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Infrastructure Development Finance Co. Ltd. Versus The Assistant Commissioner of Income Tax

2015 (10) TMI 819 - MADRAS HIGH COURT

Interest on investments in corporate bonds - whether fell within the scope of the definition of 'interest' in Section 2(7) of the Interest Tax Act, 1974 ? - Held that:- If the case on hand had arisen solely out of the Income Tax Act, 1961, we would not look into the definition of the expression 'interest' under the Interest Tax Act, 1974. The case on hand has arisen out of the provisions of the Interest Tax Act, 1974. Apart from defining the expression 'interest' in Sub-Section (7) of Section 2, .....

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e same expression in the Income Tax Act, 1961. This case is not of the said type.

Therefore, we are of the view that the decision of the Supreme Court in Sahara India Savings and Investment Corporation Limited [2009 (11) TMI 25 - SUPREME COURT OF INDIA] wherein held that for the purpose of Interest Tax Act, 1974, interest on loans and advances will not cover under Section 2(7), interest on bonds and debentures bought by an assessee as and by way of investment. The Court clarified tha .....

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by the assessee, was admitted on the following substantial question of law : "Whether the Income Tax Appellate Tribunal erred in holding that the interest of ₹ 2,52,28,420/- on investments in corporate bonds, fell within the scope of the definition of 'interest' in Section 2(7) of the Interest Tax Act, 1974 ?" 2. Heard Mr.Farrokh V.Irani, learned counsel appearing for the assessee and Mrs.R.Hemalatha, learned Standing Counsel for the Income Tax Department. 3. During the .....

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Tax Act, 1974. But, the stand taken by the assessee was not accepted by the Assessing Officer. 4. The appeal filed by the assessee was allowed by the Commissioner of Income Tax (Appeals) by an order dated 7.11.2003. But, the decision of the Commissioner of Income Tax (Appeals) was reversed by the Income Tax Appellate Tribunal on an appeal filed by the Revenue. Hence the present appeal. 5. To understand the scope of the dispute, it is necessary to take note of the definition of the expression &# .....

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); (ii) discount on treasury bills." 6. In Commissioner of Income Tax Vs. Lakshmi Vilas Bank Limited [228 ITR 697], this Court had an occasion to consider whether the interest earned on debentures, would constitute interest within the meaning of Section 2(7) of the Interest Tax Act, 1974. Answering the question in favour of the assessee, this court held that the purchase of debentures would constitute an investment made in accordance with the Banking Regulations Act. In as much as an invest .....

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e expression 'interest' under Section 2(7) of the Act. While answering the said question in favour of the assessee, this Court cited with approval the earlier decision in Lakshmi Vilas Bank. 8. Even in Discount and Finance House of India Limited Vs. S.K. Bharadwaj [259 ITR 295], the Bombay High Court pointed out that loans and advances, as a concept, are different and distinct from investments in the commercial sense and also in the accounting sense. Therefore, the Court held that intere .....

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e Supreme Court in Commissioner of Income Tax Vs. Sahara India Savings and Investment Corporation Limited [321 ITR 371]. The Supreme Court held in the said case that for the purpose of Interest Tax Act, 1974, interest on loans and advances will not cover under Section 2(7), interest on bonds and debentures bought by an assessee as and by way of investment. The Court clarified that interest on investments is not taxable as interest under Section 2(7) of the Act. 10. It appears that the Tribunal r .....

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nd two Benches of the Bombay High Court, all of which indirectly received the seal of approval from the Supreme Court in Sahara India Savings and Investment Corporation Limited. 11. Mrs.R.Hemalatha, learned Standing Counsel appearing for the Department made a valiant attempt to contend that the Interest Tax Act, 1974 defined the expression 'interest' at a time when the expression 'interest' was not defined in the Income Tax Act. According to the learned Standing Counsel, the expr .....

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