TMI Blog2020 (3) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 21 of the Interest Tax Act, 1974 read with section 260A of the Income Tax Act, 1961, the appellant assessee has challenged the order dated 21.7.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench A, (hereinafter referred to as the Tribunal ) in Interest Tax Appeal No.56/Ahd/2003. 2. By an order dated 17.1.2008, this court had admitted the appeal on the following substantial question of law: Whether in the facts and under the circumstances of the case, the Income tax Appellate Tribunal was right in law in holding that the appellant is liable to pay interest tax on the interest earned by it? 3. In response to a notice under section 10 of the Interest Tax Act issued on 4.5.2001, the appellant assessee filed return of chargeable interest on 29.1.2002 declaring chargeable interest at Nil . In the statement attached to the return of chargeable interest, the assessee inter alia claimed that it is not chargeable to interest tax under the Interest Tax Act, 1974 as it is not a credit institution as defined in section 2(5A) read with section 2(5B) of the said Act; that the assessee company is not an investment company; that in the case of the assessee, inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenditure on account of interest paid for carrying on business being much more against interest earned on loans and advances would effectively tantamount that the principal business of the appellant would be of carrying on business and not that of finance and thereby not making it liable to pay tax under the provisions of the Interest Tax Act. It was contended that the Tribunal has erred in considering the findings in the income tax proceedings of the appellant company as to the activities of the company being mentioned in the assessment order of financing and trading in shares and securities, as the basis for terming the appellant company as a finance company for the purpose of the Interest Tax Act despite the fact that the Memorandum and Articles of Association clearly demonstrate that the main objects of the appellant company was to render consultancy and services in the field of projects, technologies, finance, capital market instruments to earn business income which as such was taxed as income from business for the purpose of income tax, and hence, the question of treating the appellant company as a finance company so as to tax interest earned by it under the Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Limited would have no bearing insofar as the Pankti Polytex Private Limited is concerned. It was submitted that the Tribunal has applied its earlier decision in the case of Kabra Investment Private Limited to the memorandum of Pinnacle Project and Infrastructure Private Limited and has examined the memorandum of association of that company and not of the assessee company. It was submitted that the investment made by the assessee that could generate interest income is in equity shares. It is not as if this investment has given interest income. Interest income has come from loans and advances given to Directors and, therefore the entire basis to believe that the assessee has invested in interest bearing securities is clearly negated. It was reiterated that the Assessing Officer has not shown as to in which of the seven categories the assessee company falls and there is nothing to show that the assessee company can be classified as a finance company and that this said issue is required to be decided by this court. 5. Opposing the appeal, Mr. M.R. Bhatt, Senior Advocate, learned counsel for the respondents invited the attention of the court to the findings recorded by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all, three authorities below have evaluated the evidence and there is no scope of any further debate. It was, accordingly, urged that the appeal being devoid of any merit, deserves to be dismissed. 6. Before adverting to the rival contentions, it may be germane to briefly refer to the facts of the case. 7. In response to the notice issued under section 10 of the Interest Tax Act for assessment year 1997-98, the assessee Pankti Polytex Private Limited (now merged with the appellant Asman Investment Limited) filed return of chargeable interest on 29.1.2002, declaring chargeable interest at nil. It was the case of the assessee that it is not chargeable to interest tax under the Act as it is not a credit institution as defined in section 2(5A) read with section 2(5B) of the Interest Tax Act;. that the company would be an investment company if its gross total income consists mainly of income which is chargeable under the heads Interest on Securities , Income from House Property , Capital Gains and Income from other sources ; that the assessee is not an investment company as its income is chargeable under the head business and being income from dealing in shares and securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hd/2003) because these two companies have merged with the assessee M/s. Asman Investments Limited. Before the Tribunal, the grounds raised on behalf of the appellant assessee was that the Commissioner (Appeals) failed to appreciate that the assessee company was incorporated with an object of carrying on manufacturing and trading of textile items which is evident from the name of the assessee company and it was not incorporated with the object of conducting finance business. That before concluding that the appellant is a finance company, the Commissioner (Appeals) ought to have appreciated the circumstances under which the activities that are held to be in the nature of finance business were carried out vis- -vis the main object as well as business carried on in the past by the company. It was also contended that the assessee is not an investment company as mentioned in section 73 of the Income Tax Act, 1961. It may be noted that the same grounds were also raised in the appeal arising from the order passed by the Commissioner (Appeals) in the case of Pinnacle Project Infrastructure Pvt. Ltd. 10. A perusal of the impugned order reveals that the same grounds were also raised in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent identity, purpose and existence; meaning thereby that if the assessee carries on consultancy as well as financing then both the objects being independent main objects, the assessee will be said to carry on principal business of consultancy on the one hand and principal business of financing on the other. The Tribunal, accordingly, did not accept the submissions of the assessee that the assessee s deployment of funds in business, that is, by way of purchase and expenditure for carrying on such business on account of interest being more than the funds deployed for loans and advances and earned therefrom the principal business should be considered as of business nature . 12. Insofar as the present case namely, Asman Investment Limited (erstwhile Pankti Polytex Pvt. Ltd.) is concerned, the Tribunal observed thus: 26. Interest Tax Appeal No.56/Ahd/2003 26.1 So far as ground Nos. 1(a) (b) are concerned, the learned counsel for the assessee having not pressed the same, are therefore, rejected as not pressed. 27. So far as issues involved in ground No.2(a) (b) (c), the facts and circumstances in this case being same and similar to the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion whether the interest earned by the assessee company can still be taxed under the said Act. In this context, the contention of the counsel for the Revenue, we may recall that the interest was not earned by the company on any loan or advance made but was generated out of its deposits. We are conscious of a clear distinction between a loan or an advance and a deposit. This has been elaborately discussed by Delhi High Court in case of Visisth Chay Vypapar Ltd. (supra). Had adequate facts being brought on record, in this respect, we would have analyzed such material. However, this appears to be an argument raised for the first time. In fact, the stand of the assessee before the lower authorities was evidently different. We have reproduced the portion of the contention of the assessee before the Commissioner of Income Tax (Appeals), recorded by the Commissioner of Income Tax (Appeals). It was argued that the year under consideration was an initial year of the company. No good project was coming forth and therefore in order to avoid keeping the funds idle, the assessee had advanced money and earned interest income and also carried out activities in trading in shares and securities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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