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1989 (11) TMI 23 - HC - Income Tax

Issues Involved:
1. Taxability of interest income under Section 9(1)(i) of the Income-tax Act, 1961.
2. Definition and interpretation of "money lent at interest" and "brought into India in cash or in kind."
3. Applicability of legal precedents and interpretation of relevant case law.

Issue-Wise Detailed Analysis:

1. Taxability of Interest Income under Section 9(1)(i) of the Income-tax Act, 1961:

The core question was whether the interest income of Rs. 25,56,287 received by the assessee-company was taxable under Section 9(1)(i) of the Income-tax Act, 1961. The assessee-company, a non-resident entity, had entered into a collaboration agreement with two Indian companies to form a new Indian company. The assessee agreed to advance payments for the purchase of specialized plant and machinery needed for a contract work in India and charged interest on these payments. The Tribunal held that these payments were advances made by the assessee on behalf of the Indian company and that the interest received was taxable under Section 9(1)(i). The High Court upheld this view, stating that the amounts paid by the assessee were treated as loans to the Indian company, attracting interest at 9% per annum.

2. Definition and Interpretation of "Money Lent at Interest" and "Brought into India in Cash or in Kind":

The Tribunal and the High Court considered whether the payments made by the assessee to foreign suppliers constituted "money lent" within the meaning of Section 9(1)(i). The High Court referred to various legal precedents and dictionaries to ascertain the meaning of "money lent." The court noted that the Federal Court and the Supreme Court had held that the expression should be read as one composite transaction, indicating that the knowledge of both the lender and borrower about the money being brought into India is integral to the transaction. The court concluded that the payments made by the assessee to the foreign suppliers at the request of the Indian company constituted money lent at interest.

The court also addressed the interpretation of "brought into India in cash or in kind." It referenced the Calcutta High Court decision in CIT v. National and Grindlays Bank Ltd. [1969] 72 ITR 121, which held that "money in kind" should retain its character as money or its equivalent in the commercial world. However, the High Court distinguished the present case, noting that the plant, machinery, and other equipment brought into India were directly related to the contract work and the collaboration agreement, thereby satisfying the condition of being "brought into India in kind."

3. Applicability of Legal Precedents and Interpretation of Relevant Case Law:

The High Court examined various legal precedents, including decisions from the Federal Court, Supreme Court, and other High Courts. It discussed the relevance of these decisions in the context of the present case. The court highlighted the Privy Council decision in Beninson v. Shiber, AIR 1946 PC 145, which held that physical transfer of money is not necessary to constitute a loan, and the Supreme Court decision in Radha Kissen Chamria v. Keshardeo Chamria, AIR 1957 SC 743, which supported the view that money paid by the payer to a third party at the request of the payee could be treated as a loan.

The court also considered the Gujarat High Court decision in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1975] 101 ITR 502, which held that unpaid purchase price could not be treated as a loan. However, the High Court distinguished the present case, emphasizing the specific facts and the mutual arrangement between the assessee and the Indian company.

Conclusion:

The High Court concluded that the interest income received by the assessee-company was taxable under Section 9(1)(i) of the Income-tax Act, 1961. The court held that the payments made by the assessee to the foreign suppliers constituted money lent at interest and brought into India in kind, satisfying the conditions of the taxing provision. The court's decision was based on a comprehensive analysis of the facts, relevant legal precedents, and the interpretation of statutory provisions.

 

 

 

 

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