Allahabad High Court
Commissioner Of Income Tax-Ii Kanpur vs U.P. State Industrial Development ... on 9 March, 2015
Bench: Sudhir Agarwal, Shashi Kant
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
Court No. - 34
Case :- INCOME TAX APPEAL No. - 191 of 2006
Appellant :- Commissioner Of Income Tax-Ii Kanpur
Respondent :- U.P. State Industrial Development Corpo. Ltd. Kanpur
Counsel for Appellant :- R.K. Upadhyaya,B.Agrawal
Counsel for Respondent :- Ashish Bansal,S.K.Garg
AND
Case :- INCOME TAX APPEAL No. - 192 of 2006
Appellant :- Commissioner Of Income Tax-Ii Kanpur
Respondent :- U.P. State Industrial Development Corpo. Ltd. Kanpur
Counsel for Appellant :- R.K. Upadhyaya,B.Agrawal
Counsel for Respondent :- Ashish Bansal,S.K.Garg
Hon'ble Sudhir Agarwal,J.
Hon'ble Shashi Kant,J.
1. Heard Sri R.K. Upadhyaya, learned counsel for appellant and Sri Ashish Bansal, learned counsel for respondent Corporation.
2. The Commissioner of Income Tax-II, Kanpur has come up, in these appeals under Section 260A of Income Tax Act, 1961 (hereinafter referred to 'Act, 1961'), read with Section 21 of Interest Tax Act, 1974 (hereinafter referred to as 'Act, 1974'), against judgment and order dated 30th November, 2005, passed by Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'), in ITA No. 3 and 4/LUC/2004. The period of assessment in dispute in both these appeals, is 1995-96 and 1996-97, respectively.
3. While admitting appeals on 20th July, 2009, this Court formulated a single substantial question of law which is common in both the appeals and reads as under :-
"Whether on facts and circumstances of the case, the Hon'ble ITAT was legally justified in allowing the assessee's appeal stating that the interest received on UPSEB loan and interest received on premium is not chargeable to interest tax in the Interest Tax Act, 1974?"
4. Revenue claimed that Act, 1974 is applicable in the case in hand in respect to interest received on loan of UPSEB and interest received on premium by virtue of Section 2(5)A(iv) and Section 2(5)B. The Tribunal has wrongly taken an otherwise view by disallowing interest tax under Act, 1974, holding that Assessee is neither a Credit Institution nor Finance Company within the meaning of aforesaid provisions, hence erred in law.
5. Act, 1974 is an statute enacted for imposing special tax or interest in certain cases. Section 4 is a charging Section and provides that there shall be charge on every Schedule Bank and Credit Institution an Interest tax as per the rates mentioned therein. Section 4 of Act, 1974, reads as under :
"Section 4 - CHARGE OF TAX (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 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."
6. Therefore, charging Section contemplates applicability of interest tax on Scheduled Banks and Credit Institutions. It is no body's case that Assessee in question is a Scheduled Bank. Question, thus, now arises Whether it is a Credit Institution or not? The term 'Credit Institution' is defined under Section (5A) of Act, 1974, as under :
"(5A) "credit institution" means, -
(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii) a public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956);
(iii) a State financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); and
(iv) any other financial company;"
7. Learned counsel appearing for Revenue stated that Assessee in question would come within the purview of clause (iv) of Section (5A), i.e. any other financial company.
8. The term "Financial Company" is also defined in Act, 1974, under Section (5B) and reads as under :
"(5B) "financial company" means a company, other than a company referred to in sub-clause (i), (ii) or (iii) of clause (5A), being -
(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transaction or the financing of such transactions;
(ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature;
(iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith;
(iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise;
(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under Section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society;
(va) a residuary non-banking company [other than a financial company referred to in sub-clause (i), (ii), (iii), (iv) or (v)], that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner;
(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses;"
9. When we asked learned counsel appearing for Revenue as to which clause of Section (5B) would be attracted in the case in hand to bring in the Assessee in question within ambit of Act, 1974, he referred to Clause (iv) and (va) of Section (5B).
10. In order to attract Section (5B) clause (iv), an Assessee must be a 'company' carrying on as its principal business, the advance or provide finances, whether by making loans or advances or otherwise. Similarly, in order to attract clause (va) of Section (5B), the Assessee must be a "non-banking company" i.e. other than a 'finance company', referred to in sub Sections (i) to (v) of Section (5B), receiving deposit under any scheme or arrangement by whatever name called in one lump-sump or in instalments by way of contribution or subscriptions or by sale of units or certificates or other instruments or in any other manner. It is also not disputed by the parties that if thee is a company which carries on exclusively or almost exclusively two or more classes of business referred to in Section (5B) [(i) to (va)], even then it would be within the purview of Act, 1974.
11. Now, in order to understand, whether Assessee in question would answer the description of 'finance company' as above, we have to examine the nature and functioning of Assessee. From the facts noticed by Tribunal, in the impugned judgment, it is said that Assessee M/s U.P. State Industrial Development Corporation Ltd. (hereinafter referred to as 'UPSIDC'), is a company registered under the Companies Act, 1956 and wholly owned by State of Uttar Pradesh, therefore, it is a State undertaking. The objects and purposes incorporating the aforesaid company is to acquire and develop land for the purposes of promoting industrialisation in State of Uttar Pradesh. UPSIDC, got the land acquired through State of Uttar Pradesh for developing industrial area, allot land to entrepreneurs and receives premium and lease rent etc., in instalments from such Entrepreneurs.
12. In assessment year 1995-96, UPSIDC received interest to the extent of Rs.19031586/- on loan etc. advanced to UPSEB and others. In the assessment year 1996-97, amount of interest received on such loans was Rs.20928657/-. Similarly in the two assessment years, premium payable by Entrepreneurs in respect to land allotted to them was Rs.81336341/- and Rs.96647048/-, respectively.
13. Learned counsel appearing for Revenue contends that business of providing finance, whether by making loans or advances or otherwise is a very wide term and covers various modes, in which a company can provide financial assistance. In the present case, UPSIDC, acquired land after investing its own funds and aforesaid land is allotted to Entrepreneurs giving financial assistance to them to pay back consideration/premium/land revenue etc. in respect to said land in instalments and it is nothing but a kind of loan or advance or otherwise financial assistance to such entrepreneurs, that is the only business of UPSIDC and therefore Assessee satisfies the requirement of Clause (iv) of Section (5B) of Act, 1974.
14. When we required learned counsel appearing for UPSIDC to show as to how and in what manner it was constituted and what is its Memorandum of Association and Article of Association to show its activities etc. it was brought to our notice that neither any such material was placed before Tribunal nor this Court.
15. Our attention was drawn to paragraph no. 11 of order dated 27th February, 2004, passed by Commissioner, Income Tax (Appeals), Kanpur referring to letter dated 21st September, 1973, sent by Managing Director, UPSIDC, in which it was mentioned that UPSIDC was incorporated under the Companies Act, 1956 on 29th March, 1961. The object of incorporation, mentioned in the said letter was to provide loan, term advances to Industrial Entrepreneurs, by providing developed land on deferred payment basis and also loans. However, from the aforesaid order, we find that there is also some contradictory facts and in paragraph 7, it is mentioned that UPSIDC was formed under U.P. Industrial Development Act, 1962 (hereinafter referred to as 'UPID Act, 1962'), but paragraph 11 shows that UPSIDC was already incorporated on 29th March, 1961. Once UPSIDC was already incorporated on 29th March, 1961, it is not possible to claim that it could have been established under UPID Act, 1962, which came into existence after more than a year since when UPSIDC was already incorporated as a State Government Company under the provisions of Companies Act, 1956.
16. We have also gone through the UPID Act, 1962, Section 3 thereof reads as under :
"Establishment and Constitution of the Corporation
3. (1) For the purposes of securing and assisting in the rapid and orderly establishment, and organisation of industries in the State of U.P. there shall be established by the State Government notification in the Official Gazette, a Corporation by the name of the U.P. Industrial Development Corporation.
(2) The Corporation shall be a body corporate with perpetual succession and a common seal, and may sue and be sued in its corporate name, and shall be competent to acquire, hold and dispose of property, both movable and immovable, and to contract, and do all things necessary for the purposes of this Act."
17. Term 'corporation' is also defined in Section 2(d) of UPID Act, 1962, and reads as under :
"2(d) "Corporation" means the U.P. Industrial Development Corporation established under Section 3;"
18. Therefore, what was contemplated in Act, 1962, is a 'Corporation' named 'U.P. Industrial Development Corporation, while, Assessee in question was incorporated as "U.P. State Industrial Development Corporation Ltd." and came into existence much before the enactment of UPID Act, 1962. Whether there was any change in the name of Corporation at any subsequent point of time is not known.
19. Section 12 of UPID Act, 1962, on the contrary shows that 'Corporation' under the aforesaid Act, shall take over and employ all the existing staff serving for the purposes in U.P. State Industrial Development Corporation etc. who would give their willingness to serve in the Corporation.
20. Section 13 of UPID Act, 1962, which discusses the functions and powers of Corporation, further provides that Corporation would take over and manage industrial areas owned and managed by UPSIDC. It is thus clear that Corporation to be set up under UPID Act, 1962, is different then UPSIDC and the said legislation in fact intended for complete take over of UPSIDC by the Corporation, who would work to give effect to the objectives of UPID Act, 1962.
21. Therefore, aforesaid Act would not provide any assistance for the purposes of understanding functions and objectives for which UPSIDC was incorporated in 1961.
22. In our view, the question whether interest tax is chargeable on the loans etc. need be re-examined by Tribunal, after looking into various documents relating to the establishment and incorporation of UPSIDC and also the details of its business activities. Tribunal itself ought to have understood difference between 'Corporation' in UPID Act, 1962 and UPSIDC and should have considered the details of business activities of UPSIDC, which it has failed to do so and thus had erred in fact and law and coming to conclusion of its own, which cannot be sustained. Since before us also, said details are absent, therefore, we find it a fit case for remand to Tribunal to look into this aspect of the matter.
23. Appeals are, therefore, allowed to the extent that order of Tribunal dated 30.11.2005, is set aside in both the appeals. The matters are remanded to Tribunal to decide the appeals afresh, in the light of observations made above and in accordance to law. No costs.
Order Date :- 9.3.2015 A. Verma