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TMI Blog2005 (11) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... de interest earned on funds invested in bonds or placed in fixed deposits. Scope of chargeable interest has been defined under Section 5 of the Interest-tax Act while sub-s. (7) of Section 2 of the Act defines interest to mean interest on loans and advances made in India. This definition uses the expressions 'mean' and 'includes' and as such the same is not an extensive definition but is exhaustive in itself. When exhaustive definition is given, then there remains no scope for giving interpretation, implication, presumption, addition or subtraction to what has clearly and exhaustively been mentioned therein. For this proposition reliance was placed on the Supreme Court judgment in Smt. Tarulata Shyam vs. CIT 1977 CTR (SC) 275 : (1977) 108 ITR 345 (SC) wherein the apex Court has stated the settled principle of law as under: "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 read in, nothing is to be implied. One can only look fairly at the language used." 3. He also placed reliance on the recent decision of Hon'ble Allahabad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of Section 370 of the Companies Act, 1956. 6. The learned counsel for the assessee further contends that the Limitation Act, 1963 also makes a clear-cut distinction between the two expressions. Articles 19 and 21 of the Limitation Act fix the period within which suits for recovery of loans can be filed while art. 22 deals with the period of limitation for suits for money on account of deposit. The starting period of limitation under arts. 19 and 21 on the one hand and art. 22 on the other are different. Under arts. 19 and 21 the cause of action in the case of money lent arises from the date of loan, whereas under art. 22 the cause of action in the case of a deposit arises from the date of demand. Therefore, the deposit is clearly distinguishable from the loan. Reliance was also placed on various case laws as under: (i) Ram Janki Devi vs. Juggilal Kamlapat AIR 1971 SC 2551; (ii) Ram Ratan Gupta vs. Director of Enforcement AIR 1966 SC 495; (iii) Abdul Hamid Sahib vs. Rahmat Bi AIR 1965 Mad 427; (iv) Sharda Talkies (Firm) vs. Smt. Madhulata Vyas AIR 1996 MP 68. It was, therefore, contended that in that view of the matter interest earned on deposits and securities bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s reliance on the decision of jurisdictional High Court in the case of Baidya Nath Plastic Industries (P) Ltd. vs. K.L. Anand, ITO (1998) 146 CTR (Del) 421 : (1998) 230 ITR 522 (Del) will also not be of much assistance as that was a judgment with respect to repayment of loans. It did not have any relation with respect to advancing of loans on which interest earned can be. said to have any implication for the purpose of its assessability under this Act. It was also stated that the Tribunal decision in the case of Punjab National Bank strongly relied by the assessee's counsel to state that it will not be legally acceptable to include interest on securities, bonds and debentures within the definition of interest under s. 2(7) of the Act, cannot be taken a basis for arriving at the conclusion on the question under reference inasmuch as that order was rendered by the Division Bench by following the majority view of the co-ordinate Benches of the Tribunal. This fact is borne out from para 71 of that order. Likewise the decision rendered by the Mumbai Bench of the Tribunal in the case of Life Insurance Corporation of India vs. Jt. CIT (2002) 74 TTJ (Mumbai) 624 : (2002) 82 ITD 749 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of interest earned under the Interest-tax Act (in short 'the Act'). This Act was originally introduced in 1974 to tax the interest earnings of Scheduled banks. By the Finance Act, 1978 applicability of the Act was withdrawn. Later on by Finance Act (No.2) 1980 the Act was made applicable to Schedule banks and IDBI, IFCI, IRCI and ICICI. It was again withdrawn by Finance Act, 1985. By the Finance (No.2) Act, 1991, the Act was reintroduced w.e.f. 1st Oct., 1991. Again the same has been withdrawn by the Finance Act, 2000 w.e.f. 1st April, 2001. Issue under reference however relates to the Act as applicable between the period 1st Oct., 1991 to 31st March, 2001. When the Act was reintroduced by Finance Act, 1991, some changes were made. The scope of the applicability of the Act was widened by extending its applicability to all other non-banking financial companies and State financial institutions besides banks and public financial institutions. The definition of the word 'interest' was also modified. 10. In the scheme of the Act, Section 5 of the Act defines the scope of chargeable interest to mean the total amount of interest of a credit institution other than intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms within the meaning of interest, i.e., (i) commitment charges; (ii) discount on promissory notes and bills of exchange. (c) It specifically excludes two items from the meaning of the word 'interest' (i) interest referred to in sub-s. (1B) of Section 42 of RBI Act; (ii) discount on treasury bills. 12. The definition of 'interest' as appeared prior to its amendment did not include the amount chargeable to income-tax, under the IT Act, under the head 'Interest on securities' but this specific exclusion does not find any place in the amended definition applicable from 1st Oct., 1991. A close examination of this clause would reveal that it does not merely talk of 'Interest on securities' but also speaks about any amount chargeable to income-tax under the IT Act, under the head 'Interest on securities'. The Finance Act, 1988 w.e.f. 1st April, 1989 omitted ss. 18 to 21 from the IT Act. Thus, there is no income left to be charged under that head. As such, the above clause has become redundant. The omission of this clause from the definition of interest under this Act, was thus to bring the provisions of 'the Act' in conformity wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning in common parlance or what may be called as its 'natural meaning'. We have to strictly abide by the meaning given to it by the legislature, as in the present case. The new definition of Section 2(7) defines interest only to mean interest on loans and advances. No doubt two other categories have also been included, i.e., commitment charges on unutilised portion of any credit sanctioned for being availed of in India, and discount on promissory notes and bills of exchange drawn or made in India. We are not concerned with these two additional categories in the present case. Hence, in our opinion, 'interest' in the new Section 2(7) only means interest on loans and advances, and we cannot give it an extended meaning as contended by learned counsel for the appellant." 13. The apex Court in Suresh Lohiya vs. State of Maharashtra (1966) 10 SCC 379, and also in Smt. Kasturi vs. Gaon Sabha (1989) 4 SCC 55, 58 has held that once a word has been defined in the statute, the Court cannot look elsewhere for its meaning. 14. It has also been contended by Revenue that in sub-s (28A) of Section 2 of IT Act, definition of 'interest' includes interest on deposits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction." (ii) The Hon'ble Supreme Court in the case of Ram Ratan Gupta vs. Director of Enforcement, Foreign Exchange Regulation held as under: "The expression 'to lend' in the ordinary use means to deliver to another a thing or on condition that the thing lent shall be returned with or without compensation for use made of it by the person to whom it is lent. The subject-matter of lending also be money. Though a loan contract created a debt, there may be a debt and without contracting a loan, in other words, the concept of debt is more comprehensive than that of loan. It is settled law that the relationship between the banker and a customer qua debtor and creditor. Though, ordinarily a deposit of an amount in the current account of a bank creates a debt it does not necessarily involve a contract of loan. The question whether a deposit amounts to a loan depends upon the terms of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71, Suleman Haji vs. Haji Abdulla AIR 1940 PC 132." (v) The Bombay High Court had the occasion to consider the distinction between the words 'loan' and 'deposit' in reference to the provisions of Section 370 of the Companies Act, 1956, in Durga Prasad Mandelia vs. RoC and held as under: "In a transaction of a deposit of money or a loan, a relationship of debtor and creditor must come into existence. The terms 'deposit' and loan' may not be mutually exclusive, but nonetheless, in each case, what must be considered is the intention of the parties and the circumstances." It held that the word 'loan' would not include deposit. (vi) Again the Bombay High Court considered the distinction between the words 'loan' and 'deposit' in reference to the provisions of Section 370 of the Companies Act, 1956, in Pennwalt India Ltd. vs. RoC and held as under: "It is true that both in the case of a loan and in the case of a deposit there is a relationship of a debtor and a creditor between the party : giving the money and the party receiving the money. But in the case of a deposit, deposit is usually at the instance of the giver and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the term 'deposit' ascribed by the Explanation to Section 269T includes the term 'loan' in its ambit. The distinction between a loan and a deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement and in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This distinction was adopted by the Lahore High Court in the case of Gurcharan Das vs. Ram Rakha Mal AIR 1937 Lahore 81. A similar view was expressed by a Division Bench of the Oudh High Court in the case of Chaturgun vs. Shahzady AIR 1930 Oudh 395. While drawing the distinction between the words 'deposit' and 'loan' the Court relied upon two earlier decisions of the Madras High Court in V. Balakrishnudu vs. Narayanaswamy Chetty (1914) 24 IC 852 and Kishtappa Chetty vs. Lakshmi Ammal AIR 1923 Mad 578 : 72 IC 842. In this regard, it held as follows: 'The word 'deposit' as pointed out by the Madras High Court in V. Balakrishnudu vs. Narayanaswamy Chetty (1914) 24 IC 852 is derived from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the Tribunal was persuaded by the majority view being taken at various Benches on this issue. From para 73 of that order, it appears to us that the majority view was accepted not for the reason of number game but because of merit of those views. The apex Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) has dealt with a similar contention as under: "On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails-though the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for consideration-but the tensile strength of the acceptable logic in those decisions. It is aptly said that 'a Judge who announces a decision must be able to demonstrate that he began from recognized legal principles and reasoned in an intellectually coherent and politically neutral way to his result'. In the present case the reasoning underlying, and implicit in, the conclusion reached by the majority of the High Courts cannot be said to be an un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussion we are of the considered view that despite similarities, the two expressions 'loans' and 'deposits' are to be taken different and the distinction can be summed up by stating that in the case of loan the needy person approaches the lender for obtaining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. In view of this legal position it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in Section 2(7) of the Act and as such would not be liable to interest-tax. The answer to the question under reference in our humble opinion is that-investments made by way of short-term deposits and also in the form of securities and bonds cannot be considered as loans and advances and as such interest thereon shall be outside the scope of 'interest' defined under Section 2(7) of the Act. 23. The parties prayer to hear and dispose of these appeals on merits was allowed. The grounds raised are as under: Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the business, assessee, in order to make optimum utilization of the surplus funds, has placed the same as fixed deposit with public sector undertakings like SAIL, BHEL, etc. In the first two years under appeal, i.e., asst. yrs. 1992-93 and 1993-94, assessee has also invested these surplus funds in the bonds of public sector undertakings like REC and NTPC. It has earned interest on both these investments. While filing the return of chargeable interest the appellant has riot included the amount of interest earned on bonds of the aforesaid public sector corporation and interest on deposit placed with public sector corporations, consequently no interest-tax was paid on the same. The contention of the assessee was that the interest-tax is payable on interest earned on loans and advances and not on interest earned by investing funds in bonds or placed in fixed deposit. The AO did not agree with the contention of the appellant and held that interest-tax is payable on the total amount of interest earned by the credit institution. No distinction can be made on interest earned on loans and advances or interest earned on investment of surplus funds either in bonds or fixed deposits. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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