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C.I.T KOLKATA II Versus PILANI INVESTMENT & INDUSTRIES

2015 (7) TMI 53 - CALCUTTA HIGH COURT

Interest tax on interest on bonds and debentures - Whether Tribunal was right in holding that interest tax is not leviable on interest on bonds and debentures? - Held that:- Investment made by an assessee either in bonds or in debentures was not contemplated. What has been contemplated is loans and advances. The investment made in bonds and debentures can by no stretch of imagination be considered to be either a loan or an advance. In pith and substance, it may have some affinity with the concep .....

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BAY High Court ), the object cannot be achieved by roping in interest earned from debentures and bonds. The view taken by the learned Tribunal is a perfectly justified view and no interference is called for. The question no.1 is answered in the affirmative. - ITA 313/2005 - Dated:- 11-3-2015 - GIRISH CHANDRA GUPTA AND ARINDAM SINHA, JJ. Ms. S. Das Dey, Adv. for appellant Mr. S. Das, Adv., with Mr. A. Chowdhury, Adv. for respondent The Court : The subject matter of challenge in this appeal is a j .....

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ruction No.1923 dated 14.3.1995 of the CBDT and the provisions of section 2(7) which removed the specific exclusion clause in the definition of chargeable interest, interest on bonds and debenture should be included as chargeable interest under the Interest Tax Act? Although the revenue has proposed two questions, there is only one question which is the question no.1. Question no.2 indicates the reason why according to the revenue interest earned from bonds and debentures should be open to taxat .....

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KAPADIA,J.) is a party in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612 (Bom). Therefore, the Act is enacted for two-fold purposes, namely, as an anti-inflationary measure and, secondly, to augment the revenue. In the said judgment of the Division Bench of this court in the case of Unit Trust of India [2001] 249 ITR 612, it has been held that interest-tax is a special tax. It operates as an indirect levy on the borrower. This is indicated by section 26C of the Act which lays do .....

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ed in a manner which will advance the object of the legislature. The levy is expected to have a monetary impact. It is only by making credit costlier, its flow in the market can be restricted and have the desired monetary impact. A similar impact cannot be achieved by taxing interest on securities. Further, the physical impact sought to be achieved by the levy is by way of collection of interest tax revenues. On the other hand, however, interest on government securities is to be taxed, it will h .....

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ities but not for nongovernmental bonds and debentures. However, by subscribing to such bonds and debentures it does not affect the money market at all. The legislature was aware of these economic considerations and, therefore, consciously did not include interest on securities while amending definition in 1991. When the main definition does not include interest on securities merely because the specific exclusion is deleted, its automatic inclusion in the main definition cannot be inferred. Ther .....

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for the appellant, contended that the original definition of interest as appearing in the Interest Tax Act, 1974 has undergone a sea change. Originally, there was an exclusion in favour of interest earned on securities which was chargeable to incomes under the Income Tax Act. The amendment brought in 1991 has removed the aforesaid exclusion. Therefore, it follows that merely because interest earned from debentures or bonds is chargeable to tax under the Income Tax Act, it cannot be said that suc .....

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-tax under the earlier version of the Act. 2. The latest version of the Act covers larger tax base than the earlier one as the definition of interest now is wider in scope. Section 2(7) of the Interest-tax Act now defines interest as under: (7) interest means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in Indi .....

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word interest as defined in section 2(7) of the Act will have to be given effect. Therefore, interest on debentures, bonds, securities, etc. is exigible to interest-tax. The inter-departmental instruction is no aid for construing an Act. Therefore, that instruction is altogether irrelevant for the purpose of resolving the issue. The question is whether interest earned from debentures and bonds is open to taxation under the Interest Tax Act? The definition of interest appearing from section 2(7) .....

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