TMI Blog1997 (8) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 1995-96, such gross receipts were to the tune of Rs. 47,72,89,625. Since the assessee had not included the above interest in its returns, for the three assessment years under consideration, the AO issued a letter, dt. 17th Jan, 1996, to explain why interest earned on securities should not be included in the chargeable income of the assessee. The reply of the assessee, through a letter dt. 22nd Jan., 1996, was to the following effect: "You have made your proposal by equating loans and advances to securities and debentures. This proposal is not correct as various forums including the Courts have held that loans/advances are different from securities/debentures. Hence, we strongly object to the proposal and request you to drop the same in completing the assessment and oblige." During the personal hearing before the AO also, the assessee's learned representative contended that interest on securities could not form part of chargeable interest. But, according to the AO, securities/bonds issued by the Government of India or State Governments are in the nature of loans and advances : that the securities are nothing but bonds guaranteed by the respective issuing authorities; that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities in the sums mentioned in para 3 for all the years under consideration. 4. As against the above inclusion, the assessee appealed. It was contended before the CIT(A) that the interest on securities was not a specie of interest on loans and advances and since only the latter was chargeable to tax, the income from interest on securities was outside the scope of chargeable interest. In the written submissions filed before the CIT(A) it was also contended that purchase of securities represented an investment and was not a loan; that securities were transferable whereas loans were not; that the provisions of s. 26C of the Interest-tax Act enabled a credit institution to vary certain agreements in order to pass on the burden of interest-tax and such a revision was unworkable in the case of securities. The learned representative of the assessee brought to the notice of the CIT(A) a decision of the Madras Bench of the Tribunal in the case of Lakshmi Vilas Bank, in ITA No. 5/Mds/79, dt. 28th March, 1980, according to which interest on debentures which was akin to securities did not partake the character of interest on a loan. The CIT(A) distinguished the decision of the Madras Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions between scheduled banks will likewise be exempted from the proposed levy." "Interest" was defined under s. 2(7) of the 1974 Act as follows: "(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 note and bills of exchange drawn or made in India, but does not include: (i) any amount chargeable to income-tax under the IT Act, under the head 'Interest on securities'; and (ii) discount on treasury bills." This Interest-tax Act of 1974 was withdrawn in 1978. It was reintroduced in 1980. When the 1980 Act was introduced, the then Finance Minister, made the following speech on the date of presentation of the budget, as follows: "An upward adjustment of lending rates should moderate the inflationary pressures in the economy. I accordingly propose to revive interest-tax in relation to interest earned by scheduled commercial banks after 30th June, 1980. The scope of the levy is being extended to cover also interest received by the larger all India industrial finance institutions, namely, IDBI, ICICI, IFCI and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain the Interest-tax Act, has not specifically stated that interest on security has to be brought to tax. But still, it is brought to tax. If the Parliament wanted to include 'interest on securities', there was no difficulty for it to include 'interest on securities' specifically bringing the same within the purview of definition of "interest" in the Act of 1991. As it has not been specifically included in the definition of 'interest' in the Interest-tax Act, it shows that the Parliament does not want to include 'interest on securities' within the purview of Interest-tax Act. It is contended that the speech of the Finance Minister on this point has to be read as a whole and it is not fair to pick up sentences from here and there and draw conclusions basing on such sentences. He further contended that if the definition is not clear, then the object of the Act has to be looked into. He placed reliance on the definition of the word 'interest' in s. 2(13) of the Interest-tax Act. According to the learned representative of the assessee, this definition is not an inclusive one but an exhaustive definition. For this purpose, he placed reliance on the decision of the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities are nothing but loans. When Government securities are treated as loans taken by the Government they cannot be treated as otherwise for the purpose of taxability under Interest-tax Act. Therefore, interest on securities is also taxable under the provisions of Interest-tax Act as 'securities' are nothing but 'loans'. It is pointed out that the RBI is the controlling authority to issue securities. The assessee also will come under the control of the RBI. He also pointed that s. 28 of the Interest-tax Act is introduced for the purpose of exemptions. He also took us through the history of the Interest-tax Act. He contended that in the 1974 Act, interest on securities was exempted from taxability specifically but in the 1991 Act this exemption ceases to find a place. He contended that when words are clear and unequivocal no external aid can be sought. For this purpose, he placed reliance on two decisions of the Hon'ble Supreme Court of India one in the case of Anandji Haridas Co. (P). Ltd. vs. Engineering Mazdoor Sangh Anr. (1975) 99 ITR 592 (SC) at p. 595 and the other in the case of Keshavji Ravji Co. vs. CIT (1990) 82 CTR (SC) 123 : (1990) 183 ITR 1 (SC). According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, on behalf of the State it is submitted that the definition, which is submitted that the definition, which covers both what the expression means as well as what it includes, is exhaustive. Tobacco seed does not come within the first part of the definition, for the expression 'tobacco' cured or uncured, manufactured or un-manufactured' has to be read as a whole and will not take in tobacco seed. It will not come under the second part because it specifically mentions leaves, stalks and stems but leaves out seeds. Since tobacco seeds do not fall within the definition, the oil and cake produced by the crushing of the seeds will not also be covered by the definition or eligible for the consequent exemption." 5(f). The learned representative of the assessee, as stated earlier, relied on the decision of the Supreme Court in the case of P. Kasilingam, according to which the use of expression "means and includes" indicates that the definition is exhaustive are not extensive. It is the contention of the learned representative of the assessee that the definition given in the case of 'tobacco' by the Supreme Court is identical to the expression "means" and "includes" in the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. When words acquire a particular meaning of sense because of their authoritative construction by superior Courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context. To the extent not prohibited by the statute, the incidents of the general law (of partners) are attracted to ascertain the legal nature and character of a transaction. This is quite apart from distinguishing the 'substance' of the transaction from its 'form'. The Court is not precluded from treating what the transaction is in point of fact as one in point of law also." The learned Departmental Representative has also relied on the decision of the Supreme Court of India in the case of Anandji Haridas Co. (P) Ltd. He particularly referred to the observations of their lordships at p. 595 of the report. The observations are to the following effect: "As a general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords 'loans and advances' and 'securities'. 5(h). "Advance", as per Virtue's New English Dictionary, means "to put forward; to promote to a higher office; to encourage the progress of; to propose; to supply or pay beforehand; to move or go forward; to make progress; to rise in rank or in value progress; improvement; a rise in price or value; payment before hand; a loan; approach; overture with a view to an understanding; supplied; in advance." 5(i). As per 'A Dictionary of Legal Terms' by Shri Vinod K. Agarwal, 'Advance' means : "To pay money or render other valuable before it is due; to furnish something before an equivalent is received, to loan. The word 'Advance' does not connote any idea of repayment". 5(j). "Advance", as defined in the 'Law Dictionary' by P.H. Collin, IInd Edn., means : "noun (a) money paid as a loan or as a part of payment which is to be completed later; a cash advance; to receive an advance from the bank; an advance on account; to make an advance of $100 to someone (b) in advance early; before something happens; to pay in advance .." 5(k). "Loan" means : "anything lent, money at interest; the act of lending, permission to use to lend." as per Vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not be investment. It must, in some way, be related to property so as to earn an income for a reasonable length of time." 5(p). It is contended by the learned representative of the assessee that government securities are investments which are assets held by an entry for earning income by way of dividends, interest, rentals for capital appreciation or for other benefits to the investing entity. Investments are classified as 'current investments' and 'long-term investments'. A current investment is an investment that is, by its nature, readily realisable and is intended to be held for not more than one year from the date on which such investment is made. A long-term investment is an investment other than a current investment. Investments constitute a significant portion of the total assets of certain entities like banks, insurance companies, investment companies, trusts, etc. In other cases, the nature, quantum and type of investments may vary from case to case. 5(q). The learned representative of the assessee also referred us to the meaning of 'securities' given in different dictionaries. As per Dictionary of Law by Mr. L.B. Curzon, 4th Edn. 'Securities' are : (1) Things depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of chargeable interest is mentioned in s. 5, as: "Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions (or to any co-operative society engaged in carrying on the business of banking) accruing or arising to the credit institution in that previous year." It is pointed out by the learned representative of the assessee that the charging section itself excludes interest on securities and interest on loans and advances made to other credit institutions. It is also pointed out by the learned representative of the assessee that under s. 26C of the Interest-tax Act, the credit institutions have power to vary certain agreements. The section reads: "Notwithstanding anything contained in any agreement under which any term loan has been sanctioned by the credit institution before the 1st day of October, 1991, it shall be lawful for the credit institution to vary the agreement so as to increase the rate of interest stipulated therein to the extent to which such institution is liable to pay the interest-tax under thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal 'B' therein: ".. Even interest from debentures issued by the companies will certainly be entitled to be excluded, though we are not called upon to pronounce our views on company debentures. We, however, make bold to mention this because the intentions of the government and the Parliament as are inferable from the Finance Minister's budget speech and the statement of objects and reasons show that Interest-tax Act was not intended to cover such interest." 6(e). We find that the above decision of the Tribunal was challenged by the Revenue before the Hon'ble Madras High Court. The decision of the Madras High Court is at (1997) 138 CTR (Mad) 230. It is held by the Hon'ble Madras High Court that debentures are in the nature of securities and interest on debentures is interest on investment. It was held further, by the Madras High Court: "In the present case, the assessee-bank had an obligation to follow the Banking Regulation Act; at the same time, the assessee is also answerable to the IT Act while submitting his return. The IT Act did not define 'debentures'. To understand the meaning of the word 'debentures' one has to depend upon various other enactments. Considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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