that interest and other expenses could be allocated. In other words, it was submitted that the income of the trust is dealt with under Section 23 whereas expenses are dealt with under Section 25. Therefore, he contended that word "income" in Section 23 must be read as gross income. Mr. Dastur contended that under Section 25A of the Unit Trust of India Act, distribution of income is contemplated. He contended that Section 25A shows that unit-holders have a right to participate in the gross income accruing to the scheme to which they belong as reduced by expenses and, therefore, their participation is in the gross income so reduced as indicated by Section 25A. It was, therefore, submitted that the word "income" in Sections 23, 24 and 25 refers to gross income. Mr. Dastur also placed reliance on Section 10 of the Income-tax Act in support of his contention that under the Income-tax Act, the word "income" represents gross income. He invited our attention to Section 10 which refers to incomes not included in total income. He contended that Section 10 could only refer to gross income. Hence, he contended that the word "income" should be read as gross income. He contended that it is for this reason that Section 32 gives exemption to the UTI in respect of all its income from any source and, therefore, it must be read liberally. He contended that all accounts of the UTI are maintained schemewise. That to work out the profits one has to keep separate portfolios and that the loans are given by the UTI also schemewise. He contended on the basis of various judgments of the Supreme Court that if the ordinary meaning of the word "income" applies then one does not have to go to entry 82 of List I of the Seventh Schedule to the Constitution. We invited Mr. Dastur's attention to Section 2(28A) of the Income-tax Act which defines the word "interest" to mean interest payable in respect of any money borrowed or debt incurred and which includes any service fee or commitment charges in respect of the credit facility. In reply, Mr. Dastur submitted that Section 2(28A) was introduced in the Act by the Finance Act, 1988, because the Government wanted to levy tax on interest under Section 9(1)(v) of the Income-tax Act which deals with interest income which accrues or arises in India. He contended that the Legislature has expanded the meaning of the word "income" by virtue of Section 2(28A). He contended that such an expansion of the word "income" does not defeat his argument that the word "interest", under the Income-tax Act, represents income. It was, therefore, contended that interest-tax was a tax on income. Mr. Dastur further contended that the provisions of the Interest-tax Act were similar to the provisions of the Hotel Receipts Tax Act, 1980. He relied upon the judgment of the Supreme Court reported in Elel Hotels and Investments Ltd. v. Union of India [1989] 178 ITR 140, at page 149, in support of his contention that even the Hotel Receipts Tax Act is a tax on income. He contended that in the aforestated judgment, the Supreme Court has laid down that the Hotel Receipts Tax is a tax on the gross receipts and further it is a tax on income. The Supreme Court has further held that the Hotel Receipts Tax Act falls under entry 82 of List I of the Seventh Schedule to the Constitution because it is a tax on income. Therefore, learned counsel contended that the provisions of the Interest-tax Act must also be read as a tax on income and, therefore, the word "income" must be read in the widest possible terms and the said word "income" must be read as gross income. He contended that it is not open to the court to give different meanings to the word "income" under the same enactment like the UTI Act. He contended that merely because a special tax is levied by a separate enactment like the Interest-tax Act that will not make any difference. He contended that as in the case of Section 115J of the Income-tax Act, the Legislature could have provided for interest-tax on interest receivable by credit institutions even under the Income-tax Act but the Legislature, in its wisdom, enacted a separate law instead of enacting a similar provision under the Income-tax Act itself. However, merely because the Legislature enacted a separate Act, no difference could ensure as far as the interpretation is concerned. He contended that under Section 18 of the Interest-tax Act, deduction is given to the credit institution in respect of interest-tax payable. That, the interest-tax payable is made deductible from the income of the credit institution under the Income-tax Act. He contended that but for Section 18 of the Interest-tax Act, the credit institution could not have availed of such deduction because of the embargo placed on such deductions under Section 40(ii) of the Income-tax Act. He further contends that such deduction is given to the credit institution only because interest received on loans represents income. He contends that Section 21 of the Hotel Receipts Tax Act is similar to Section 18 of the Interest-tax Act. He contended that like the Hotel Receipts Tax Act, the Interest-tax Act also levies tax on gross receipts and yet, the Supreme Court has held in the aforestated judgment that the Hotel Receipts Tax Act is a tax on income. Therefore, interest does not cease to be income on the ground that no deduction is given under the Interest-tax Act which was also the case in the matter of the Hotel Receipts Tax Act. This concludes the first argument of Mr. Dastur for the UTI.
5. Mr. Dastur next contended that, in the present matter, the impugned notices under Section 10(a) of the Interest-tax Act were issued without any authority of law. He contended that the impugned notices dated December 21, 2000, could not have been issued by respondent No. 1 in view of the circular issued by the CBDT on October 11, 1991, which circular was in force when the impugned notices were received by the UTI. Mr. Dastur further pointed out that the circular of the CBDT was withdrawn only on January 29, 2001. He contended that the withdrawal was prospective in nature. He contended that there was nothing in the letter dated January 29, 2001, to indicate that the withdrawal of the CBDT circular of 1991 was retrospective. He contended that for nine long years the circular of the CBDT remained in force right from October 11, 1991. He contended that if the withdrawal is held to be retrospective, it would have immense consequences. He contended that 32 schemes which were close-ended schemes have been terminated during nine years. He contended that the loans have been repaid by the borrowers. He contended that a large number of redemptions have taken place under the schemes which have been closed.
He contended that reserves under the schemes have been distributed. He contended that if the circular is held to be retrospective, it would invite a levy of tax of more than Rs. 1,000 crores and the present unitholders under the remaining schemes may have to bear the brunt of the impugned levy. He contended that the Finance (No. 2) Bill of 1991 was introduced in Parliament on July 24, 1991. That, within two weeks, the UTI sought clarification from the CBDT. That, the ruling was given on October 11, 1991, after two months and now after nine years and two months the circular has been withdrawn on January 29, 2001. He contended that even under the Income-tax Act, refunds have been granted during the afore-stated period in view of Section 32 of the UTI Act. Mr. Dastur further contended that Section 3(2) of the Interest-tax Act clearly lays down that all persons or officers employed in the execution of the Act are required to follow orders, instructions and directions of the Board. He contended that Section 3(2) is differently worded from Section 19. He contended that Section 21 of the Interest-tax Act separately provides for application of Section 119 also to the Interest-tax Act. He contended that while Section 119 of the Income-tax Act requires circulars to be addressed to officers, it is not the requirement under Section 3(2) of the Interest-tax Act. He contended that Section 3(2) is declaratory in nature. It lays down that all officers shall follow instructions, orders and directions of the Board. He contended that by reason of the circular of the CBDT dated October 11, 1991, the UTI was prevented from recovering tax from the borrowers on loans given by it. He contended that in view of the said circular dated October 11, 1991, the UTI did not collect interest-tax. He contended that the UTI did not charge interest-tax on the ground that the UTI was exempted from payment of interest-tax. He contended that those contracts have come to an end. That loans have been repaid. That, it is impossible now to charge, levy and recover interest-tax from borrowers whose loans have been repaid. In the circumstances, he contended that the circular should not be read retrospectively. He contended that this court has specifically directed the CBDT to consider the consequences of withdrawal of the circular. He contended that the consequences have not been considered which position is admitted by the CBDT in the affidavit now filed before this court. He further contended that there is no indication in the withdrawal dated January 29, 2001, as to whether such withdrawal is retrospective or not. He, therefore, contended that the withdrawal is prospective and not retrospective. He contended that the provisions of the Interest-tax Act are similar to the provisions under the Hotel Receipts Tax Act. He contended that both the legislations were held to be falling under entry 82 of List I of the Seventh Schedule to the Constitution. He contended that like the Interest-tax Act, the Hotel Receipts Tax Act also seeks to charge hotel receipts as income. That, it has been held by the Supreme Court that the Hotel Receipts Tax Act levies tax on gross income and, therefore, it was contended that the tax levied under the Interest-tax Act also is a tax on gross income and merely because a separate Act has been enacted that will not make any difference. He further contended that under the circular dated October 11, 1991, the CBDT placed an interpretation on the provisions of the Interest-tax Act as well as the Income-tax Act and came to the conclusion that the UTI was not covered by the provisions of the Interest-tax Act. He contended that this interpretation was given after considering Section 32 of the UTI Act. He further contended that, that the interpretation was in favour of the UTI. He contended that the said interpretation operated for nine years. He contended that the Department accepted that interpretation. He contended that it is well settled that circulars, directions, instructions issued by the CBDT were intended not only to give relief to the assessee from hardship arising during the course of the assessment but even if there is a deviation from the statutory provisions of the Act, the circulars have been held to be binding on the subordinate officers under the CBDT. He contended that if the interpretation did not deviate from the statutory provisions then there was no purpose in issuing the circular. He, therefore, contended that the circular of the CBDT was binding on the first respondent at least till the same stood withdrawn. He further contended that there are numerous cases where circulars have been issued in cases involving individual asses-sees. He contended that the UTI may be an individual assessee but it is an institution which occupies a unique position in which the income accrues to the unitholders and there is no embargo under Section 119 of the Income-tax Act to the circulars of the CBDT issued only for individual assessees. He contended that in the past, circulars have been issued by the CBDT in and for giving benefit to individual assessees also, like the Railways, the RSS, etc. In the circumstances, he contended that the circular dated October 11, 1991, was issued under Section 119 of the Income-tax Act. He contended in the alternative that even if the circular is held to be a mere opinion of the CBDT, the first respondent was bound by the interpretation placed by the CBDT and respondent No. 1 was not authorised to sit in judgment over the opinion of the CBDT. In fact, that was the reason why the above correspondence indicates that the CBDT was required to withdraw its earlier circular on January 29, 2001. He contended that such circulars do not interfere in assessment proceedings. He further pointed out that under Section 26C of the Interest-tax Act, the credit institution is entitled to vary the agreement in order to increase the rate of interest stipulated to the extent to which the institution is liable to pay the interest-tax under the Act. Mr. Dastur contended that by virtue of the circular of the CBDT dated October 11, 1991, the UTI was prevented from varying the agreement so as to increase the rate of interest stipulated therein. He contended that if the UTI would have sought to recover the interest-tax from the borrower, it could have been challenged on the ground that the UTI was exempted under Section 32 of the UTI Act as construed by the CBDT and, in such an event, the borrower was entitled to challenge the authority of the UTI to charge, levy and recover the interest-tax. He contended that during the aforestated period in nine years 36 schemes of the UTI have matured. The statement of the schemes which have matured is annexed to this judgment as statement X. He contended that under the UTI Act, the income and expenditure accruing stood bifurcated scheme-wise. He contended that on the closure of 36 schemes, the reserves have been distributed. He contended that the loans given have been repaid and it would be impossible for the UTI to recover the interest-tax from the borrowers from loans which have been repaid. That, such important consequences have not been taken into account by the CBDT while issuing withdrawal on January 29, 2001. He contended that if the petition is dismissed then the liability would be of around Rs. 1,100 crores. That, the corpus of the closed schemes was around Rs. 14,256 crores. He contended that having acted on the basis of the circular dated October 11, 1991, it is not open to the Department to retrospectively levy, charge and recover interest-tax. He contended that there is no explanation in any of the affidavits filed on behalf of the Department giving reasons why the said circular was not withdrawn earlier. In the circumstances, it is contended that the withdrawal should not be given a retrospective effect. Mr. Dastur next contended that, in the present matter, respondent No. 1 has invoked Section 10(a) of the Interest-tax Act. He contended that mere escapement of chargeable interest is not enough. He contended that the escapement should be by reason of omission or failure on the part of the assessee to file its return. He contended that the language of Section 10(a) is similar to Section 148 of the Income-tax Act (as it then stood). He contended that, in the present matter, as stated above, Section 10(a) has been invoked on the ground of failure to file the return. It is not filed on the ground of omission. He contended that the word "failure" in Section 10(a) should be read as wilful failure. He contended that, in the present matter, on the facts, there is no wilful failure on the part of the UTI in not filing the returns ; He, therefore, contended that Section 10(a) was not applicable. He relied upon various decisions of the Supreme Court under Section 148 as it then stood in support of his above argument. He contended that the issue of notice under Section 10(a) is a jurisdictional fact. He contended that, in the present matter, Section 10(a) has been wrongly invoked and therefore Section 10(a) has no application to the facts of this case. He further contended that the UTI has been filing its return of income under the Income-tax Act. That, it has been showing receipt of income as and by way of interest in its returns. That, the Assessing Officer has been granting refund on the basis of Section 32 of the UTI Act under the Income-tax Act for the last nine years. He contended that the Interest-tax Act has a direct nexus with the Income-tax Act. He, therefore, contends that this is a case of change of opinion and, therefore, Section 10(a) of the Act has no application. He, therefore, contended that the writ petition should be allowed,
6. Mr. Aspi Chinoy, learned senior counsel appearing on behalf of the petitioner, in the above PIL writ petition contended that there were three points involved in this case, viz., whether the UTI was exigible to interest-tax, whether notices under Section 10(a) were bad in law, and whether the Department was entitled to levy penalty and interest under the provisions of the Interest-tax Act for alleged failure to file returns. He contended that the short controversy in the present case which the court has to consider is, as to why exemption was granted by the CBDT on October 11, 1991. In support of his above contentions, he contended that the word "income" in Section 32 must be given full plenary content. He further contended that the word "income" in Section 32 must be read as the word "income" under entry 82 of List I as interpreted by the Supreme Court. He, therefore, contended that the word "income" should be read as total income and not computed income. He further contended that the word "income" occurs in the UTI Act at eight different places. He contended that the said word cannot be read differently. He contended that Section 32 is a unique section. It treats the UTI as an unique institution. He contended that Section 32 provides for exemption in order to enable the UTI to compete with other mutual funds. He contended that Section 32 provides for equal playing field for all mutual funds. However, looking to the large number of investments participating in the gross receipts, Section 32 gives the benefit to the UTI by way of exemption from tax on income from any source. He contended that the unitholders participate in gross receipts via distributable income. He contended that the words "distribution of income" under Section 25A of the UTI Act, indicate gross income as reduced by expenses. He contended that at the stage where distribution comes in, the UTI uses the words "income so reduced" and, therefore, the unitholders participate in the gross income and not in the net computed income. He contended that when one decides the issue of exigibility of tax the word "income" should be read as gross income and the said word should be read uniformly throughout the UTI Act. He contended that the UTI is only a manager under the mutual fund. He contended that the net asset value is fixed on the basis that interest-tax was not payable by the UTI and redemptions under various schemes have taken place over a period of nine years on the basis of the net asset value. He contended that 36 schemes of the UTI stand closed as indicated by the statement marked "X" to this judgment and reserves have been distributed amongst the unitholders and, therefore, if interest-tax is now levied the existing unitholders are being asked to pay interest-tax under the existing schemes for and on behalf of the unit-
holders covered by the said 36 closed schemes. He contended that huge liability will ensue on the UTI which would result in shrinkage of the net asset value. In the circumstances, he contended that the PIL writ petition should be allowed.
7. In reply to the aforestated contentions advanced on behalf of the UTI and the petitioner in the PIL writ petition, Mr. Dada, learned senior counsel, contended that the following points arise for determination by the court in the present proceedings.
8. At the outset, learned senior counsel for Department contended that, in this matter, the first question which needs to be answered by the court is that, is the UTI liable under the Interest-tax Act because if there is no liability then no further point arises for determination. He contended that the Interest-tax Act was enacted as far back as 1974. However, the Act was not made applicable to the UTI and the LIC till October 1, 1991. He contended that, originally, the Act was made applicable only to the scheduled banks in respect of loans given by them. He contended that the Interest-tax Act was amended for the first time by the Finance (No. 2) Act of 1980 when the interest-tax was extended to cover the IDBI and other financial institutions. By the said amendment, financial institutions as defined under Section 4A of the Companies Act, 1956, were dropped within the ambit of the Interest-tax Act. However, the first amendment of 1980 of the Interest-tax Act did not cover the LIC and the UTI. He contended that, however, by the Finance (No. 2) Act of 1991, the Interest-tax Act was extended to the UTI and the LIC as credit institutions falling under the provisions of the Interest-tax Act. He contended that the Finance Act of 1991 has been enacted much after the enactment of the UTI Act, 1963, and, therefore, the Act of 1991 amending the Interest-tax Act was a subsequent law vis-a-vis the UTI Act, 1963. Mr. Dada invited our attention to the statement of objects and reasons on the Interest-tax Act, 1974. He pointed out that the object of the Act was to impose a special tax on the total amount of interest received on loans and advances made in India. He further pointed out from the statement of objects that the Act was enacted to have both monetary and fiscal impact inasmuch as to raise the cost of borrowed funds and to supplement Government revenues. He contended that, therefore, the Interest-tax Act contemplates two-fold objects. That, the Interest-tax Act was enacted also as an anti-inflationary measure. Mr. Dada next contended that if one keeps the objects in mind, it is clear that the interest-tax was not a tax on income. It is a tax on chargeable interest. It is a tax on the gross receipt of interest irrespective of the loss that an assessee may face under that head. He further contended that since the Interest-tax Act, 1974, is subsequent to the UTI Act 1963, the Interest-tax Act is a subsequent legislation which must prevail over the UTI Act. He contended that if the argument of the UTI is accepted then the consequence would be that the exemption granted to the UTI would continue for all times and that Parliament would not have the authority to enact a subsequent legislation repealing Section 32 of the UTI Act. This last argument was on the assumption that interest-tax is a tax on income. He further invited our attention to Section 3(1C) of the Interest-tax Act and pointed out that there was no linkage between the Interest-tax Act and the Income-tax Act as contended on behalf of the UTI. He pointed out that under Section 3(1C), the interest-tax authority which is different from the Income-tax Officer under the Income-tax Act, has jurisdiction over a credit institution even if such credit institution has no income assessable to income-tax. In other words, he pointed out, firstly that the interest-tax authority under the Interest-tax Act was separate and distinct from the Income-tax Officer/Assessing Officer under the Income-tax Act. Secondly, he pointed out that the scope of Section 3(1C) shows that the interest-tax is chargeable on total gross receipts and even if an assessee under the Interest-tax Act has no income assessable to income-tax still he would be covered by the provisions of the Interest-tax Act. Thirdly, he submitted that the said section clearly indicates that the words "income assessable to income-tax" under the Income-tax Act shows that the word "income" in Section 32 of the UTI Act can only be read as income assessable to income-tax and not gross income as contended on behalf of the UTI. Therefore, even if the UTI had no assessable income under the Income-tax Act, still it could be assessed under the Interest-tax Act. He, therefore, pointed out that the interest-tax would certainly supersede the UTI Act and, to that extent, Section 32 of the UTI Act stood impliedly repealed. Mr. Dada pointed out that the subject-matter of the Interest-tax Act is the credit institutions and loans given by them. He contended that in substance interest-tax is a tax on loans and it is not a tax on income. He contended that interest-tax imposes a levy on interest. However, the yardstick/measure is income. He gave, by way of illustration, the example of the Income-tax Act. In this regard, he contended that in the case of an assessee receiving income from house property income-tax is leviable on the basis of the annual value. That, income-tax is a tax on income. That, the rent received by the assessee is income. However, the yardstick/measure used by the Income-tax Act to levy income-tax is the annual value. Therefore, annual value is merely a measure or yardstick on the basis of which a tax under the Income-tax Act could be levied. Therefore, one has to see the pith and substance of the Interest-tax Act. He also gave illustration of profession tax in support of his contention that a measure or a yardstick cannot be equated with the nature of tax. That, the measure is different from the nature of tax. That, in the case of profession tax the levy is on the profession irrespective of the income accruing to the professional. That, profession tax is not a tax on income. Similarly, under the Interest-tax Act, the levy is on lending of money irrespective of the income of the assessee. Therefore, income is only used as yardstick for effective levy of interest-tax on lendings by credit institutions. Similarly, he contended that under Section 26C of the Interest-tax Act, a borrower can be compelled to vary the contract with the credit institutions. This can never be done under the provisions of the Income-tax Act because if the interest-tax is a tax on income as contended by the UTI then such liability can never be transferred to the borrower as provided in Section 26C of the Interest-tax Act. Learned counsel relied upon several authorities in support of his above contentions. He further contended that even under Section 18 of the Interest-tax Act, deduction is provided for to an assessee under the Income-tax Act in respect of the assessee making payment of interest-tax under the Interest-tax Act. He contended that payment of interest-tax under the Interest-tax Act is a charge against the profits (see Section 18). The said amount is not charged as an expense. Hence, he contended that the provisions of the Interest-tax Act are different and distinct from the provisions of the Income-tax Act and that the interest-tax is a levy on interest and not on income. Mr. Dada next contended that the words "income, profits or gains" in Section 32 of the UTI Act show that the word "income" must be read in the company of the words "profits or gains". He pointed out that the word "profits" can only mean computed profits. It cannot mean gross profits and if one reads the word "income" with the word "profits" under Section 32, it is clear that the provisions of Section 32 of the UTI Act only refer to the net income and not the gross income. He contended that each word must be given due weightage. He contended that if the argument of the UTI is correct then the word "profits or gains" in Section 32 would be rendered redundant. Mr. Dada pointed out that all the three words should be read in order to ascertain the true meaning of the word "income" in Section 32. This argument of Mr. Dada is also proceeding on the alternate basis, viz., that the interest-tax is a tax on income. It is for this reason that he has made the aforestated submission. He further contends in this connection that the UTI Act is enacted with the object of encouraging savings and investments and to participate in the distribution of income accruing to the UTI from acquisition, holding, management and disposal of securities. He, therefore, contended that the UTI is a mutual fund. It operates on commercial principles and, in that context, one has to look at the long title to the UTI Act and if one looks to the long title of the UTI Act, it is clear that participation by unitholders is only in the distributable income accruing to the UTI and, if so read, it is clear that the words "profits or gains" in Section 32 of the UTI Act can only be read as computed profits. It can never refer to gross profits and, therefore, the words "profits or gains" must be read with the preceding word "income" and, if so read, the word "income" can only refer to assessable income/ computable income/taxable income. In this connection, Mr. Dada also placed reliance on Section 9(2) of the UTI Act which lays down that the board of trustees of the UTI shall discharge their functions under the UTI Act on business principles having regard to the interest of the unitholder. He, therefore, contended that under the Unit Trust of India Act, the participation by the unitholders is only in the net income and not gross income. He similarly placed reliance on Section 19(3) which deals with the business of the trust under the UTI Act so as to include grant of loans and advances upon the security of any property. So also, he places reliance on Section 21 of the UTI Act which deals with providing facilities for participation in the income, profits and gains arising out of acquisition, holding, management or disposal of securities by the trust. Under Section 23 of the UTI Act, the word "income" of the trust is defined. According to learned counsel, Section 23(i)(a)(c) as also Section 23(ii)(a)(c) shows that the word "income" can only mean income from holding and selling of securities. He contended that the word "income" in Section 23 can only refer to net income. That, if the UTI is required to buy scrips and if the UTI incurs certain expenses for buying such scrips, those expenses will have to be taken into account in order to calculate income arising out of the capital referred to in Section 23. In the alternative, Mr. Dada contended that under the UTI Act the word "income" has been used at different places depending on the context as gross income and net income. He contended that under Chapter V of the UTI Act, allocation and distribution of income and reserve fund is contemplated. He further pointed out that Section 22 to Section 25B refer to allocation and distribution of income and reserve funds. He contended that the UTI is required to allocate the income and the expenses scheme-wise. However, he pointed out that the income accruing for distribution under Section 25A of the UTI Act can only refer to distributable income in the hands of the UTI. This distributable income clearly indicates that the participation by the unitholders is in the distributable income and not gross income. He submitted that distributable income accrues to the corporation and it is the corporation which, thereafter, distributes such income amongst various unitholders and, therefore, he contended that the words "participation in the income, profits and gains accruing to the corporation" in the long title as also in Section 25A as also in Section 32 of the UTI Act can only mean net income. Mr. Dada pointed out that at various places under the UTI Act, the Legislature has used the word "income" alone in certain places and under certain other sections the Legislature has used the words "income, profits or gains". Therefore, he contended that Section 32 refers to net income and not gross income. Mr. Dada further points out that if the argument of the UTI is accepted then the words "profits or gains" in Section 32 would mean net profit and the preceding word "income" in Section 32 would mean gross income which would be an absurdity. He, therefore, contended that the words "income, profits and gains" in the long title in Section 21 and Section 32 of the UTI Act can only mean net income and not gross income. Mr. Dada next contended that there was no conflict between the provisions of Section 32 and the provisions of the Interest-tax Act because the two Acts operate in different spheres. However, in the alternative, he contended that the Interest-tax Act was a later enactment. That, it is a special enactment and, therefore, the later Act should prevail over the earlier Act. He further contended that the UTI Act was a general Act whereas the Interest-tax Act was special Act and in the event of the conflict between the two, the later Act should prevail. That, even if the two Acts are held to be special Acts, the latter should prevail. He contended that Section 32 of the UTI Act is a general provision. It covers a vast field of exemption whereas the Interest-tax Act is a tax only on chargeable interest. It is a tax on the gross receipt of interest. It is a tax levied on the loans given by the UTI. Therefore, he contended that the Interest-tax Act was a special provision and Section 32 which was a general provision was required to yield to the special provision. In this connection, he further submitted that the UTI Act is an Act based on commercial principles whereas the Interest-tax Act is enacted as a fiscal measure. That, even if Section 32 gives exemption to the income of the UTI derived from its business based on commercial principles the Interest-tax Act is enacted as a fiscal measure levying special tax only on loans given by the UTI. Hence, he contended that if one keeps in mind the aforestated features of the two Acts, it is clear that the subject-matter of the UTI Act is different from the subject-matter of the Interest-tax Act. Therefore, the Interest-tax Act would supersede Section 32 of the UTI Act. Mr. Dada contended that with the enactment of the Finance (No. 2) Act, 1991 with effect from October 1, 1991, when the UTI stood covered by the Interest-tax Act, there was an implied repealing of Section 32 of the UTI Act to the extent mentioned hereinabove. This argument proceeds on the alternate basis and on the assumption that both the Acts deal with the same subject-matter which learned counsel for the UTI does not accept. Therefore, he contended that if both the Acts deal with the same subject matter then on introduction of the Finance (No. 2) Act, 1991, Parliament impliedly repealed Section 32 of the UTI Act by withdrawing the exemption on the interest income. He contended further that it is true that Section 32 of the UTI Act begins with a non obstante clause. That, the Interest-tax Act has no such non obstante clause. However, Mr. Dada contended that in view of the judgments of the Supreme Court in a large number of cases it is clear that the provisions of the Interest-tax Act particularly Section 4 and Section 5 are in the nature of the non obstante clause and if the two Acts are held to be dealing with the same subject matter then the latter Act would prevail over Section 32 of the UTI Act to the extent of the interest income earned by the UTI. Mr. Dada relied upon a large number of authorities in support of his above contention,
9. Mr. Dada, learned senior counsel appearing on behalf of the Department next contended that the communication of the CBDT dated October 11, 1991, is not an order, instruction or direction under Section 3(2) of the Interest-tax Act. He contended that, similarly, the said communication is not an instruction to the subordinate authorities under Section 119 of the Income-tax Act. In the alternative, he contended that the said communication covers only a particular assessee and, therefore, such a communication cannot come within Section 119 of the Income-tax Act and nor can it come under Section 3(2) of the Interest-tax Act. He further contended as an alternative argument that the communication dated October 11, 1991, amounted to interference with assessment proceedings and, therefore, the proviso to Section 3(2) of the Interest-tax Act stood attracted. He further contended that the communication dated October 11, 1991, in effect, seeks to give exemptions to the UTI from the provisions of the Interest-tax Act although Parliament enacted the Finance (No. 2) Act of 1991 by which the UTI has been treated as a credit institution for the purposes of the Interest-tax Act and, therefore, the circular dated October 11, 1991, was in violation of the provisions of the Interest-tax Act. He further contended that Section 28 of the Interest-tax Act gives power to the Central Government to give exemption in public interest to any credit institution or class of credit institutions. However, no such exemptions have been given under Section 28 of the Interest-tax Act and, therefore, the circular of the CBDT violates the provisions of the Interest-tax Act. He further contended that Section 3(2) of the Interest-tax Act has a proviso which, inter alia, lays down that no order, instruction or direction could be issued by the CBDT so as to interfere with the discretion of the tax authorities. He contended that this provision is also in existence in Section 119 of the Income-tax Act. He contended that the withdrawal dated January 29, 2001, issued by the CBDT acknowledges the fact that the communication dated October 11, 1991, was contrary to the provisions of the Interest-tax Act. Hence, he contended that the communication dated October 11, 1991, was contrary to the Interest-tax Act and, therefore, such communication was not binding on the Assessing Officer. Therefore, he contended that there was no legal valid and binding circular issued in accordance with law and, therefore, the Assessing Officer was entitled to proceed and has rightly proceeded against the UTI under Section 10(a) of the Interest-tax Act, 1974. He contended that the letter of the CBDT dated October 11, 1991, is merely an opinion. It is not a circular. Hence, it has no binding effect vis-a-vis the Assessing Officer. He contended that the circular cannot violate the provisions of laws and if it so violates, effect should not be given to such a circular. He contended that the circular under Section 119 cannot be assessee's specific. He contended that under Section 28 of the Interest-tax Act an exemption can be granted only by the Central Government in consultation with the RBI. He contended that no such exemption has been given to the UTI under Section 28 of the Interest-tax Act. He contended that under Section 119 of the Income-tax Act, exemption cannot be granted to an individual assessee. Similarly, he contended that the effect of the circular dated October 11, 1991, would amount to giving exemption to the UTI from payment of interest-tax under Section 28 of the Interest-tax Act. He contended that none of the judgments cited on behalf of the UTI show that the circular under Section 119 of the Income-tax Act could be issued in violation of law. That, such circulars could be issued only to reduce the hardship to assessees. That, such circulars cannot be issued in violation of the provisions of the Act. He contended that since the circular, in the present case, dated October 11, 1991, violates the provisions of the Act, the Assessing Officer was not bound by the said circular. This is apart from the fact that the circular is not directed to the Assessing Officer. He further urged that the opinion of the CBDT in the communication dated October 11, 1991, interferes with assessment under the Interest-tax Act. Mr. Dada next contended that Section 10(a) of the Interest-tax Act refers to omission or failure on the part of the assessee to make a return under Section 7 of the Interest-tax Act. Mr. Dada contended that the word "omission" in Section 10 is a colourless word. He contended that if an opinion is taken by an chartered accountant of a assessee who opines that the return should not be filed under the Act and if the assessee acts on such opinion, it would be no defence on the part of the assessee to the notice under Section 10(a) of the Interest-tax Act if such omission results in escapement from assessment and, therefore, the word "omission" to file the return is a colourless word as held by the Bombay High Court in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57. He accordingly contended that in the present case the UTI omitted to file its returns under Section 7 of the Interest-tax Act based on the opinion and based on the interpretation given by the CBDT which interpretation is subsequently admitted to be erroneous and, therefore, Section 10(a) of the Interest-tax Act is applicable. At this stage, we may mention that respondent No. 1 has invoked Section 10(a) of the Interest-tax Act on the basis of the failure on the part of the assessee to make a return under Section 7 of the Interest-tax Act and not on the ground of omission as submitted on behalf of the Department. Mr. Dada contended that if the Department is right in its contention that the circular of the CBDT violates the Interest-tax Act then notice under Section 10(a) has been validly given because the word "omission" in Section 10(a) is a colourless word. Mr. Dada contended that even if the circular is validly issued but if the circular contravenes an enactment or if it interferes in the assessment proceedings then the Assessing Officer is not bound to follow the circular of the CBDT. Mr. Dada next contended that in view of his above submissions both on the interpretation of the Interest-tax Act and also on the interpretation of the provisions of Section 119 of the Income-tax Act and Section 3(2) of the Interest-tax Act vis-a-vis the circular dated October 11, 1991, the plea of hardship raised by the UTI is not valid. In any event, he contended that there are sufficient reserves with the UTI from which they can discharge the liability arising under the Interest-tax Act. He contended that the reserves can be used for payment of taxes. In the circumstances, Mr. Dada contended that the present petition has no merit and it deserves to be rejected.
10. In rejoinder, Mr. Dastur, learned senior counsel for the UTI contended that the notice under Section 10(a) of the Interest-tax Act was without jurisdiction. He contended that the rights of an assessee cannot depend on whether the CBDT has forwarded the circular to the Assessing Officer. If the CBDT fails to forward the circular to the Assessing Officer, that circumstance by itself cannot be held against the UTI particularly when the interpretation given by the CBDT favours the assessee and particularly when such an interpretation has been acted upon by the Department for more than nine years. He contended that the judgment of the Bombay High Court in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57 has no application to the facts of this case. He further contended that there is no merit in the contention advanced on behalf of the Department that the circular of the CBDT cannot be assessee specific. Mr. Dastur invited our attention to Circular No. 733, dated January 3, 1996 reported in [1996] 217 ITR (St.) 8, which indicates that the circular was confined to an individual assessee, viz., the Railways. Mr. Dastur points out, as an illustration, that the said circular did not confer any benefit on the Railways but it was given a wide publicity in order to inform members of the public that in their dealings with the Railways, they can arrange their transactions in a particular manner for the purposes of Section 80-IA. It refers to certain facility given to the assessee. Therefore, he contends that there are cases of circulars being confined to individual assessees. He contended that the UTI is a corporation under the Finance Ministry. He contended that the CBDT comes under the Finance Ministry and, therefore, a particular procedure was followed when the CBDT circular was addressed by the CBDT to the Ministry of Finance. He contended that a particular procedure was followed by the CBDT. That, it was not necessary to give wide publicity because the UTI was a corporation under the Finance Ministry. That, the decision was taken at the highest level. That the Assessing Officer has no role to play. He contended that under Section 3(2) read with Section 28 of the Interest-tax Act as also under Section 119 of the Income-tax Act, the circulars are forwarded to subordinate officers under the CBDT in cases where execution/implementation of the provisions of the Act is required to be carried out. He contends that, in the present case, a decision was taken by the CBDT on interpretation of Section 32 of the UTI Act read with the Interest-tax Act under which the CBDT agreed with the contention of the UTI that the UTI was exempted from provisions of the Interest-tax Act. It was a classic case of exemption/non-applicability of the Interest-tax Act and, therefore, he contended that wide publicity was not required to be given. He contended that the said circular was binding and whether such a circular constituted an opinion or a ruling did not depend upon whether it was publicized or not publicized. He contended that a bare reading of the circular dated October 11, 1991, read with the withdrawal dated January 29, 2001, shows that even the Income-tax Department considered the said letter of the CBDT dated October 11, 1991, as a circular. He contended that it is for this reason that after nine years the CBDT was required to withdraw its circular on January 29, 2001. Therefore, at page 101 of Writ Petition No. 506 of 2001, the CBDT has expressly stated that they have re-examined the matter and that they recommended withdrawal of the letter dated October 11, 1991. Mr. Dastur next contended that the circular under Section 119 of the Income-tax Act which is also applicable to the Interest-tax Act cannot alter the law. However, even if the said circular deviates from law the Assessing Officer is bound by it. It may not be binding on the High Court or the Tribunal but the Assessing Officer who functions under the CBDT would be bound by the circular of the CBDT. He contended that there are a large number of cases where the apex court found such deviations between the circular and the law. However, it is well settled that if the circular provides a benefit to the assessee and if it relieves the assessee from certain hardship then notwithstanding such deviation, the circulars were binding on the Assessing Officer and the assessee has a right to seek enforcement of the circulars. He contended that, essentially, the primary object of the circular is to lessen the rigour of law particularly in the matter of implementation of the legal provisions. Mr. Dastur pointed out that the circulars could be issued by the CBDT for various reasons including economic reasons. However, the Assessing Officer cannot sit in judgment over the said circular of the CBDT by contending that the circular violates the provisions of law. Mr. Dastur contended that similarly if a circular is against the assessee, it cannot bind the assessee otherwise all adjudications under law will come to an end and it is for this reason that the Supreme Court has repeatedly held that an interpretation given by the CBDT which gives relief to the assessees is binding on the Department. Mr. Dastur contended that if the argument advanced by Mr. Dada for the Department were to be accepted, it would lead to serious consequences because in one zone the Assessing Officer may say that the circular of the CBDT is in consonance with the Act and the Assessing Officer in another zone may say that the circular is contrary to the Act. Mr. Dastur further pointed out that deviations are the basis of the circulars under Section 119 of the Income-tax Act. He contended that if there were no such deviations, there was no purpose in issuing circulars. In this connection. Mr. Dastur relied upon several decisions of the Supreme Court to indicate that all such circulars mentioned in the judgments of the Supreme Court show that they were based on deviations and they were issued to provide certain guidelines to the assessees so that the assessees could arrange their affairs in their business and it is for this reason that the Supreme Court has repeatedly held that such circular can always be withdrawn prospectively. He further contended that the idea of issuing the circular is to maintain uniformity in the administration of the law. He contended that the judgments on which the Department has placed reliance have to be examined in the light of the facts in each of those matters. However, broadly, the judgments cited on behalf of the Department show that they were concerning circulars which were against the assessee. Under those circulars, the assessees had sought clarification from the CBDT which were turned down and, therefore, those judgments have no relevancy with the facts of the present case. In the present case, he contended that the CBDT gave an interpretation to the Act which interpretation directed the UTI not to recover interest-tax from the borrowers to whom loans were advanced and pursuant to that interpretation the UTI acted for nine years. That, pursuant to the said interpretation the Department acted for nine years. He contended that, in the present case, the issue is not of hardship. That, in the present case but for the circular, the UTI could have recovered interest-tax from the borrower. That, but for the circular, the UTI had a right to recover interest-tax from its borrowers. However, in view of the said circular dated October 11, 1991, the UTI was disabled and not entitled to recover interest-tax from the borrowers and, therefore, the issue is not of hardship. That, hardship is just a consequence now arising because of the impugned notice under Section 10(a) of the Interest-tax Act. He contended that, if at that time, the Department would not have agreed with the CBDT, the UTI could have recovered the interest-tax on their loan transactions. However, a large number of loans have now been repaid over last nine years and, therefore, he contended that in any event, the withdrawal dated January 29, 2001, cannot operate retrospectively from 1991. In the alternative, he contended that even assuming for the sake of argument that the letter dated October 11, 1991, was not a circular still Section 10(a) of the Interest-tax Act cannot be invoked particularly when the UTI was disabled from recovering the interest-tax under the Interest-tax Act for nine long years. He contended that during nine years, the UTI acted to its prejudice because it was disabled from recovering the interest-tax. Therefore, the Department is now estopped from recovering the interest-tax retrospectively from 1991. In this connection, he also contended that under the UTI Act, there were two types of reserves. He invited our attention to Section 25B(2) and submitted that the reserves under the UTI Act can only be applied for the benefit of the unitholders under a particular scheme and, therefore, the reserves of another scheme cannot be utilised for discharging the tax liability of the former scheme. For example, reserves for scheme A cannot be used to discharge the tax liability of scheme B. He contended that 36 schemes have been redeemed during the last nine years and the reserves under the closed schemes do not exist and, therefore, the tax liabilities of those closed schemes cannot be discharged from the reserves of the existing schemes. He contended that the reserves created for the Unit Scheme US64 comes under Section 25B(1) of the UTI Act. That, the said fund is in the nature of the development reserve fund which guarantees fixed returns under certain schemes. These returns also cannot be used to discharge tax liabilities. He, therefore, contended that in respect of 36 closed schemes, there are no reserves to discharge the impugned tax liability, if any. On the question of interpretation of Section 32, Mr. Dastur reiterated his earlier arguments. He, however, pointed out that the UTI is not the only institution which Parliament sought to cover under the Finance (No. 2) Act of 1991 with effect from October 1, 1991. He pointed out that by the said Act all financial institutions as defined under Section 4A of the Companies Act came to be covered. He further pointed out that 12 institutions apart from the UTI and the LIC came to be notified under Section 4A of the Companies Act with effect from 1991 and further 18 corporations under the State Financial Corporations Act also came to be notified with effect from October 1, 1991, as credit institutions and, therefore, the repeated emphasis on the part of the Department that the UTI was sought to be covered with effect from October 1, 1991, has no relevancy because it was not a solitary institution which was sought to be covered by the Act. He, however, pointed out that the provision similar to Section 32 of the UTI Act granting exemption does not find place in the case of other institutions set up under law. He contended that the UTI in that respect was unique. That, the purpose of Section 32 as to give special benefit to the UTI because a large number of small investors were involved and particularly in view of the fact that the UTI Corporation was set up to encourage such savings and investments. Therefore, Mr. Dastur contended that the Interest-tax Act may be applicable to all other institutions. However, in the case of the UTI, the exemption under Section 32 would hold the field notwithstanding the provisions of the Interest-tax Act. Mr. Dastur contended in his rejoinder that Section 3(1C) of the Interest-tax Act came to be incorporated by the Finance (No. 2) Act, 1991, with effect from October 1, 1991. That, prior to October 1, 1991, the section provided that every Director of Inspection, Commissioner of Income-tax, Commissioner of Income-tax (Appeals), Inspecting Assistant Commissioner, Income-tax Officer and the Inspector of Income-tax shall have like powers and perform like functions under the Interest-tax Act as he performs under the Income-tax Act. However, Section 2(7A) of the Income-tax Act came to be amended by the Direct Tax Laws (Amendment) Act, 1987, by which the name of the various authorities under the Act came to be changed. For example, the Income-tax Officer was changed to the Assessing Officer. He, therefore, contended that the Legislature has used the words "interest-tax authority" in Section 3(1C) of the Interest-tax Act. Therefore, he contended that merely because the designation has changed for historical reasons one cannot say that the Interest-tax Act has no linkage with the Income-tax Act. He repeated his argument that the interest-tax is a tax on income. He contended that the authorities cited on behalf of the Department to show the difference between the nature of the tax and the measure of the tax do not apply to the facts of this case in view of the submission that interest-tax is a tax on income. He contended that under the Interest-tax Act, the levy of tax is on income and the measure is also on income and, therefore, the authorities cited on behalf of the Department have no application. He contended that under the Interest-tax Act, the subject of tax is the same as the measure of tax. That, they are not different. Therefore, the judgments cited on behalf of the Department have no application. He further contended that the provisions of the Hotel Receipts Tax Act have been interpreted by the Supreme Court in the above judgment. The Supreme Court has held that the hotel receipts tax was a tax on gross receipts. Mr. Dastur contended that the Interest-tax Act also seeks to levy tax on gross receipts. He, therefore, contended that the provisions of the Hotel Receipts Tax Act are in pari materia with the provisions of the Interest-tax Act. He contended that in the aforestated judgment, the Supreme Court has laid down that the Hotel Receipts Tax Act seeks to levy tax on gross income. Therefore, Mr. Dastur contended that the Interest-tax Act should also be construed to have levied the tax on total income. That, there was no difference between the two enactments. That, under the Hotel Receipts Tax Act the levy of tax is on the chargeable hotel receipts whereas under the Interest-tax Act the levy was on gross receipts of interest. He accordingly contended that the word "income" in Section 32 must be read as gross income and not computed income. He further contended that the word "income" has also been repeatedly interpreted by the apex court in the context of entry 82 of List I to the Seventh Schedule of the Constitution. He submitted that in all those cases the word "income" has been read in the widest possible terms. He contended that, therefore, the word "income" in Section 32 should be read as gross income. He, therefore, contended that the above dichotomy between the nature of a tax and the measure of the tax does not apply. He contended, once again, that Section 32(1) is in two parts. He contended that the interest received by the UTI is income which is sought to be taxed under an enactment which is different from the enactments listed in the first part of Section 32(1) and, therefore, the Interest-tax Act fell within the ambit of the second part of Section 32(1). He contended that if interest-tax does not fall within the ambit of the second part of Section 32(1) then one fails to understand as to which enactment could fall under that part. That, if the Interest-tax Act does not fall in the second part then the question posed by learned counsel was what will fall in the second part of Section 32(1) ? He contended that the only answer to the above question was that the Interest-tax Act would come within the ambit of any other tax on income, profits or gains. He further contended that the Interest-tax Act seeks to levy tax on interest income and, therefore, the Interest-tax Act, if applied, would mean that the interest income is being taxed twice under the Income-tax Act as also under the Interest-tax Act. He, therefore, contended that the second part of Section 32(1) means something different from the first part. Accordingly, learned counsel contended that there is no merit in the contention advanced on behalf of the Department that the word "income" in Section 32 refers to computed income. He contended that if the Income-tax Act, 1961, charges tax on the net income and if the word "income" in Section 32(1) of the UTI Act is also read as net income then there would be a case of double taxation and, therefore, such an interpretation should be avoided. He contended that the word "income" in Section 32 of the UTI Act has a close linkage with the word "income" under the Income-tax Act which word has come up before the Supreme Court for interpretation in numerous matters in which the said word is interpreted to mean gross income and since the Interest-tax Act is a later enactment, the expression "income" should be read as interpreted by the Supreme Court in the context of the Income-tax Act. He further contended that since the Interest-tax Act is a later enactment, Parliament knew the meaning of the word "income" and, therefore, the word "income" in Section 32 must be read as gross income. He contended that Section 23 of the UTI Act defines income arising to the UTI. He contended that the word "income" in Section 23 of the UTI Act can only mean gross income and it is so clear that one need not go to the long title of the UTI Act. He contended that, in any event, the word "participation" in the long title to the UTI Act is not important and what needs to be emphasised are the words "accruing of income to the corporation" because the said words clearly describe the word "income" as gross income. He contended that it is true that the unit-holders do participate in such income accruing to the corporation but that participation is to the extent of the distributional income and, therefore, the words "accruing of income to the corporation" in the long title need to be emphasised. He contended that the words, for the time being in force in Section 32(1) of the UTI Act, show that the UTI was not liable to pay tax on income accruing to it from any source and the whole purpose of Section 32(1) is to give exemption to the UTI from payment of any tax on its income accruing from any source. Mr. Dastur contended that the unit-
holders participate in the income accruing to the corporation but only to the extent of the distributed income and, therefore, what accrues to the corporation is the gross income. He next contended that the Interest-tax Act was a general Act and the UTI Act was a special Act inasmuch as the Interest-tax Act applies to all credit institutions whereas the UTI Act applies only to the UTI. He contended that one has to look to the subject matter of the UTI Act and the Interest-tax Act in order to decide as to which Act constitutes the general enactment and the special enactment. In this connection, he further submitted that the entire liability of the UTI is covered by Section 32 of the UTI Act whereas the Interest-tax Act does not cover the entire liability of the UTI and, therefore, Section 32 of the UTI Act is a special provision for tax purposes. He contended that his argument deserves to be accepted because the said argument does not render the Interest-tax Act nugatory and the Interest-tax Act will continue to apply to all other credit institutions save and except UTI. On the other hand, if the Interest-tax Act is held to be having an overriding effect over the UTI Act then Section 32 of the UTI Act would stand completely breached. Mr. Dastur further contended that if the later enactment does not have a non obstante clause which exists in the earlier enactment then the earlier enactment will override the later enactment. He, therefore, contended that, in the present case, since there is no non obstante clause in the Interest-tax Act which is the later enactment and which provision exists only in the UTI Act which is the earlier enactment the UTI will override the Interest-tax Act. Mr. Dastur, therefore, contended that, in this case, the court should try to reconcile the two Acts and on the basis of his arguments stated hereinabove, he contended that the only method of reconciling the two Acts was to treat the UTI as a credit institution to which the Interest-tax Act will not apply. In any event, he contended that it is well settled that if there are two conflicting provisions, the assessee is free to choose that provision which imposes lesser tax. Therefore, in conclusion, he contended that Section 32 of the UTI Act is a special provision as it governs the entire tax liability of the UTI Act whereas the Interest-tax Act is a general provision and, accordingly, he contended that the UTI Act will override the Interest-tax Act.
Findings :
Questions Answers (A) Whether the interest-tax under the Interest-tax Act, 1974, is a tax on income and, if so, whether interest accruing to the UTI from loans advanced by it stands exempted in view of section 32 of the UTI Act, 1963 ?
In the negative, i.e., in favour of the Department and against the UTI, (B) If the answer to question No. A is in the negative then whether communication dated January 29, 2001, withdrawing the letter/circular dated October 11, 1991, issued by the CBDT was retrospective and whether the Interest-tax Act, 1974. was applicable for the accounting years 1991-92 to 1998-99 ?
In the negative i.e., in favour of the UTI and against the Department.
(C) Whether, on the facts and circumstances of the case, the Department was right in invoking section 10(a) of the Interest-tax Act, 1974, for failure on the part of the UTI to file returns under the Interest-tax Act, 1974 ?
In the negative, i..e, in favour of the UTI and against the Department.
Findings on question No. (A) above : Whether the Interest-tax Act is applicable, to UTI ?
11. Before dealing with the arguments, we are required to ascertain the scope of the Interest-tax Act, 1974, so also the scope of the UTI Act, 1963.
(i) Preface :
12. The Interest-tax Act, 1974, came into force with effect from September 23, 1974. The Statement of Objects and Reasons shows that interest-tax has been levied for two-fold purposes. Firstly, to raise the cost of borrowed funds and, secondly, to supplement Government revenues. The said tax is expected to have monetary and fiscal impact. It was enacted as an anti-inflationary measure. The Act was enacted as a part of monetary and credit policy. As an anti-inflationary measure, the Act was introduced in 1974 in order to discourage borrowings. It may be mentioned that one of the reasons for inflation is excess money supply in the economy. In 1974, the Government's market borrowing was limited as compared to Government's market borrowings during the accounting year 1999-2000 and the accounting year 2000-2001. This aspect is important. After 1991-92, the Government depends on market borrowings to a large extent. Therefore, more and more credit institutions were brought within the ambit of the Interest-tax Act which is clear from the facts enumerated above. This included the UTI. However, as stated above, since 1991, the market borrowings of the Central Government have increased manifold times and, therefore, by the Finance Act, 2000 the levy has been withdrawn after March 31, 2000. During the accounting year ending March 31, 2001, the Government of India had to borrow from market Rs. 1,11,000 crores. Therefore, even in this budget the levy stands withdrawn. The object of giving this preface is only to show that the Interest-tax Act is an economic legislation. The Interest-tax Act is, therefore, required to be construed in the light of the Statement of Objects and Reasons. With this preface, we will now examine the Interest-tax Act, 1974.
(ii) (a) Scope of the Interest-tax Act, 1974 : For the purposes of deciding" this point Sections 4, 5 and 6 of the Interest-tax Act, 1974, are quoted :
"4. (1) Subject to the provisions of this Act, there shall be charged on every scheduled bank for every assessment year commencing on or after the 1st day of April, 1975, a tax (in this Act referred to as interest-tax) in respect of its chargeable interest of the previous year at the rate of seven per cent, of such chargeable interest :
Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1983, shall be three and a half per cent, of such chargeable interest.
(2) Notwithstanding anything contained in Sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the previous year at the rate of three per cent, of such chargeable interest :
Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1997, shall be two per cent, of such chargeable interest.
5. Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions [or to any co-operative society engaged in carrying on the business of banking]) accruing or arising to the credit institution in that previous year :
Provided that any interest in relation to categories of bad or doubtful debts referred to in Section 43D of the Income-tax Act shall be deemed to accrue or arise to the credit institution in the previous year in which it is credited by the credit institution to its profit and loss account for that year or, as the case may be, in which it is actually received by the credit institution, whichever is earlier.
6. (1) Subject to the provisions of Sub-section (2), in computing the chargeable interest of a previous year, there shall be allowed from the total amount of interest (other than interest on loans and advances made to [credit institutions]) accruing or arising to the assessee in the previous year, a deduction in respect of the amount of interest which is established to have become a bad debt during the previous year :
Provided that such interest has been taken into account in computing the chargeable interest of the assessee of an earlier previous year and the amount has been written off as irrecoverable in the accounts of the assessee for the previous year during which it is established to have become a bad debt.
Explanation.--For the removal of doubts, it is hereby declared that in computing the chargeable interest of a previous year, no deduction, other than the deduction specified in this sub-section shall be allowed from the total amount of interest accruing or arising to the assessee.
(2) In computing the chargeable interest of a previous year, the amount of interest which accrues or arises to the assessee before the 1st day of August, 1974, or during the period commencing on the 1st day of March, 1978, and ending with the 30th day of June, 1980 or during the period commencing on the 1st day of April, 1985, and ending with the 30th day of September, 1991, shall not be taken into account."
13. Section 2(5) defines "chargeable interest" to mean the total amount of interest referred to in Section 5 and computed in the manner laid down in Section 6. Clause (5A) defines "credit institution" inter alia to mean a public financial institution as defined in Section 4A of the Companies Act. By the Finance (No. 2) Act of 1991, the UTI is a credit institution. In Section 2(7) the word "interest" is defined to mean interest on loans and such interest to include commitment charges and discount on promissory notes and bills of exchange. Under Section 2(10), it is laid down that all other words used in the Act but not defined shall have the meaning assigned to them under the Income-tax Act. Section 3(1). inter alia, states that all income-tax authorities specified in Section 116 of the Income-tax Act shall also be the interest-tax authorities for the purposes of the Interest-tax Act. Section 3(1C) states that the interest-tax authority having jurisdiction in relation to credit institution which has no assessable income under the Income-tax Act, shall be under the jurisdiction of the interest-tax authority. This section is important. It shows that even if a credit institution has no assessable income under the Income-tax Act, it would still be covered by the Interest-tax Act. This shows that the Interest-tax Act is a separate enactment from the Income-tax Act. That, it seeks to impose a levy on the total receipt of interest accruing to the credit institution and it is not a tax on income. Section 3(1C) further shows also that, the Legislature, while enacting the Interest-tax Act, 1974, was aware of the meaning of the word "income" under the Income-tax Act, 1961, which is the earlier legislation and it has understood the word "income" under the Income-tax Act to mean income under the head "Profits and gains" or from other sources. Section 3(2) of the Interest-tax Act lays down that all officers employed in the execution of the Act shall follow orders, instructions and directions of the Central Board of Direct Taxes (hereinafter referred to as the "CBDT"). Section 3(2) is worded differently from Section 119 of the Income-tax Act which states that the Board may issue orders, instructions and directions to the income-tax authorities for proper administration of the Act. Therefore, Section 3(2) of the Interest-tax Act is declaratory which is not the case with Section 119 of the Income-tax Act. However, by virtue of Section 21 of the Interest-tax Act, Section 119 of the Income-tax Act is made applicable. This clearly shows the difference between Section 3(2) of the Interest-tax Act and Section 119 of the Income-tax Act which is also made applicable under the Interest-tax Act. The proviso to Section 3(2) puts an embargo on the CBDT. It states that the CBDT shall not issue orders, instructions or directions so as to interfere with the discretion and functioning of the subordinate interest-lax authorities. Section 4 of the Interest-tax Act is a charging section. Section 4(2) lays down, inter alia, that on and from April 1, 1992, there shall be charged on every credit institution for every assessment year, interest-tax in respect of its chargeable interest at the rate of three per cent, of such chargeable interest. The said section has a proviso. The proviso states that the rate at which interest-tax shall be charged after March 31, 1997, shall be two per cent. Section 5 of the Interest-tax Act deals with scope of chargeable interest. It lays down, inter alia, the meaning of the words "chargeable interest". It lays clown the scope of chargeable interest. It provides that the chargeable interest shall be the total amount of interest accruing to the credit institution. Therefore, reading Section 4 and Section 5, it is clear that Interest-tax Act seeks to levy the interest-tax on the gross receipt of interest arising to the credit institution on its loans and advances. Section 6 of the Interest-tax Act deals with computation of chargeable interest. It only provides for deduction from the total amount of interest in respect of the amount which is proved to have become a bad debt. Therefore, except for the statutory deduction expressly made, the assessee under the Interest-tax Act is not entitled to any other deduction while computing the chargeable interest which is the gross receipts of interest. Had it been an income, as contended on behalf of the UTI under the Income-tax Act then the computation under Section 6 of the Interest-tax Act would have been quite different. It would have been in the manner prescribed by the Income-tax Act. Therefore, the entire concept of chargeable interest, the scope of chargeable interest and the computation of the chargeable interest shows that it is not a tax on income but it is a tax on gross receipt of interest. The assessee under the Interest-tax Act cannot claim deductions as in the cases under the Income-tax Act. For example, the assessee under the Interest-tax Act cannot claim expenses or deductions on the ground that the expense was incurred to earn such income. Section 7 provides for filing returns by the assessees under the Interest-tax Act. They are the returns only of chargeable interest. Therefore, a complete machinery is set up under the Interest-tax Act, separate and distinct from Income-tax Act. Therefore, the Interest-tax Act is a code by itself. Section 10 deals with interest escaping assessment. It, inter alia, lays down that if the Assessing Officer (substituted for Income-tax Officer by the Finance (No. 2) Act, 1991) has reason to believe that by reason of omission or failure on the part of the assessee to make a return under Section 7 or to disclose fully and truly all material facts for an assessment year, the chargeable interest has escaped assessment then the Assessing Officer may in cases falling under Section 10(a) at any time issue notice and proceed to assess or reassess the amount chargeable to interest-tax. This section has been invoked in the present case by the first respondent. However, as stated above, the section has been invoked only on the ground of failure on the part of the assessee--UTI to file its return. The said section is not invoked on the ground of omission on the part of the assessee to file its return. Section 12 of the Interest-tax Act provides for levy of interest on the assessee for default in furnishing the return of chargeable interest. Section 18 of the Interest-tax Act deals with deductibility of interest-tax in computing the total income of the assessee under the Income-tax Act. Section 18, inter alia, states that notwithstanding the provisions of the Income-tax Act, while computing the income of a credit institution chargeable to income-tax under the head "Profits and gains of business or profession" or under the head "Income from other sources", the interest-tax payable by the credit institution under the Interest-tax Act shall be deductible from the income under the said respective heads. Therefore, Section 18 shows, firstly, that the Interest-tax Act is a separate enactment from the Income-tax Act. Secondly, it shows that the Interest-tax Act imposes a levy which is separate and distinct. It is a levy on chargeable interest. Thirdly, Section 18 shows the meaning of the word "income" as understood by the Legislature while enacting the Interest-tax Act. The said section shows that the Legislature has referred to the income of a credit institution chargeable to income-tax under the aforestated two heads. These words namely "chargeable to income-tax" go with the word "income" of a credit institution. Therefore, one cannot read the word "income" in the said section in isolation from the words "chargeable to income-tax". It shows that the word "income" in Section 18 refers to computed income and not gross income. Lastly, Section 18 provides for deduction to an assessee under the Income-tax Act by making payment of interest-tax, a charge against the profits of the assessee. It is for this reason that the Legislature has referred to the aforestated two heads of income, viz., "profits and gains of business or profession" or "income from other sources". This clearly shows that as distinguished from tax on income, the burden of interest-tax may be passed on to the persons taking loans and advances. Therefore, the interest-tax is very similar to an indirect levy. This aspect is also borne out by Section 26C of the Interest-tax Act which lays down that notwithstanding anything contained under the term loan agreement sanctioned by the credit institution, it shall be lawful for the credit institution to vary the agreement and to increase the rate of interest to the extent to which such credit institution is liable to pay the interest-tax under this Act. Therefore, Section 26C also shows that the interest-tax is not a tax on income as contended on behalf of the UTI. Therefore, on a bare reading of the Interest-tax Act, 1974, we are of the view that the interest-tax is not a tax on income ; that it is a tax on gross receipt of interest; that even if the net result of business of a credit institution is a loss, yet, such credit institution will have to pay interest-tax on the gross interest ; that no deductions are allowed while computing interest chargeable to interest-tax except the bad debt. Had it been a tax on income then it would have been subject to process of computation of income as per the Income-tax Act. In fact, no exemption is allowed to the UTI under Section 28 from the charge of interest-tax. Section 28 gives power to the Central Government to exempt any credit institution from the provisions of the Act in public interest. We are, therefore, satisfied on a bare reading of the Interest-tax Act that it is an Act on gross receipt of interest. It is not a tax on income. That, the two Acts operate in different fields and, therefore, they cannot he equated.
(b) Scope of the UTI Act, 1963 :
14. The said Act, 1963, was enacted to provide for establishment of a corporation in order to encourage savings and investments and participation in the income, profits and gains accruing to the corporation from acquisition, holding, management and disposal of securities (see long title). Section 2(cb) defines "first unit scheme". It refers to US64. Section 2(d) defines "initial capital" to mean capital of the trust. Section 2(fa) defines "public financial institution" to mean every financial institution specified By or under Section 4A of the Companies Act. Section 2(jj) defines "subsequent unit scheme" to mean any scheme after the commencement of the Unit Trust of India (Amendment) Act, 1966. Section 2(1) defines the word "trust" to mean Unit Trust of India. Section 2(o) defines the expression "unit capital" to mean aggregate of the face value of the units sold under a particular unit scheme and the outstanding. Section 4 of the UTI Act, inter alia, indicates the meaning of the words "initial capital of the trust". It lays down that the said capital of the trust shall be Rs. 5 crores divided in the form of certificates of such face value as may be prescribed. The contributories to the initial capital of the trust were the RBI, the LIC, the State Bank and the subsidiary banks and the other institutions specified. Section 2(q) defines "unitholder" to mean a person recognised by the trust as the holder of a certificate under a unit scheme which is defined under Section 2(r). Section 19(1)(3) of the UTI Act, gives power to the trust to grant loans and advances. It indicates the business of the trust. Section 21 indicates what is Unit Scheme. It provides for facilities to the participants (unitholders) in the income, profits and gains arising out of the acquisition, holding, management or disposal of securities by the trust. This section shows that the participants are unitholders. That, they participate in the income, profits and gains, That, the word "income" is placed with the words "profits and gains" unlike what one finds in subsequent sections of the Act. Chapter V of the UTI Act deals with allocation and distribution of income and reserve funds. The caption of Chapter V refers to allocation and distribution of income. Here the word "income" is not placed in the company of "profits and gains". This is very important. The word "profit" represents the difference. It indicates computation whereas the word "income" in the general sense covers all receipts. Therefore, the discussion indicates that the Legislature has carefully used the word "income" in Chapter V which deals with allocation and distribution in contradistinction to the word "income, profits and gains" in Section 21 and also in Section 32. Section 22 refers to capital of the trust. It contains a dichotomy. It is in two parts. The first part refers to the capital of the trust in relation to the first unit scheme whereas the second part refers to the capital of the trust in relation to the subsequent unit scheme. The composition of the capital of the trust also varies between the initial capital of the first unit scheme and the unit capital in relation to the subsequent unit scheme. Therefore, Section 22 indicates that the UTI is required to allocate and distributed its income and reserves schemewise. Section 23 refers to the income of the trust. Here the word "income" is used without the words "profits and gains" in contradistinction to Section 21 and Section 32. The reason is obvious. The income of the trust is allocated for the purposes of Chapter V schemewise. In this sense, the word "income" is required to be read as allocable income. Section 24 is a follow up of Section 23. It provides for allocation of income to the initial capital and the unit capital in a stipulated proportion. Section 25 of the UTI Act deals with allocation of interest and expenses schemewise and it further provides for charging of the interest/expenses to the initial capital and to the unit capital in the stipulated proportion schemewise. Section 25A refers to distribution of income. It refers to the accrual of distributable income. It states, inter alia, that the income allocated, as stated above, to the initial capital and as reduced by interest and other expenses charged to the initial capital may be distributed among the contributing institutions in proportion to their respective contributions (see Section 25A(1)). However, under Section 25A(2), it is provided, inter alia, that the income allocated to the unit capital relating to the unit scheme as reduced by the interest/expenses charged to such unit capital shall be distributed to the unitholders under that particular unit scheme. This is also provided for under Section 25A(3). Therefore, Section 25A of the UTI Act refers to the distribution of income schemewise. The unit capital is also schemewise and the charge by way of interest/expenses is to the schemewise unit capital. In other words, allocation and distribution of income is schemewise. What is also important to be noted is that under Section 25A(3), the income allocated to the unit capital of a particular scheme as reduced by the interest/expenses charged to that capital is required to be distributed amongst the unitholders under that particular scheme. Therefore, Chapter V deals with allocation and distribution of income. Under Section 25B, the trust may establish a reserve fund by transferring sums as it may deem fit out of the income of the trust not distributed under Section 25A to institutions or unitholders whereas Section 25B(2) lays down that the amount in the reserve fund created for the purposes of a specific unit scheme shall be used only for the benefit of the unitholders under that unit scheme. Therefore, it is clear that the Trust may not distribute the income in a given year amongst the unit-holders and the institutions by transferring the amounts out of the income to the reserve funds. Therefore, it is clear that Section 25B refers to the amounts retained by the trust for the purposes of reserve funds. Therefore, it is clear that although the word "income" under Section 23 of the UTI Act refers to gross income, it is only for the purposes of allocation and distribution of income and reserve funds. Further, Chapter V refers to distributable income vide Section 25A. It also refers to reserve funds in Section 25B. Therefore, after allocation of income and expenses (including interest) schemewise, distributable income accrues to the trust and the participants in the distributable income, inter alia, are the unitholders. Therefore, the unitholders are participating in the net income, profits and gains which is also indicated by the long title to the Act. Therefore, whenever the words "income, profits and gains" have been used in the UTI Act, viz., in the preamble, in Section 21, and in Section 32, it is clear that the unitholders are the participants in the net income and not in the gross income. One has to read Chapter V of the UTI Act in the context of allocation and distribution of income and reserve funds. Now coining to the Section 32 of the UTI Act, for the purposes of this judgment, we hereby quote Section 32(1) to the extent required.
"32. Income-tax and other taxes.--(1) Notwithstanding anything contained in the Wealth-tax Act, 1957 (27 of 1957), the Income-tax Act, 1961 (43 of 1961), the Super Profits-tax Act, 1963 (14 of 1963), the Companies (Profit) Surtax Act, 1964 (7 of 1964) or in any other enactment for the time being in force relating to income-tax, super-tax, super profits-tax, surtax or any other tax on income, profits or gains."
15. Section 32 gives exemption to the UTI from payment of tax, inter alia, under the Income-tax Act on its income, profits or gains. It lays down that the UTI shall not be liable to pay income-tax or any other tax in respect of any income, profits or gains derived by it from any source. As stated above, the words used in Section 32(1) are "income, profits and gains". Section 32 is not confined to the word "income" alone. As stated above, the word "profit" represents the difference, it refers to a net amount. Therefore, reading the said Section as a whole, it is clear that the words "tax on income, profits or gains" refer to taxable income and not gross income. This is also in the light of the Scheme of the UTI Act which we have dis-
cussed hereinabove. Further, the first part of Section 32(1) clearly refers to the words "income, profits or gains" under the Income-tax Act whereas the second part of Section 32(1) refers to any other tax in respect of any income, profits or gains derived by the UTI from any source. The second part of Section 32(1) which refers to tax under any other enactment is separate and distinct from the first part. The first part specifically refers to income, profits or gains accruing to the UTI and chargeable to tax under the Income-tax Act. The second part however refers to any other enactment for the time being in force relating to any other tax on income, profits or gains of the UTI. Therefore, the first part covers the Income-tax Act. The second part refers to tax on income, profits or gains of the UTI under any other enactment apart from those specified in the first part. As stated above, while discussing the scope of the Interest-tax Act, we have come to the conclusion that the Interest-tax Act is an economic legislation. That, the interest tax is not a tax on income. Hence, Section 32(1) has no application. However, since an alternate argument on conflict of law has been advanced on behalf of the UTI, we have discussed the scheme of the UTI Act in entirety on the assumption that the Interest-tax Act is a tax on income. This alternative argument has been advanced on behalf of the UTI in support of their contention that the word "income" in Section 32(1) of the UTI Act denotes total income and not net income as computed under the Income-tax Act. We do not find any merit in this argument. Although Section 32(1) is in two parts, the first part clearly refers to income assessable under the Income-tax Act whereas the second part deals with levy of tax on the income of the UTI under any other enactment. However, both the parts indicate, if read together, that they refer to computable income. It would be anomalous to read the first part of Section 32 to cover computable income and the second part to refer to the gross income. Moreover, as stated hereinabove, the Legislature has used the word "income" along with the words "profits and gains" as in Section 21 and in the long title to the Act in contradistinction of the word "income" alone under Section 23 which we have discussed hereinabove. We may also point out at this stage, briefly, that the concept of income even under the Income-tax Act in the context of exigibility of tax and in the context of chargeability is the computed income and not gross income. Therefore, even assuming for the sake of argument that interest-tax falls under second part of Section 32(1) of the UTI Act and even assuming for the sake of argument that interest tax is a tax on income still we are of the view that the words "tax on income, profits and gains" in the second part refer to taxable income. As stated above, we are of the view that Section 32 has no application because the interest tax is not a tax on income but even if we proceed on the basis that it is a tax on income still Section 32(1) refers to the computed income and not the gross income. Section 32 of the UTI Act exempts only the UTI's computed income. It does not exempt the UTI from levies on receipts which are not its income, profits or gains. As stated hereinabove, interest tax is in the nature of indirect levy. It allows the burden to be passed on to the borrowers. Such a levy cannot fall within Section 32 of the UTI Act. Similarly, because interest tax is not a tax on income, the Interest-tax Act empowers the credit institutions to modify the contracts which clearly indicates that the Interest-tax Act does not impose levy on income.
(iii) Meaning of the word "income" in Section 32 of the UTI Act, 1963 :
16. On behalf of the UTI a parallel was sought to be drawn between the word "income" under the Income-tax Act and the word "income" in Section 32 of the UTI Act. We have already discussed the scope of the UTI Act hereinabove. However, there is a fundamental difference between the word "income" and the words "tax on income". These are two different concepts. These are two different expressions. In Section 32 of the UTI Act, the words used are "tax on income, profits or gains". It is in this light that the words "tax on income" are required to be interpreted. The word "income" in the general sense and in commercial accountancy includes all receipts. However, when the Legislature uses the expression "tax on income", it refers to computable income and not gross income as sought to be argued on behalf of the UTI. Therefore, under Section 32(1) of the UTI Act, the words "tax on income, profits or gains" can only mean computable income. The Interest-tax Act is a tax on gross receipt of interest. It is not a tax on income. Under the Interest-tax Act, the burden passes on to the borrowers because it is not a tax on income. Under the Interest-tax Act, the loan contract can be changed by the credit institution. Had it been a tax on income, no such provision could have been made under the Interest-tax Act. Even if a credit institution incurs a loss in a given year, the levy would be maintained because it is on gross receipt. Under the Income-tax Act because it is a tax on income, an assessee who incurs expenditure to earn income is entitled to claim deduction in respect of such expenses. It is not so under the Interest-tax Act [see Section 6 of the Interest-tax Act.] Similarly, under Section 18 of the Interest-tax Act, interest tax is an allowable deduction in computing the income of a credit institution assessable under the Income-tax Act. Under Section 18 of the Interest-tax Act, the income of a credit institution chargeable to income-tax under the head "Profits and gains of business or profession" is deductible from the income under that head. Therefore, it is clear that interest tax is deductible as expense. Therefore, Interest-tax Act cannot be compared with the Income-tax Act. If one keeps in mind the two concepts, viz., "income" vis-a-vis "tax on income", the entire problem stands resolved. Whenever the Legislature uses the words "tax on income" as in the case of Section 32 of the UTI Act, it refers to computable income. It cannot refer to gross income. This difference is also noticed by us when we discussed herein-
above, the scheme of the UTI Act. There is one more way of looking at this problem. The word "income" in Section 32(1) of the UTI Act is in the company of the word "profits or gains". The word "profits" represents difference. It does not refer to gross profits. Numerous judgments on lack of legislative competence have been cited before us in which the word "income" has been interpreted by the Supreme Court. However, those judgments have no application to the facts of the present case. In this case, we are not reading the word "income" under any of the entries under the Constitution. The entries in the Constitution refer to the legislative field. Therefore, the numerous authorities cited on behalf of the UTI in the context of entry 82 of List I have no application. On behalf of the UTI, the following judgments were cited before us, viz., Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC); Senairam Doongarmall v. CIT and Dooars Tea Co. Ltd. v. Commr. of Agrl. I T. . These judgments have been cited on behalf of the UTI in support of their contention that the words "profits or gains" following the word "income" cannot limit the word "income". That the word "income" should be given widest possible interpretation. These judgments have no application to the facts of the present case. In the above three cases, the argument was that the words "profits or gains" postulate a sale transaction made at a profit and that unless a receipt amounts to profits or gains, it cannot be treated as income. In all the three cases, it was argued that every receipt should constitute a profit and only if it constitutes profit then it was income, otherwise it was not income. This argument was rejected and it was in this context that the ratio laid down was that the word "income" cannot be confined to profit from business. These judgments have no application to the facts of the present case. One has to read the judgments ' in the context of what was argued before the court.
17. We may also look at the above contentions of the UTI from a different angle, viz., that there is a difference between the nature of tax and the measure of tax. In the case of Hingir-Rampur Coal Co. Ltd. v. State of Orissa , it has been laid down that the character of the levy does not stand altered by the rate allowed to be imposed. That the method in which a levy is recovered cannot decide the character of the levy. That, income from house property under the Income-tax Act is a tax on income. However, under the Income-tax Act, in cases of income from house property, the measure used is the annual value of the building. That, adoption of that yardstick by the Income-tax Act for getting at the income by any other enactment for levying the tax authorised by it would not convert the tax under that enactment into an income-tax (see page 557). This judgment applies on all fours to the facts of our case. Under the Interest-tax Act, income offers a yardstick. Such a yardstick does not decide the character of the levy. The levy is on the gross receipt of interest. The yardstick is the income. Therefore, such a yardstick cannot convert the Interest-tax Act from a tax on gross receipt into a tax on income. In the case of Elel Hotels and Investments Ltd. v. Union of India , it has been held by the Supreme Court that the expression "income" in entry 82, List I, cannot be subjected to any restriction. That, while interpreting the word "income" in entry 82 the widest possible interpretation should be given. However, at page 149 of that judgment, the Supreme Court has categorically observed that a particular statute enacted under entry 82 as a matter of fiscal policy can restrict the word "income" to a particular specie of income and in which case the definition would be limited by consideration of the underlying fiscal policy of a particular statute. This note of caution clearly applies to the present case. In the present case, we are not concerned with the word "income" in entry 82. In the present case, we are required to interpret the word "income" in the context of the Interest-tax Act which has been enacted as a matter of fiscal policy. Hence, no further multiplication of the authorities is required on this point. It is correct to say that in the case of Elel Hotels and Investments Ltd. , as also in the case of Federation of Hotel and Restaurant Association of India v. Union of India , it has been held that the Hotel Receipts Tax Act is a tax on income. But, there the controversy was in the context of lack of legislative competence. Therefore, the word "income" in entry 82 came to be interpreted. In the present case, no such dispute arises for determination. However, in conclusion, we would like to refer to the judgment of the Supreme Court in Sainik Motors v. State of Rajasthan, . In that case, a Rajasthan Act levied a tax on passengers and goods measured by reference to the fares and freights charged by the operators. If, it was treated as a tax on fares and freights, it would be a tax on income, which the State Legislature could not levy. If treated as a tax on passengers, it was valid under entry 56 of List 2. The validity of the Act was upheld on the latter ground. The court pointed out that the tax was on goods and passengers though measured by reference to fares and freights. The said judgment applied to the facts of this case. In the present case also the interest-tax is a tax on gross receipt of interest measured by reference to the income. In the circumstances, we do not wish to go into the entire scheme of the Income-tax Act on which learned counsel for the UTI placed reliance. Suffice it to state that under Section 4 of the Income-tax Act, 1961, the income-tax is chargeable on the total income of every person and the words "total income" are defined under Section 2(45) to mean total amount of income referred to in Section 5, computed in the manner laid down in the Act. It is for this reason that, as stated hereinabove, we have highlighted the difference in the two concepts, viz., "income" vis-a-vis the words "tax on income". Therefore, the words "tax on income" in Section 32 of the UTI Act must refer to computed income. Further, the word "income" in that section is followed by the word "profits". The word "profits" denotes the difference. Therefore, if one reads the entire sentence in Section 32, it refers to "tax on income, profits or gains". Therefore, the word "income" in Section 32 refers to computed income whereas the Interest-tax Act imposes the levy on gross receipt of interest ; Therefore, the scope of the UTI Act is different from the Interest-tax Act. They operate in different fields. There is no conflict between the two.
(iv) Findings of the court on the question of conflict between Section 32 of the UTI Act, 1963 and the Interest-tax Act, 1974 :
18. In view of our discussion hereinabove, there is no conflict between Section 32 of the UTI Act and the provisions of the Interest-tax Act, 1974. As stated hereinabove, the Interest-tax Act is a fiscal and economic legislation. It seeks to levy tax on loans irrespective of income. It seeks to levy tax on interest and not on income from interest. On the other hand, the UTI Act is based on commercial principles. It is enacted to encourage savings and investments. The objects of the two Acts are different. The nature and substance of the two Acts are different. Therefore, there is no conflict between the two enactments. Moreover, the UTI Act seeks to give exemption to income accruing to the UTI in the course of its business. The income contemplated by Section 32 is the taxable income. On the other hand, the interest-tax is a levy on gross receipts of interest by the credit institution. Under the Interest-tax Act, the burden passes on to the borrowers to pay interest-tax. Therefore, the scheme of the two Acts is different, Therefore, there is no conflict. However, since detailed arguments have been advanced on the question of conflict, we have examined the controversy from that angle also. In the case of Ashoka Marketing Ltd. v. Punjab National Bank , one of the points which arose for consideration was, whether the Public Premises Act would prevail over the provisions of the Rent Control Act in which there was a mm obstante clause and which Act was the earlier enactment. It was held that the Public Premises Act was the later enactment. It was held that Parliament was aware of the non obstante clause in the Rent Control Act which was the earlier enactment when Parliament enacted the Public Premises Act. It was held that the Rent Control Act was intended to deal with the general relationship of landlord and tenant in respect of premises other than Government premises, whereas the Public Premises Act was intended to deal with speedy recovery of possession of the premises of public nature. It was held that by reason of the Public Premises Act, the Government properties were excluded from the ambit of the Rent Control Act. Accordingly, the Supreme Court construed the Public Premises Act as overriding the provisions contained in the Rent Control Act. It is important to note that, in the earlier enactment, viz., the Rent Control Act, there was a non obstante clause. There was no such clause in the Public Premises Act. However, on construing the Public Premises Act in its entirety, the Supreme Court came to the conclusion that the Public Premises Act contained provisions which were in the nature of non-obstante clauses. That, Parliament while enacting the Public Premises Act was aware of the provisions of the Rent Control Act. Therefore, it was held that the Public Premises Act prevailed over the Rent Control Act. It was held that the Rent Control Act made a departure from the general law regulating the relationship of landlord and tenant as contained in the Transfer of Property Act. Therefore, the Rent Control Act was a special statute regulating the relationship of landlord and tenant. However, the Public Premises Act provides for speedy machinery to secure eviction of unauthorised occupants from public premises. Therefore, the Public Premises Act was held to be the special statute relating to eviction of un-authorised occupants from public premises. In that sense, the Supreme Court held both the enactments to be the special statutes in relation to matters dealt with therein. However, it was held that since the Public Premises Act was a special enactment and not a general statute, the exception contained in the principle that a subsequent general law cannot derogate from an earlier special law cannot be invoked and in accordance with the principle that the later law abrogates the earlier contrary law, the Public Premises Act must be read over the Rent Control Act. (see para. 55). Applying the ratio of the aforestated judgment in the case of Ashoka Marketing Ltd. [1992] 74 Comp Cas 482 (SC), to the facts of this case, we hold, firstly, that there is no conflict between the two laws. Secondly, in any event, the provisions of the Interest-tax Act and the provisions of the UTI Act are special statutes in relation to matters dealt with therein. That, since the Interest-tax Act is a special enactment and not a general enactment and since the Interest-tax Act is a later enactment, the Interest-tax Act will override, in any event, the provisions of the UTI Act in relation to the matters dealt with therein. In other words, even assuming for the sake of arguments that the two Acts conflict with each other which we do not accept, the Interest-tax Act will override the provisions of the UTI Act in respect of the interest which the UTI earns as a credit institution by giving loans in the course of business. Section 32 of the UTI Act provides for exemptions in respect of income accruing to the UTI. This provision must yield to special Acts enacted as an economic measure like the Interest-tax Act. If the argument of the UTI is accepted then Parliament cannot, in future, enact any economic legislation particularly for a temporary period in view of Section 32 of the UTI Act. In the present case, as stated above, after March 31, 2000, the Interest-tax Act is withdrawn. However, in future, if the Government seeks to revive the Interest-tax Act, it cannot be invoked against the UTI if the argument of the UTI is to be accepted. In other words, the exemption to the UTI should continue for all times. This would be the result of the argument of the UTI, if accepted. Hence, we are not inclined to accept such an argument. In the case of Ratan Lal Adukia v. Union of India, , it was held that the doctrine of implied repeal is based on the postulate that the Legislature is presumed to know the existing state of the law. In a conceivable case the very existence of two provisions may lead to an inference of mutual irreconcilability. In such a case actual comparison of the two provisions may not be necessary. That, it is a matter of legislative intent that the two sets of provisions were not expected to be applied simultaneously. The ratio of the said judgment squarely applies to facts of this case. A bare reading of the objects of the UTI Act and the Interest-tax Act shows the legislative intent. In the case of Interest-tax Act, the Legislature intended to enact an economic legislation by which loans given by credit institutions become costlier. Under the Interest-tax Act the burden passes to the borrower. Under the Interest-tax Act, the credit institution can modify the contract with the borrowers. Under the Interest-tax Act, even if the assessee suffers loss in a given year, still the assessee would be liable to pay tax on gross receipts. This clearly shows that even if the UTI was to incur a loss in a particular year, it was liable to pay interest-tax on the basis of the gross receipts under the Interest-tax Act. The subject matter of the UTI Act is commercial whereas the subject matter of the Interest-tax Act is fiscal. When Parliament enacted the Finance (No. 2) Act, with effect from October 1, 1991, the UTI and the LIC were brought expressly within the purview of the Interest-tax Act thereby Parliament impliedly repealed Section 32 of the UTI Act to the extent of the interest income which is made taxable under the Interest-tax Act. This discussion is only based on the alternate argument that both the enactments refer to tax on income.
19. Accordingly, question No. A is answered in the negative i.e., in favour of Department and against the UTI.
20. Findings on question No. B above : Whether the withdrawal communication dated January 29, 2001, issued by the CBDT is retrospective ?
21. As can be seen from the arguments advanced on behalf of the Department, it has been contended that the circular dated October 11, 1991, cannot constitute an order, instruction or direction of the Board. That, the said communication dated October 11,1991, was not a circular. That, it expressed only an opinion on the interpretation of the provisions of the Income-tax Act and the Interest-tax Act. That, no directions were given to the subordinate officers/authorities. That, such circulars cannot be asses-see-specific. That, such a communication was not in accordance with Section 3(2) of the Interest-tax Act. That, the communication was contrary to the provisions of Interest-tax Act. That, the communication dated January 29, 2001, acknowledges the mistake on the part of the CBDT in interpret-
ing the two Acts on October 11, 1991. That, the said communication dated October 11, 1991, in effect, gave exemption to the UTI from the provisions of the Interest-tax Act particularly when with effect from 1991, the UTI was treated by Parliament as the credit institution by enacting the Finance (No. 2) Act of 1991. That, the said communication constitutes exemption under Section 28 of the Interest-tax Act without the Central Government giving any such exemption under that Act. That, the circular interferes with the discretion of the tax authorities. Hence, it was urged that the circular dated October 11, 1991, was violative of Section 3(2) of the Interest-tax Act as also Section 119 of the Income-tax Act. It was urged that all instructions to the subordinate authorities are required to be couched in the form of an order, direction and instruction to the subordinate authorities. That, the above circular dated October 11, 1991, is not addressed to any subordinate authority under the CBDT. Therefore, it was urged that the said circular was not binding on the authorities below and that the said circular was only an opinion expressed by the CBDT on the interpretation of the provisions of the Interest-tax Act and the Income-tax Act which was also a wrong opinion which is subsequently acknowledged by the CBDT in its communication dated January 29, 2001.
22. Before dealing with the authorities, it may be noted that the Central Board of Direct Taxes works in close association with the Ministry of Finance, Central Government. The UTI, as a corporation, occupies a unique position. In the present matter, on the facts, we find that after the Finance (No. 2) Act of 1991, the UTI sought the opinion of the Central Board of Direct Taxes. The Board interpreted the provisions of the Interest-tax Act. The Board interpreted Section 32 of the UTI Act. The Board came to the conclusion that the UTI was not covered by the Interest-tax Act. This opinion was given way back in October, 1991. It was communicated to the Ministry of Finance. For nine years, the decision of the CBDT was implemented. The Assessing Officer comes under the CBDT. The CBDT comes under the Finance Ministry. During this period, the UTI filed its returns under the Income-tax Act. In view of Section 32 of the UTI Act, the UTI was given reliefs under the Income-tax Act. Today, it is being vehemently urged after nine years that the communication dated October 11, 1991, is not binding on the department on the ground that it does not constitute an instruction to the subordinate authority and that it was based on mistaken interpretation of law. The burden is on the Department to show on what basis the said communication of the CBDT dated October 11, 1991, came to be implemented by the Department for nine years. Despite opportunity they have failed to discharge the burden. The circular of the CBDT dated October 11, 1991, is not addressed to the subordinate authorities. It is communicated to the Ministry of Finance ; the CBDT comes under the Ministry .of Finance. The Department of Revenue is also under the Ministry of Finance. The subordinate officers belong to the Department of Revenue. Moreover, the circular dated October 11, 1991, created a disability in the UTI. In view of the said circular, the UTI could not have levied and recovered the interest-tax from its borrowers. The UTI could not have amended its contract with the borrowers, as provided for in Section 26C. Now, after nine years, when the UTI acted to its detriment on the basis of the representation contained in the circular dated October 11, 1991, the UTI is expected to recover interest-tax from its borrowers. It is well settled by a catena of decisions that benevolent circulars are binding on the Department, even if they are based on deviations. It is equally well settled that interpretations given by the CBDT in favour of the assessee are binding on the Department. That, the Department is estopped from raising any argument contrary to the interpretation placed by the CBDT. In the circumstances, we hold that the Department is estopped from now raising an argument contrary to the circular dated October 11, 1991. However, the Department contends that the circular dated October 11, 1991, is based on a wrong interpretation of law. They have, therefore, withdrawn the said circular vide communication dated January 29, 2001. The question still remains whether the withdrawal could operate retrospectively. As stated above, the UTI was disabled from receiving interest-tax from its borrowers over the aforestated period of nine years. During the said period, 36 schemes have been closed down. During this period, loans have been repaid. During this period, Rs. 14,000 crores have been distributed. During this period, the schemes have been redeemed. It is well settled that the withdrawal of circulars cannot operate retrospectively. In that sense, circulars under Section 119 do not constitute law. They are in the nature of instructions and/or guide lines. Therefore, the communication dated January 29, 2001, will operate prospectively and not retrospectively. At this stage, we may mention that according to the affidavit filed on behalf of the Department, the CBDT has not taken into account the aforestated consequences while issuing the withdrawal communication dated January 29, 2001. In the case of Taiyabji Lukmanji v. CIT [1981] 131 ITR 643 (Guj), the facts were as follows. The assessee filed its return of income for the assessment years 1968-69 and 1969-70 on July 31, 1968, and March 31, 1971, respectively. On January 5, 1971, the CBDT issued an advertisement in which it stated that if the original return filed by the assessee is false, the assessee may file a revised return to avoid the consequences of discovery. Pursuant to the said advertisement, the assessee filed its revised returns for the aforestated assessment years on November 9, 1971, showing additional income for the said assessment years. The Assessing Officer accepted the revised returns. However, since the assessee had failed to disclose the correct income in the original returns filed by it, the Assessing Officer initiated penalty proceedings under Section 271(1)(c) and levied a penalty thereunder. This order was confirmed by the first appellate authority and the Tribunal. The text of the advertisement is given in the said judgment. It is not addressed to any of the subordinate authorities. It was issued by the CBDT as Department of Revenue, Ministry of Finance. It does not recite that instructions have been given to the subordinate officers. This advertisement was brought to the notice of the Assessing Officer. However, the Assessing Officer took the view that the advertisement was not a circular under Section 119. The Assessing Officer took the view that the advertisement did not constitute instructions to him under Section 119. He took the view that the advertisement was not binding on him. This view was confirmed by the first appellate authority and the Tribunal. It was argued before the High Court by the assessee that the advertisement constituted the circular of the Board and, in the circumstances, penalty could not be imposed. On behalf of the Department, it was argued that the Income-tax authorities were not bound by the advertisement. That, they were only bound by the instructions. That, no such instructions were given. Hence, it was contended on behalf of the Department that the Assessing Officer was right in not considering the advertisement. The argument of the assessee was accepted by the High Court. The High Court laid down that the question was required to be examined from the stand point of the credibility of the Department. The High Court opined that apart from promissory estoppel, the Department cannot ignore such opinion given by the CBDT, otherwise a greater harm would be caused to the Department in the long run. In the case of CIT v. Rastriya Swayam Sevak Sangh [1994] 207 ITR 479 (Patna), the facts were as follows. Assessments were made on the RSS in the status of an association of persons for the years 1967-68 up to 1975-76. The assessee's income was by way of receipt from members of Gurudakshina. It also consisted of receipt of Gurudakshina from devotees. The Assessing Officer held that the such Gurudakshina was taxable. The argument of the assessee was that Gurudakshina was not taxable on the ground of mutuality. The appellate authority held that Gurudakshina receipts from members was exempt on the ground of mutuality. In coming to the said conclusion, the appellate authority placed reliance on the instructions of the CBDT contained in the letter No. 290/ 26/M.O./IM dated December 19, 1978. The Revenue took up the matter in appeal before the Tribunal, Patna Bench. The Tribunal disposed of the appeal on October 8, 1980. The Tribunal held in favour of the RSS. In this connection, the Tribunal, Patna Bench, relied upon the decision of the Tribunal, Bombay Bench, in Income-tax Appeals Nos. 202, 422 and 421 of 1975-76 and I. T. A. Nos. 315 and 355 of 1975-76 in which the same issue arose for decision. The Patna Bench also placed reliance on the communication of the Central Board as evidenced by letter dated December 19, 1978. The Tribunal referred the matter under Section 256(1) to the High Court. The Patna High Court held that the decision of the Bombay Bench was based on the material placed before it regarding the constitution of the RSS, the affidavits of the parties and the Central Board of Direct Taxes' letter dated December 19, 1978, and on that basis the Bombay Bench had concluded that Gurudakshina was not assessable to tax. That, the Bombay Bench had categorically come to the conclusion that in view of the letter of the CBDT dated December 19, 1978, it was not permissible for the Revenue to contend that Gurudakshina was liable to income-tax. That, in the said communication of the CBDT, it has been expressly stated that Gurudakshina received from members stood exempted. The Bombay Bench took the letter on record and came to the conclusion that the letter afforded administrative relief to the RSS and the existence of such communication, its contents and the reliance placed thereon were never disputed before the Bombay Bench nor were they ever disputed before the Patna High Court. Therefore, the Patna High Court took the view that Gurudakshina received from members was exempt from tax ; that the relief given by the letter dated December 19, 1978, should be given effect to. That, the said communication clinched the issue and both the Bombay Bench and the Patna Bench of the Appellate Tribunal had relied on the said communication of the CBDT. Therefore, the High Court confirmed the view of the Tribunal and held that in view of communication dated December 19, 1978, the decision of the Appellate Tribunal was justified. This judgment clearly lays down two things. Firstly, that the circular under Section 119 could be asses-see-specific. Secondly, that the courts, depending on the facts of each case, have given relief to the assessees on the basis of the opinion/interpretation of law given by the CBDT even if such interpretations are contained in the letters. However, we would like to confine this judgment only to the facts of the present case. The Department has treated the interpretation of the CBDT as binding for nine years. That interpretation created a disability in the UTI to recover interest-tax from the borrowers. Therefore, the Department is now estopped from arguing contrary to the circular dated October 11, 1991. Further, when the CBDT says that its earlier view was wrong and that it was based on a mistake it can certainly rectify the position prospectively with effect from January 29, 2001, but not retrospectively because even if it was based on mistake, the UTI has also acted to its detriment. Therefore, the communication dated January 29, 2001, can only operate prospectively and not retrospectively. There is one more way of looking at this problem. The circular issued by the CBDT on October 11, 1991, is a benevolent circular vis-a-vis the unitholders. It contains an interpretation which favours a large number of investors. It contains an interpretation in favour of a large number of small investors on whom the ultimate burden will fall. It is for this reason that the Department had to move the CBDT for revocation/withdrawal of its earlier circular dated October 11, 1991. There-
fore, the Department is estopped from now contending that the interpretation of the CBDT was wrong from October 11, 1991. The Department can certainly cure the defect but such rectification can only operate prospectively particularly in the case of benevolent circulars. We do not find any merit in the contention of the Department that the circular dated October 11, 1991, was illegal and, therefore, not binding on the Assessing Officer. In the present case, the circular of October 11, 1991, has been implemented by the Department for more than nine years. We repeatedly inquired from counsel appearing on behalf of the Department as to the basis on which the above circular came to be implemented by the Department. As stated above, the UTI filed its returns under the Income-tax Act. The UTI was given relief under the Income-tax Act on the basis of Section 32 of the UTI Act which has been interpreted by the circular dated October 11, 1991. The Interest-tax Act was made applicable to the UTI from October 1, 1991, vide Finance (No. 2) Act of 1991. The Department was fully aware of the Finance Act of 1991. Therefore, it is not open for the Department now to contend that all this was under mistake particularly when the UTI has acted to its detriment. The UTI could have recovered the interest-tax from its borrowers. They were disabled from doing so in view of the CBDT circular dated October 11, 1991. They could not have recovered interest-tax from borrowers in view of the said circular. Even the Finance Ministry did not object to the UTI being given the benefit of the above interpretation. In the circumstances, the Department is now estopped from raising an argument contrary to the interpretation placed by the CBDT. Hence, in this case, we are not going into the question as to whether circulars could be issued by the CBDT contrary to law and the effect of such circulars. We do not wish to delve into judgments cited on the said point. We are confining our judgment to the facts of this case. We are confining this judgment to the rights created in favour of the UTI and the unitholders by virtue of the interpretation placed by the CBDT and on the basis of the implementation of the circular of the CBDT for nine years by the Department. However, the Department is estopped from arguing contrary to the circular till it is revoked. Hence, we do not wish to examine numerous judgments cited on both sides before us by rival parties on the above question.
Accordingly question No. B is answered in the negative, i.e., in favour the UTI and against the Department.
Findings on question No. (C) above : Whether Section 10(a) of the Interest-tax Act has been validly invoked vide notices dated December 21, 2000.
The substance of the argument on behalf of the UTI on this point is in short that Section 10A of the Interest-tax Act refers to escapement of interest from assessment on account of the UTI's failure to file its returns under Section 7 of the Interest-tax Act. In this connection, Section 10(a) of the Interest-tax Act reads as follows :
"10. If-
(a) Assessing Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 7 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable interest for that year has escaped assessment or has been underassessed or has been made the subject of excessive relief under this Act."
It is contended on behalf of the UTI, that mere escapement is not enough. That, under Section 10(a), escapement should be by reason of omission or failure on the part of the assessee to file returns. That Section 10(a) is similar to Section 148 of the Income-tax Act as it then stood. That, the old provision of Section 148 has been construed by the Supreme Court in numerous judgments. That, in this case, on facts, the Department has invoked Section 10(a) on the ground of failure to file returns. That the validity of the notice was a jurisdictional issue. That, in the present case, on the facts, there was no wilful failure on the part of the UTI to file the returns. On the other hand, the Department contended that the notices have been given for omitting to file returns under Section 7 of the Interest-tax Act which has resulted in escapement. That, the word "omission" in Section 10(a) is a colourless word as interpreted by the Division Bench judgment of this court in the case of Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57. We do not find any merit in the contention advanced on behalf of the Department. In view of the clear language of Section 10(a) of the Interest-tax Act, mere escapement is not enough. Such escapement should be by reason of omission or failure on the part of the assessee to file its return under Section 7 of the Interest-tax Act. In this case, the Department has invoked Section 10(a) of the Interest-tax Act not on the ground of omission but specifically on the ground of failure to file the returns under Section 7. In the case of N.D. Bhatt, IAC of IT. v. I. B. M. World Trade Corporation [1995] 216 ITR 811, the Bombay High Court has held that in order to confer jurisdiction under Section 147(a) of the Income-tax Act to reopen an assessment, two conditions are required to be fulfilled. Firstly, that the Assessing Officer must have reason to believe that income, profits or gains has been underassessed or has escaped assessment. Secondly, he must have reason to believe that such escapement was occasioned by the assessee's failure to disclose fully and truly all material facts. That, omission or failure to disclose postulated knowledge of the fact at the relevant time. Now, in the present case, the UTI was informed way back in 1991 that it was exempt from payment of interest-tax. For nine years, the Department never called upon the UTI to file returns. The Department acted on that decision. Therefore, on the facts of this case, there was no wilful failure on the part of the UTI in not filing returns, for the assessment years 1991-92 up to 1998-99. Learned counsel for the Department, however, emphasised the word "omission". He relied upon the judgment of the Division Bench of this court reported in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57. The word "omission" in Section 10(a) is an expression different from the expression "failure". In this case, the Department has invoked the expression "failure" and not "omission". Therefore, the judgment has no application to the facts of this case. On facts of our case, we hold that there was no wilful failure on the part of the UTI to file its returns. Secondly, in the said judgment, the Bombay High Court has laid down that the word "omission" is a colourless word. However, the said judgment helps the UTI. In Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57, the Bombay High Court has observed that the expression failure connotes that there is an obligation on the part of the assessee which has not been carried out and if there was no obligation on the asses-see to make a return then the expression "failure" would not get attracted. That, the word "omission" is a colourless word which merely refers to not doing of something and if the assessee does not make a return it is an omission on his part, whether the law casts any obligation upon him to make a return or not. In this case, Department has not invoked the word "omission". In this case, the Department has invoked the word "failure". On facts, in this case, there is no wilful failure. In view of the circular of the CBDT dated October 11, 1991, the UTI could not have recovered interest-tax from its borrowers and, therefore, it was not obliged to make a return under Section 7 of the Interest-tax Act. Therefore, the judgment of the Bombay High Court reported in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57, supports the case of the UTI.
Accordingly, we answer question No. C in the negative i.e., in favour of the UTI and against the Department.
Summary of findings :
(i) The Interest-tax Act, 1974, is applicable to the UTI, However, in view of the circular of the CBDT dated October 11, 1991, the Interest-tax Act, 1974, will not apply up to January 29, 2001, when the earlier circular has been withdrawn.
(ii) That the withdrawal communication of the CBDT dated January 29, 2001, will operate prospectively and not retrospectively.
(iii) That the impugned notices dated December 21, 2000, issued under Section 10(a) of the Interest-tax Act, 1974, in respect of the accounting years 1991-92 up to 1998-99 are invalid in law and are hereby set aside.
Accordingly, both the above writ petitions are partly allowed with no order as to costs.
C. C. expedited.