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2015 (3) TMI 1206 - HC - Income TaxApplicability of provisions of the Interest Tax Act, 1974 and particularly as per Section 2(5B) of the Interest Tax Act, 1974 on the assessee company - principal business - Held that:- In the present case, the learned Tribunal has held that if the breakup of income under the various heads are examined, then in all the years under consideration, income from lease rentals constituted more than 50 percent of the total receipts and as the leasing is not an activity which falls under any of the subclauses from (i) to (v) of Section 2(5B) of the Act, it cannot be said that the company was carrying on exclusively, or almost exclusively, two or more classes of business referred to in sub-clauses (i) to (v) of Section 2(5B) of the Act and therefore, the company is not a financial company as defined in Section 2(5B) and consequently, it is not a credit institution as envisaged in Section 2(5A) of the Act. However, what is required to be considered as to whether the assessee is a finance company by applying the positive test whether it is carrying on as its principal business in either of clauses from (i) to (v) or a business as understood in clause (va) or exclusively or almost exclusively any two or more business referred in earlier clauses as required by clause (vi) of Section 2(5B) of the Act. While considering the “principal business” number of factors are required to be considered. Breakup of the income earned during the relevant year only cannot be a sole criteria to consider the “principal business”. In a given case income from a particular business will be more compare to income from other business / activities in particular year, same may be less. What constitutes “principal business” will depend upon facts and circumstances of each case. In that situation past history of the assessee, current business of the assessee, breakup of the income earned during the relevant year may help in determining the principal business of the assessee company. For this, matter will have to be remand back to the AO as it is the AO who can on the basis of material produced before him can come to the conclusion as to whether the lease agreement entered into by the assessee with the lessee are “financial lease or operational lease” or both and in that case how much charges are to be apportioned as income from financial lease and how much to be assigned as income from the operational lease. On the basis of evidence, the AO is also required to consider the “principal business” of the assessee company so as to bring the assessee company as financial company as per subclause (i) to subclause (vi) except (sub clause V) of Section 2 (5B). Some of the findings are findings of fact, others have given rise to the substantial question of law. Therefore, we are of the view that the matters need reconsideration in accordance with law by the AO. Thus all these appeals are allowed. The impugned common judgment and order passed by the learned Tribunal is / are hereby quashed and set aside and the matters are remitted to the file of the AO to consider afresh whether the transaction / lease agreement executed by the assessee company are finance lease or operating lease and to consider “principal business” of the assessee company so as to bring the assessee company within the definition of financial company as per clause subclause (i) to subclause (vi) except (sub clause VA) of Section 2(5B) and consequently to consider whether assessee company can be said to be “financial company”, as per the Section 2(5B) of the Interest Tax Act, 1974 and whether the assessee company is liable to pay tax under the Interest Tax Act on the component of “lease rental”? All the contentions which may be available to the respective parties are kept open, to be considered by the AO in accordance with law and on merits, more particularly, considering the observations made by the Hon'ble Supreme Court in the case of Asea Brown Boveri Limited (2004 (10) TMI 325 - SUPREME COURT OF INDIA ) as well as relevant circulars issued by the CBDT issued from time to time.
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