TMI Blog2002 (8) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... rest tax appeal No. 2/Del/98 read as under:-- "1. That the order is against law and facts of the case. 2. That the learned CIT (Appeals) has erroneously ignored the definition of interest chargeable to tax as given in section 2(7) of the Interest Tax Act. 3. That the definition of "interest" under section 2(7) of the Interest Tax Act restricts the scope of chargeable interest to interest on loans and advances. It is prayed that interest on debentures, bonds and securities does not per se amount to interest on loans and advances and therefore interest amounting to Rs. 927,16,43,213 being interest on securities, bonds and debentures be directed to be excluded from the chargeable interest. 4. That the learned CIT (Appeals) was not justified in upholding the inclusion of Rs. 19,17,224 received towards "Export Subsidy" as interest chargeable to Interest Tax. It is prayed that the same be excluded not being interest per se." 3. Ground No. 1 in the above appeal is general in nature and requires no adjudication. 4. The relevant facts pertaining to ground Nos. 2 3 raised in appeal No. 2/Del/98 are that the assessee filed its return declaring chargeable interest of Rs. 10,54,93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee's own case for 199394 assessment year had confirmed the entire addition on identical facts. 7. Aggrieved by this, the assessee came in appeal before the first appellate authority. 8. It was contended that from the definition given of interest under section 2(7) of Interest Tax Act, it could be concluded that only interest on loans and advances inIndiacould be charged to interest tax. Interest on securities, debentures and bonds cannot be classified as interest on loans inasmuch as these are not loan per se. 9. It was further contended on behalf of the assessee that since the Act particularly and clearly lays down that interest chargeable to interest tax would be only and only interest on loans and advances made in India and by no stretch of imagination, interest on debentures, bonds and securities could be treated or classified as interest on loans and advances and subjected to interest tax. 10. Reliance was also placed upon the definition of interest on securities and debentures as a separate category of income under section 2(28b) of the I.T. Act. 11. Apart from that, reliance was also placed upon the observation of the Hon'ble Finance Minister at the time w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of banking) accruing or arising to the credit institution in that previous year." 20. On the plain reading of the above section, the CIT(A) concluded that the chargeable interest of any previous year of a credit institution shall be the payable amount of interest accruing or arising to the credit institution in that previous year and the only exception is the charging of interest on bad and doubtful debts in the year of its actual receipt as envisaged in the case of financial institution under section 43D of the IT. Act. 21. He further considered that section 6 of the Interest Tax Act which provides the method of computation of chargeable interest stipulates that the only deduction in computing the chargeable interest of the previous year shall be the amount of interest which is established to have become a bad debt during the previous year which has been further clarified by the Explanation below the proviso to sub-section (1) of section 6 of the Interest Tax Act which too was reproduced by him and which reads as under:-- "Explanation for the removal of doubts, it is hereby declared that in computing the chargeable interest of a previous year, no deduction, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of charging the same under the Interest Tax Act. 27. The order of the Bangalore Bench of the Tribunal in the case of Canara Bank Ltd.--Interest Tax Appeal No. 5678 (Bang.) of 1997 of 16-9-1997 was also relied upon. Our specific attention was invited to the copy of the above order which was placed in the paperbook placed before us. It was vehemently contended that the debentures are not loans and advances but are investments. This contention was supported by the learned AR by the fact that the non-inclusion of interest on securities in the present Act was due to the fact that the head of income on interest on securities under the I.T. Act, 1961 in section 18 to 21 was omitted by the Finance Act 1988 w.e.f. 1-4-1989. Thus, it was contended that it would be redundant to exclude the said interest on securities under the definition of 'interest' under section 2(7) of the present Act. 28. Heavy reliance was placed by the learned AR on the speech of the Hon'ble Finance Minister in 1991 wherein the intention of the Parliament can be gauged and understood that it was to enlarge the coverage of this tax. It was further contended that this enlargement of the coverage is not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities are governed Contract Act. normally by Statutes, Public Debt Act, Securities Act etc. 7. As per Company Law, the loans are 7. No such classification classified as secured, unsecured, of securities. good or doubtful of recovery etc. 32. It was strongly advocated by Mr. Ganesan that the subsequent notification by the Government of India by which the interest on securities under section 2(7) of the Act had been exempted clearly showed that the Parliament never intended to tax interest on securities. It was further contended that this view is fully supported by the decision of the Madras High Court in the case of Lakshmi Vilas Bank Ltd. and the earlier decision of the same High Court in the case of CIT v. Nachimuthu Industrial Association [1982] 138 ITR 5851 wherein it was held that debentures is to acquire the same species of property which would bring an income to the investor and, therefore, interest on debentures do not fall within the ambit of section 2(7) of the Interest Tax Act. Reliance was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the CIT(A). According to Mr. G.C. Sharma, the issue before the Tribunal is whether the assessee bank is liable to charge of tax on interest earned by it on government securities, debentures under the provisions of Interest Tax Act, 1974 as they stood on the Statute in 1992-93 to 1995-96 assessment years. For this purpose, it was contended one need look only to the text of these provisions and apply them literally and strictly to find out whether interest earned on government securities/debentures falls within the charging provisions or not. Relying upon the decision of the Apex Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345, wherein the observations were cited for approval that the only rule of construction of a taxing statute which could be applied is as laid by Justice Rowlat in J. Cape Brandy Syndicate v. IR [1921] 1 KB 64: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be assumed, nothing is to be implied. One can only look fairly at the language used." 38. It was further submitted by the learned special cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the period under consideration the decision has to be solely on the specific wording of the Act at the relevant point of time. 43. Accordingly, it was contended that the decision of the Tribunal in the present appeals should be based solely on the answer to the question whether "interest of securities" falls within the meaning of interest as interest earned on loans and advances made inIndia. 44. It was further contended that this leads to the basic question whether interest earned on the Securities/Debentures earned by the holders thereof constitute "loans and advances" within the meaning of section 2(7) of the Interest Act as it governs the years under the appeals. For this purpose, it was submitted what is first necessary and important are the provisions of the Security Contracts (Regulation) Act and Public Debts Act 1944 and the Companies Act 1956 which provide for Government borrowings by issuing securities and other market loans and those by companies by way of debentures. 45. It was further submitted that in some of the decisions pronounced by the Hon'ble Tribunal relating to the same issue they have swiftly drifted from close examination of the definitions containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it appears in other words to have been accepted by some benches that the "loans" also form a mode of investment but the form of investment in Government security is not the kind of investment i.e. contemplated in section 2(7) of the Interest Act. Therefore, it was concluded therein that it goes out to the purview of that section. Similarly, some benches of the Tribunal seem to have proceeded to hold that interest as described in section 2(7) meant interest only on the loan segment but left out other segments such as securities and debentures. It was contended that the undue emphasis laid on presentation of certain loans and advances in the balance sheet of the bank is misconceived, as it has totally ignored the presentation of the securities in the Budgetary papers where they are clearly shown as market loans. 46. The contention was also put forth that an essential distinction between a loan and investment is that whereas loan is always taken as money obtained in hand and payable back as money in hand an investment is not repayable back in terms of money alone, money loan is to be realised as money but money invested may be realised in various forms. 47. With regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt or deposit certificate containing the data of the payment. United Dominions Trust Ltd. v.Kirkwood[1966] 1 All ER 968 at 988. 49. Debenture does not exclude the concept of a loan advanced by the debenture holder to theCo.It was submitted that in pure words of English language the difference has been explained in Ramaiya's Commentary on Companies Act - Fourteenth Edition - 1998 - Part I Page 32 in the following passage:-- "The substance of a loan is a right to the creditor to demand the payments and the substance of a debt is a liability upon the debenture to repay the money. In other words, whereas in the hands of the creditor, it may be described as a loan to theCo.in the hands of theCo.its liability owed by the debtor to repay the loan" 50. Regarding the reliance placed upon by the learned AR on the case of Laxmi Vilas Bank and of the Bangalore Bench of the Tribunal for the proposition that government securities are in the nature of investment and not loans advanced by the holder of the debenture or the owner of the government securities. It was contended on behalf of the Revenue that investment is only placement of one's capital with another person generally with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arma on behalf of the Revenue but after the conclusion of the hearing with the consent of the Bench, written submissions were filed by both the sides which were placed in the paperbook and thus, this argument is raised by the Revenue in their support probably on account of the fact that the order of the Delhi Bench in the case of ANZ Grindlays Bank v. Dy. CIT [2003] 131 Taxman 183 (Tax.Mag) has been annexed by the assessee in their paperbook wherein reliance has been placed on the order of Mumbai Bench on the order in the case of Life Insurance Corporation of India. 53. Vide the written submissions filed on behalf of the Revenue, it was further submitted that the Bombay Bench of the Tribunal had no occasion to consider the effect of notification of the CBDT (SO II 2557 dated 11-9-1995) read with amendments made to the Interest Act w.e.f. 1-10-1991, the applicability thereof from the assessment years 1992-93 to 1995-96. As such, the decision in the present case should be based on the peculiar facts of the case itself. 54. Regarding the decision of the Madras High Court in the case of Lakshmi Vilas Bank Ltd., it was contended by the learned counsel that it was rendered in the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et as investment. It was contended that no arguments were put before them for understanding interest in common parlance and as defined in the Indian Income Tax Act which signifies earning a return on loans only. 59. Apart from the fact that it was also contended the Madras High Court while rendering its decision noticed the decision of the Supreme Court in the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 wherein it was held that the assessee's treatment of money in his books was not decisive of its taxability. Yet, the High Court took the view that since debentures were required to be shown as investments in the Bank Balance sheets, they could not be classified as loan. It was further submitted that one of the reasons for the Madras High Court to approve the decision of the Tribunal was that in that case, debentures also constituted securities which were then expressly excluded from the definition. It was further contended that at the relevant point of time, section 18 of the I.T. Act was also relied upon and the fact cannot be ignored that the relevant assessment years in that case was 1975-76 also was different. 60. Heavy reliance was placed on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing the eminently persuasive arguments addressed at length both by Mr. Ganesan on behalf of the assessee and Mr. G.C. Sharma on behalf of the Revenue, we would like to deal at the outset with the argument raised in the course of the present hearing namely that in view of the fact that there are contrary decisions of coordinate benches the Tribunal namely Bangalore Bench and Hyderabad Bench on the said issue whether it would be appropriate in the circumstances to constitute a Special Bench and refer the appeals to it. The said submission was rejected on the Bench itself on the ground that the issue is a one time issue pertaining to the three assessment years and, as such, can be decided by the Bench itself and, accordingly, no purpose would be served by referring the matter to the Special Bench. 65. At this juncture, it is appropriate to reiterate that though at the time of hearing, the order of the Delhi Bench of the Tribunal in the case of ANZ Grindlays Bank was not referred to by the ld. AR on behalf of the assessee but in the written submissions filed with the consent of the Bench, the same has also been relied upon on behalf of the assessee and a copy of the said order has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds and of supplementing Government revenues. The proposed tax will be levied at the rate of 7 per cent of the gross amount of interest earned by the banks. This would imply on an average an increase of about 1 per cent in the cost of borrowing from the banks. Interest on Government securities, as also debentures and other securities and statutory corporations will not be included in the tax base. Interest received on transactions between scheduled banks will likewise be exempted from the proposed levy." 69. It is also considered appropriate to reproduce the definition of "interest" under section 2(7) as it stands for interpretation before us:-- "'interest' means interest on loans and advances made inIndiaand includes-- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of inIndia; and (b) discount on promissory notes and bills of exchange drawn or made inIndia, but does not include-- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills". 70. The speech of the Hon'ble Finance Minister while introducing the Interest Tax Act, 1991 at the floor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entually held that interest on securities, bonds and debentures was not covered under section 2(7) of the Interest Tax Act observing as follows: "12. We have considered the rival submissions and the materials on the file. We are of the view that interest on securities, bonds and debentures was not covered under section 2(7) of the Interest Tax Act. Section 2(7) of the Act reads as under: 'Interest means interest on loans and advances made inIndiaand includes: (a) Commitment charges on unutilised portion of any credit sanctioned for being availed of inIndia. (b) Discount on promissory notes and bills of exchange drawn or made inIndia; But does not include: (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934). (ii) Discount on treasury bills'. In terms of the above definition it is only the interest on loans and advances made inIndiawhich could be charged to Interest Tax. Interest on securities, bonds and debentures could not be classified as "interest on loans and advances". Investments in securities, bonds and debentures are different from loans and advances. The distinction between the two have been elaborate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y security of the Central Government or a State Government. (ii) Interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central, State or Provincial Act.' From the above it is clear that interest on debentures is nothing but interest on securities under the I.T. Act and hence the same is different from interest on loans and advances. Accordingly, interest on securities, bonds and debentures cannot be treated as part of interest on loans and advances. 14. The Ld. Counsel for the assessee again rightly pointed out that from the provision of the Act, Finance Minister's speech and the RBI Circular to the scheduled bank for passing on the incidence of the Interest Tax pro rata to the borrower, it was clear that the incidence of the Interest Tax was not to be borne by the bank. As in the case of securities, bonds and debentures there is no scope for passing on the incidence of the Interest Tax to the borrower, the burden of the Interest Tax on interest from securities, bonds and debentures if imposed would fall on the bank. The rates of interest on security bonds, debentures cannot be modified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial propriety, we are of the view that the majority view has to be adhered to. In fact the Hon'ble Madras High Court fully discussed this issue in the case of Lakshmi Vilas Bank Ltd. and its earlier decision in the case of Nachimuthu Industrial Association and it was held that debenture is to acquire some species of property which would bring an income to the investor and, therefore, interest on debentures did not fall within the ambit of section 2(7) of the Interest Tax Act. 74. The only favourable decision in favour of the Revenue is that of the Hyderabad Bench of the Tribunal in the case of State Bank ofHyderabad. The Hyderabad Bench of the Tribunal held that the amount has to be included in view of the amended definition of the interest on securities in the definition under section 2(7) of the Act as follows: "When the Act was introduced in Parliament, the intention was that interest on government securities as also debentures and other securities issued by local authorities, companies and statutory corporations would not be included in the tax base. Thus, any amount chargeable to income tax, under the Income-tax Act, under the head 'interest on securities' was specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and keeping in view that the Parent Act, i.e., the Income-tax Act, 1961 still retains the definition of interest and interest on securities as separate and distinct species under section 2(28A) and 2(2813) of the Act the only plausible view is that if the Parliament wanted to include interest on securities under the head interest in the Interest Act, 1974, it would have made it abundantly clear and included the same in the inclusive items like commitment charges and discount on promissory notes etc. Therefore, on this issue itself, there being ambiguity, the view of the majority of decisions of different Benches of the Tribunal is followed. 79. Even assuming that the interest under the Interest Tax Act, 1974, includes interest on securities and debentures etc., it is seen that the government by Notification dated11 September, 1995exempted the banking companies from the levy of interest tax in respect of their income from interest on securities w.e.f. the financial year 1995-96. The Notification has been issued in public interest. Firstly, the Parliament exempted interest on securities etc. from the levy of Interest Tax Act on the ground that the incidence of tax would not ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
