TMI Blog2001 (4) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... Facts : 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 By the said letter, the UTI was informed that the circular dated October 11, 1991, has been withdrawn by the CBDT on January 29, 2001.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tax in respect of income, profit or gains of the UTI and, therefore, its earlier circular dated October 11, 1991, stood withdrawn. Accordingly, by letter dated January 29, 2001, the earlier circular stood withdrawn.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 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. How ever, 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 "profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, all incomes have been classified 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 con text 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 are 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. Simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruing 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 con tended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come" 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry 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 con tended 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-wis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, there fore, contended that the writ petition should be allowed. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparate 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 con tended 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 con tended that in substance interest-tax is a tax on loans and it is not a tax on income. He contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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, there after, 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. Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. 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. Mr. Dada, learned senior counsel appearing on behalf of the Department next contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 con tended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 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. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reexamined 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 UTT 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. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unitholders 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(l) 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Questions Answers (A) Whether the interest-tax under the In the negative,i.e.,in Interest-tax Act, 1974, is a tax on income favour of the Department and, if so, whether interest accruing to. and against the UTI. 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 i.e., in in the negative then whether communication favour of the UTI and dated January 29, 2001, withdrawing against the Department. 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 ? (C) Whether, on the facts and circum- In the negative, i..e, in stances of the case, the Department was favour of the UTI and right in invoking section 10(a) of the against the Department. Interest-tax Act, 1974, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 truss 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 amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes 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 : 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (PC); Senairam Doongarmall v. CIT[1961] 42 ITR 392 (SC) and Dooars Tea Co. Ltd. v. Commr. of Agrl. IT. [1962] 44 ITR 6 (SC). 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. We may also look at the above contentions of the UTI from a different angl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia v. Union of India [1989] 178 ITR 97; [1989] 74 STC 102 (SC), 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, AIR 1961 SC 1480. 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 wis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled arguments have been advanced on the question of conflict, we have examined the controversy from that angle also. In the case of Ashoha Marketing Ltd. v. Punjab National Banh [1992] 74 Comp Cas 482 (SC) ; AIR 1991 SC 855, 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 non 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, AIR 1990 SC 104, it was held that the doctrine of implied repeal is based on the postulate tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subordinate officers/authorities. That, such circulars cannot be assessee-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 interpreting 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, dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isability 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement 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 Sivayam Sevak Sangh [1994] 207 ITR 479 (Patna), the facts were as follows. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee-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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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