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Housing & Urban Development Corpn. Ltd. Versus The DY. Commissioner of Income Tax & CIT

2016 (7) TMI 1047 - DELHI HIGH COURT

Deposits with SAIL - whether amounted to loan and/or advance within the meaning of Section 2(7) of the Interest Act as amended with effect from 1st October, 1991? - Held that:- When a definition uses an expression means and that is followed by "interest on loans and advances‟ it should be considered as being exhaustive of the entire definition. However, the legislature has intended to 'include' other two transactions under the definition. Those two transactions do not include interest on d .....

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der is to re-characterise the contract entered into between HUDCO and SAIL for the purpose of the former placing deposits with the latter as a loan transaction. There was no occasion for the ITAT to do so only with a view to bringing it within the definition of Section 2(7) of the ITA, when the plain language of the statute does not contemplate interest on deposits as being included. - Apart from the above, the Special Bench of the ITAT has answered the question in favour of HUDCO for the AY .....

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s. Neha Sangwan, Advocate for M. Chirag M. Shroff, Advocate on record. Respondents Through: Mr. Ashok K. Manchanda, Sr. Standing Counsel for ITD ORDER 1. The common question framed in both these appeals filed by Housing and Urban Development Corporation Ltd. (HUDCO) against the orders dated 17th March, 2003 and 8th January, 2004 of the Income Tax Appellate Tribunal (ITAT) for Assessment Years 1994-95 and 1995-96 respectively reads as under: Whether the appellate Tribunal has substantially erred .....

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on, surplus funds were deposited by HUDCO with the Steel Authority of India Limited (SAIL). 3. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected the plea of HUDCO that the interest earned on the deposit did not fall within the definition of 'interest' under terms of Section 2 (7) of the Interest Tax Act, 1974 (ITA). The ITAT by the aforementioned impugned orders affirmed the orders of the AO and the CIT (A). It concluded that since money had been p .....

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e ITAT concluded that the terminology adopted by HUDCO "is of no consequence" 4. Ms. Neha Sangwan, learned counsel for HUDCO drew the attention of the Court to a decision of the Special Bench of the ITAT which dealt with the same issue, involving the assessments of HUDCO the for the AYs 199394, 1996-97 and 1992-93 (Interest Appeal Nos. 6, 7 and 40/2000). The question addressed by the Special Bench reads as under: Whether on facts and in the circumstances of the case, the interest earne .....

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istinction between the expression deposit‟ and the term loans and advances‟. It was held: 20. ........ Furthermore loans and deposits cannot be taken to be identical in meaning when a recourse is taken to the provisions contained under the Companies Act, 1956. Section 58A and section 227 of the Companies Act, 1956 in itself clearly place distinction between the two expressions. The explanation added to Section 370 of the Companies Act, 1956 by the Companies (Amendment) Act, 1988 for .....

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provision on the basis of status of an assessee. 21. From the following speech of Finance Minister given at the time of introducing the act, it can be inferred that interest on deposit is not to be included in the definition of interest under this act: These institutions would reimburse themselves by making necessary adjustments in the interest rates changed from borrowers. The proposed tax is expected to raise the cost of borrowing and yield revenue to the Government. The interest was not to be .....

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From the foregoing discussion we are of the considered view that despite similarities, the two expressions loans and deposits are to be taken different and distinction can be summed up by stating that in the case of loan the needy person approaches the lender for obtaining the loan there from. 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 .....

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tside the scope of interest‟ defined under section 2(7) of the Act. 6. The Special Bench then remanded the issue arising for the said three AYs to the AO for a fresh decision in light of the decision. Ms. Sangwan states that to the best of the information of HUDCO, the aforementioned decision of the Special Bench, which was delivered on 25th November, 2005 (subsequent to the order of the ITAT forming the subject matter of the present appeals), was not challenged and has attained finality. .....

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: (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 India, 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; 9. The definition to the extent it uses the word 'means' purp .....

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2 of the Reserve Bank of India Act and (ii) discount on treasury bills. There is no scope of going beyond the above definition of 'interest'. When a definition uses an expression means and that is followed by interest on loans and advances‟ it should be considered as being exhaustive of the entire definition. However, the legislature has intended to 'include' other two transactions under the definition. Those two transactions do not include interest on deposits. It is not t .....

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