TMI Blog2005 (5) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ich filed its return of interest for the years under consideration declaring chargeable interest as follows: Asst. Year Amount chargeable interest AY 1997-98 Rs. 17,34,14,55,400.00 AY 1998-99 Rs. 17,49,56,36,400.00 AY 1999-2000 Rs. 19,28,68,80,310.00 AY 2000-01 Rs. 22,31,16,96,170.00 4. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee has computed the interest tax liability by multiplying gross interest by 2/102 (3/103 for assessment year 1997-98). It was explained on behalf of the assessee that interest collected by it from the borrowers was inclusive of interest tax and therefore, interest tax liability was worked out by applying a factor of 2/102 (3/103 Reassessment year 1997-98) and not 2/100 (3/100 for assessment year 1997-98). It was also submitted that interest tax included in the interest amount charged by the assessee from its borrowers was collected as an agent and the same having been paid over to the Government, it did not form part of its interest income. The explanation of the assessee was not accepted by the Assessing Officer and he proceeded to wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x was actually received by the appellate company, even then no deduction on this account can be allowed as no such deduction has been provided for in the Interest-tax Act. The argument that interest tax would not form part of interest earned by the appellant company also cannot be accepted because any interest earned by the appellant company either as interest or any tax paid by the client would form part of the interest earned. If any liability of appellant company is discharged by its customers, it would certainly form part of total amount earned. This view finds support from the Supreme Court decision in the case of Mcdowell Co. Ltd. v. Commercial Tax Officer 154 ITR 148. Relevant portion is reproduced below: 'Head, affirming the High Court, that under rule 76 of the Distillery Rules, as amended in 1981, the liability for payment of excise duty was that of the manufacturer and rules 80 to 84 did not detract from the position that payment of excise duty was the primary and exclusive obligation of the manufacturer and if payment be made under a contract or arrangement by any other person, it; would amount to the meeting of the obligation of the manufacturer and nothing more. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd if by such obligation, income is diverted before it reaches to the assessee, it is deductible. He also relied on the decision of Hon'ble Madras High Court in the case of Bank of Madura Ltd. wherein it was held in the similar facts and circumstances that the amount collected by the assessee bank from its borrowers on account of interest tax having immediately gone to coffers of the Government, the same would not fall under the definition of "interest" as defined in section 2(7) of the Interest-tax Act, 1974. He also invited our attention to a copy of circular issued by the bank prescribing interest rates chargeable on various advances placed at pages 67 to 87 of the Paper Book to point out specifically that a footnote was given in the said circular making it clear that interest tax was chargeable at the rate of 2 per cent on the ex-tax interest amount. 6. The ld. DR on the other hand invited our attention to the relevant assessment orders and pointed out that the gross amount of interest was declared by the assessee as "chargeable interest" in its return of interest. He contended that the Assessing Officer having charged the interest tax on the said amounts declared by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the relevant material on record. Before us reliance has been placed by the ld. counsel for the assessee on the budget speech of Finance Minister for the year 1991-92 and it would be worthwhile to reproduce the relevant paragraph Nos. 97 and 98 of the said speech hereinunder for the benefit of this order. "97. In view of the binding fiscal constrains and the need to mobilize resources, I propose to revive the interest tax which was first introduced in 1974 and withdrawn in 1978, reintroduced in a modified form in 1980 and finally withdrawn in 1985. I am enlarging, slightly, the coverage of this tax. The new tux will be levied on the gross amount of interest received by all banks, financial institutions and non-banking financial companies in the corporate sector on loans and advances made inIndia. These institutions would reimburse themselves by making necessary adjustments in the interest rates charged from borrowers. The proposed tax is expected to raise the cost of borrowing and yield revenue to the Government. It should therefore, have both monetary and fiscal impact. 98. The proposed tax will be levied at the rate of three per cent, of the gross amount of interest earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15% + interest tax. (iii) Trading advances PLR + 2.50% + interest tax. (working capital) (iv) Working Capital up to PLR( 12%) + interest tax. Rs. 2 lakhs The aforesaid instances of interest rate being charged by the assessee lo its borrowers clearly show that interest tax was being charged and collected separately and although a footnote was given in the relevant circular stating that "interest tax is to be charged at the rate of 2 per cent on the extra tax interest amount", the fact remains to be seen from the rate of interest specified in the relevant circular is that interest tax was being recovered and collected seperately by the assessee over and above the normal rate of interest charged to the respective borrowers. 10. Before us, heavy reliance has been placed by the ld. counsel for the assessee on the decision of the Hon'ble Madras High Court in the case of Bank of Madura Ltd. in support of the assessee's case. The facts involved in the said case, as given in the head note of the report, were as follows: "The assessee, a non-nationalized banking company, had made loans and advances to various parties at specified rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x was levied thereon. The assessee bank has to pay advance tax every three months. Therefore, the amount collected by the assessee bank, though it reached its hands, ultimately went into the coffers of the Government. The assessee bank is not appropriating the said amount for its own benefit. Under the law there is no prohibition for such collection. Thus, considering the facts arising in this case in the light of the judicial pronouncements cited supra, we hold that the Tribunal was correct in holding that seven per cent amount collected by the assessee bank would not fall under the definition "interest" as stated in section 2(7) of the Interest-tax Act." 11. A perusal of the above clearly reveals that different facts were involved in the case of Bank of Madura Ltd. inasmuch as the assessee bank had collected interest tax from the borrowers for further payment to the Government and the interest tax so collected was credited to a separate account maintained by the assessee. Thereafter the said amount was paid over to the Government and having regard to all these facts of the case, it was held by the Hon'ble Madras High Court that this amount collected by the assessee from the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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