Income Tax Appellate Tribunal - Chennai
M/S Dhddha Pharma Pvt. Ltd, Chennai vs Ito(Osd)Company Circle-1(4), Chennai on 13 April, 2022
आयकर अपीलीय अिधकरण, 'ए' यायपीठ, चे ई IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, CHENNAI ी महावीर सह, उपा य एवं ी मनोज कु मार अ वाल, लेखा सद य के सम BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER Int. T.A. Nos.:13, 14, 15 & 16/CHNY/2008 Assessment Years: 1997-98, 1998-99, 1999-2000 & 2000-2001 M/s. Dadha Pharma Private Limited, The Income Tax Officer (OSD), New No.250, Lloyds Road, Vs. Company Circle - I(4), Chennai - 600 014. Chennai - 600 034.
PAN : AAACD 1265F
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/Appellant by : Mr. D. Anand, Advocate
यथ क ओर से/Respondent by : Mr. ARV. Sreenivasan, Addl. CIT
सुनवाई क तारीख/Date of Hearing : 11.04.2022
घोषणा क तारीख/Date of Pronouncement : 13.04.2022
आदेश /O R D E R
PER MAHAVIR SINGH, VP:
These four appeals in relation to Interest Tax Act, 1974 are directed against the common order of the Commissioner of Income Tax (Appeals)-VIII, Chennai, dated 13.03.2008. For these four assessment years, the assessment orders are framed by the Income Tax Officer (OSD), Company Circle - I(4), Chennai for the Assessment Years 1997-1998, 1998-1999, 1999-2000 & 2000-2001, vide orders of even date 11.12.2007 u/s.8(2) of the Interest Tax Act, 1974 (hereinafter 'the Act').
:: 2 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008
2. Originally, the assessments were framed by the Assessing Officer for these four assessment years u/s.8(2) of the Act, which were challenged before the CIT(A) and before the Tribunal. The Tribunal in Interest Tax Appeal Nos.0013, 0014, 0015 and 0016/Mds/2008, dated 03.04.2009 dismissed the appeals and Assessee carried the matter before the Hon'ble Madras High Court. Hon'ble Madras High Court in T.C.A. Nos.1377 to 1380 of 2009, vide judgement dated 27.01.2022 restored the matter back to the file of the Tribunal to re-decide the appeals, by observing in paragraph nos.10, 11, 12 and 13, as under:
"10. It appears from the aforesaid findings of the Authorities below that the Assessing Authority has proceeded with the case of the appellant on the premise that the appellant would fall within the meaning of "residuary non-banking financial company".
Whereas, the first Appellate Authority confirmed the order of the Assessing Authority, treating the appellant as "any other financial company". The said order of the first Appellate Authority was affirmed by the Tribunal, by merely extracting the findings of the first Appellate Authority. Such course adopted by the Appellate Authorities does not appear to be correct, in the opinion of this court.
11. We find that the expression "financial company" as defined under section 2(5B) of the Interest Tax Act, 1974, means "a company" carrying on activities as enumerated in sub-clauses (iv) to (v) thereon. Both the Appellate Authorities have not set out the sub- clause to the definition of "financial company" which covers the appellant company. The said aspect relating to identifying the "taxable person" is an essential criterion for the charge to get attracted. However, the Appellate Authorities failed to mention the sub-clause :: 3 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008 to Section 2(5B) of the Interest Tax Act, 1974, under which the appellant would fall. On this score alone, we are inclined to set aside the order of the Tribunal and remand the matter to the Tribunal for fresh consideration.
12. At this juncture, it is apt to refer to the decision of the Supreme Court in CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1 : (1997) 95 Taxman 143, in which, it was held that the "the rule of construction of a charging section is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section and no one can be taxed by implication".
13. In the light of the discussions held above, we set aside the order impugned herein and remand the matter to the Tribunal for fresh consideration. The Tribunal shall examine the facts as regards the activity of the Appellant, and set out under which sub-clause to the definition of "financial company" under section 2(5B), the Appellant company would fall, so as to attract charge under the Interest Tax Act, 1974 and thereafter, pass appropriate orders. Such an exercise shall be completed within a period of twelve (12) weeks from the date of receipt of a copy of this judgement."
3. From the above judgement of the Hon'ble Madras High Court, it is noticed that the Hon'ble High Court has directed to examine the activities of the Assessee and set out under which sub-clause to the definition of "financial company" as provided u/s.2(5B) of the Act the Assessee company falls, so as to attract chargeability of Interest Tax Act. Hon'ble Madras High Court directed the Tribunal to decide the appeals within twelve weeks from the date of receipt of this order. This order of the Hon'ble High Court was received on 16.03.2020 and the case was fixed for hearing accordingly.
:: 4 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008
4. Brief facts as noted by the Hon'ble Madras High Court are that the Assessee was incorporated under the Companies Act, 1956 and is engaged in the business of distribution of pharmaceutical products, besides finance, investments, etc. On 01.08.1996, the company transferred the pharmaceutical distribution business to a new company named as "M/s. Dadha Pharma Marketing Private Limited", while retaining the business of finance and investments. During the assessment years 1997-1998, 1998-1999, 1999-2000 & 2000-2001, the Assessee had made loans and advances and credited interest in the profit and loss account.
Further, we noted that the admitted facts are that the Assessee retained the business of finance and investments. In the light of the above facts and to ascertain the activities of the Assessee, the matter was heard.
5. The learned Counsel for the Assessee drew our attention to paragraph No.5 of the judgement of the Hon'ble Madras High Court and the relevant portion he referred, is under:
"Taking note of the object of the company as set out in the Memorandum of Association coupled with the fact that interest was offered as business income in the return of income filed by the Appellant for the Assessment Years in question; and the nature of business was declared as finance and investments in the audit report, the Appellate Authorities viz. the first Appellate Authority and the Tribunal confirmed the orders of the Assessing Officer and dismissed the appeals filed by the Appellant."
:: 5 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008 The learned Counsel for the Assessee, took us through the Memorandum of Articles of Association and particularly referred to page 3(u) which reads as under:
"u) To lend moneys to such parties and on such terms as may seem expedient, and in particular to customers of and persons having dealings with the Company, and to guarantee the performance of contracts by members of or persons having dealing with the Company."
Thereafter, the learned Counsel for the Assessee took us through the definition of sub-section (5A) and (5B) of the Section - 2 of the Interest Tax Act, 1974 and the relevant portion read 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) 2 ***;
(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;
(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 transactions 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 :: 6 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008 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 lumpsum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or]
(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;] The learned Counsel for the Assessee was asked that how the Assessee has earned this interest in all these years and can he file the details for which the learned Counsel for the Assessee stated that he needs two to three weeks time for filing the details of interest earned by the Assessee. When enquired, the learned Counsel for the Assessee stated that he can file the statement of accounts within two to three weeks. On further query as to how the interest was earned, whether on loans or deposits, the learned Counsel stated that the surplus earned by the Assessee on account of sale of business is given to the related parties / shareholders / group companies during the :: 7 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008 commencement of another business and the interest received by the company on such amount was credited as interest earned in the profit and loss account. When the Bench enquired, whether the Assessee can prove the nexus of this interest with the business credits or this is purely the business of financing, whether by way of making loans or advances or otherwise, the learned Counsel for the Assessee stated that, to enquire into the issue, the matter can be remitted back to the file of the Assessing Officer.
6. On the other hand, the learned Senior Departmental Representative fairly agreed that, in case, if the Bench has to carry out the exercise to ascertain the activities of the Assessee in regard to the interest income earned, the Assessee has to file all the complete details, i.e. accounts of the Assessee and means of income earned, whether on the loans and advances, i.e. business or providing finances, whether by way of making loans or advances or otherwise or it is the interest earned on trade creditors.
In terms of this, the learned Senior Departmental Representative agreed to set aside the matter back to the file of the Assessing Officer.
7. After hearing to the rival contentions and going through the facts and circumstances of the case and particularly the directions of the Hon'ble Madras High Court, as to assess the nature of activity of the Assessee and whether the Assessee falls under the definition of :: 8 :: Int.T.A. Nos.13, 14, 15 & 16/Chny/2008 "Financial Company" u/s.2(5B) of the Act, so as to attract chargeability of Interest Tax Act. To ascertain the nexus of interest received by the Assessee on the outstanding credits or loans and the nature of the same, we set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer for fresh adjudication on the following:
I. The Assessing Officer will ascertain the activity of the Assessee and set out under which sub-clause to the definition of the "Financial Company" u/s.2(5B) of the Act falls, so as to attract chargeability of Interest Tax Act. The Assessing Officer will also examine the nexus of the Interest Income earned by way of deposits in terms of the above.
8. In the result, the Interest Tax Appeals of the Assessee in Int. T.A. Nos.:13, 14, 15 & 16/CHNY/2008 are allowed for statistical purposes.
Order pronounced in the court on 13th April, 2022 at Chennai.
Sd/- Sd/-
(मनोज कु मार अ वाल) (महावीर िसंह )
(MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH)
लेखा सद य /ACCOUNTANT MEMBER उपा य /VICE PRESIDENT
चे ई/Chennai,
दनांक/Dated, the 13th April, 2022
IA, Sr. PS
आदे श की ितिलिप अ ेिषत/Copy to: 1. अ पीलाथ /Appellant
2. थ /Respondent
3. आयकर आयु (अ पील)/CIT(A)
4. आयकर आयु /CIT
5. िवभागीय ितिनिध/DR
6. गाड" फाईल/GF