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TMI Blog2018 (2) TMI 1966X X X X Extracts X X X X X X X X Extracts X X X X ..... case has not earned any interest during the relevant year which could be subjected to tax under the said Act. During the course of the assessment of the company under the Income Tax Act, 1961, the Assessing Officer noticed that the company had earned interest income of Rs. 1.70 crores (rounded off) on which tax under the said Act was payable but the company had not filed the return under the said Act. A notice under section 10 of the said Act was therefore issued to the assessee for reassessment of the company's liability under the said Act. During the course of such assessment proceedings, the assessee contended that the assessee company is not an investment company and does not derive any income from investment. The assessee company is trading in shares and securities and has derived income from such business which has been offered to tax under the Income Tax Act, 1961. The assessee drew attention of the Assessing Officer to the objects of the company to contend that the company does not fall within the definition of term "financial company" as defined in section 2(5B) of the Act. 5. The Assessing Officer was however not convinced. He was of the opinion that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial company. The objects of the company were once again pressed in contention. The Tribunal rejected the assessee's stand. After taking detail note of such objects, the Tribunal observed that when a company has multiple main objects, an individual object may lose significance. The assessee company had listed three main objects which in the opinion of the Tribunal were sufficient to bring the company within the fold of financial company as defined in section 2(5B) of the Act. In the opinion of the Tribunal merely because during the year under the consideration the company carried out one or the other objects, would not be a determinative fact. Assessee's appeal was therefore dismissed, upon which, the present appeal has been filed. 10. Learned counsel for the assessee raised following contention: I.The assessee company was not a financial company. Neither the objects nor the activities actually carried out by the company would establish that the company was a financial company. II. Neither the Revenue authorities nor the Tribunal has come to any definite conclusion as to what was the precise category the company would fall so as to qualify as a financial company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Delhi High Court in the context of the said Act, interpreted the term 'loan' referred to in section 2(7) of the Act. It was the case in which the assessee had placed intercorporate deposits of Rs. 22 crores at the disposal of one SWC, also a company. The Commissioner (Appeals) had held that the nomenclature of intercorporate deposit was used ornamentally. In order to decide the real nature of transaction, the contract between the parties was looked into and it was held that the transaction was not one of a deposit but of a loan. The Tribunal reversed these findings, upon which, the Revenue was in appeal before the High Court. The Court culled out three distinctions between a deposit and a loan as under: "(i) A loan is payable immediately on receipt thereof as per the directions of the lender, while a deposit has a term for repayment, which may be a fixed date or it may be as per terms and conditions of the agreement, (ii) The loan is obtained at the request of the borrower while a deposit is made at the instance of the depositor and (iii) The limitation period in case of a loan starts from the date of the loan, while it starts from the date of repayment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )any other financial company; 14. Clause (iv) of subsection (5A) refers to any other financial company. Since the case of the Revenue is that assessee is a financial company and therefore becomes credit institution, we may refer to the definition of 'financial company' contained in subsection (5B), which reads as under: "(5B) "financial company" means a company, other than a company referred to in subclause (i), (ii) or (iii) of clause (5A), being- (i) a hirepurchase finance company, that is to say, a company which carries on, as its principal business, hirepurchase transactions or the financing of such transactions; (ii)an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock or securities issued by the Government or a local authority, or other marketable securities of a like nature; (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith; (iv) a loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect in coming to the conclusion that the assessee was the financial company and that the interest earned by the assessee company was chargeable to tax under the said Act. 01.03.18 19. As noted, subsection (2) of section 4 of the Act provides for levy of interest tax at the rate of 3% on the chargeable interest on every credit institution. Term 'credit institution' is defined in subsection (5A) of section 2 of the Act which includes various banking companies and financial institutions. Clause (iv) which is in the nature of residuary clause refers to "any other financial company". In turn, term "financial company" is defined under subsection (5B) of section 2. This definition brings within its fold various companies such as higher purchase finance company, investment company, housing finance company, loan company etc. Clause (vi) thereof pertains to a miscellaneous finance company that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding subclauses. 20. In this context, we may peruse the objects of the company. These objects were divided in two parts. CategoryA object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies. In the process, if the company would lend money and give advances to such persons to whom the company found expedient. The third main object was also of purchasing for investment or resale and to deal in land and other immovable properties. 21. As noted, the definition of term 'financial company' includes several subclauses. Subclause (ii) thereof refers to an investment company i.e. a company which carries on its principal business of acquisition of shares, stocks, bonds, debentures etc. The term 'loan company' is included in subclause (iv) which would include a company which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise. As noted, subclause (vi) would bring within the fold of the term financial company, a miscellaneous finance company, viz. a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding subclauses. Very clearly, the assessee company was incorporated for carrying on exclusively the business of an investment company and a loan company. All the three principal objects fitted withi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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