These three appeals, by two different assessees and one by the revenue are directed against the orders of Commissioner (Appeals) relating to assessment years 1996-97 and 1997-98. As these appeals were heard together and also involve some common issues, these are being disposed of by a single consolidated order for the sake of convenience.Del2001 G.E. Capital Transportation Financial Services Ltd. v. Addl. CIT Asst.
These two appeals by the assessee are directed against the common order dated 25-1-2001 of Commissioner (Appeals) for the assessment years 1996-97 and 1997-98. Common disputes raised in both these appeals are as under : (I) "Whether on the facts and in the circumstances of the case, the Commissioner (Appeals) was justified in upholding order of the assessing officer that gross discounting income on promissory notes and bills of exchange is chargeable to interest-tax instead of net of discounting charges. (II) Whether on the facts and in the circumstances of the case, Commissioner (Appeals) was justified in treating the interests received by the assessee on delayed payments made by customers of lease rentals, hire-purchase instalments, etc. as chargeable to interest-tax. " The facts concerning the ground No. (i) are as follows. In respect of income from bill discounting, the assessee had shown only net income after deducting the rediscounting charges as the bills had been rediscounted with some other institutions. The assessing officer adopted the gross discounting charges for the purpose of Interest-Tax Act after observing that no deduction other than the deductions provided under section 6 of the Interest-Tax Act could be allowed. In appeal, it was submitted before Commissioner (Appeals) that the assessee had offered the actual income which was net of discounting and had not claimed any deduction. After discounting of bills, the assessee had rediscounted the sale with other institutions and the income received was only net of rediscounting. The assessee relied on several judgments of High Courts in support of the plea : CIT v. Canara Bank (1989) 175 ITR 601 (Kar), CIT v. State Bank of Travancore (1997) 228 ITR 40 (Ker), CIT v. State Bank of Indore (1988) 172 ITR 24 (MP). The Commissioner (Appeals), however, did not accept the claim after observing that the judgments cited related to public financial institutions where the rediscounting charges were paid to RBI and IDBI whereas the assessee was a private financial institution and had discounted bills to other financial institutions. He, therefore, confirmed the order of assessing officer against which the assessee is in appeal.
Before us, the learned authorised representative for the assessee reiterated the arguments advanced before Commissioner (Appeals). It was submitted that, after rediscounting the bills, the assessee received the amount net of rediscounting and, therefore, only net income was chargeable to Interest-Tax Act. The rediscounting charges were not any expenditure incurred. These charges only reduced the realization from the bill discounting business. It was like trade discounts which only represent the lesser realization of sale price and not any expenditure as held by Hon'ble High Court of Calcutta in case of CIT v. Bata India Ltd. (1993) 201 ITR 884 (Cal) and Hon'ble High Court of Punjab & Haryana in case of CIT v. Indo Asian Switchgears (P) Ltd. (2002) 173 CTR (P&H) 102 : (2002) 257 ITR 645 (P&H). The learned authorised representative also relied on the judgment of Hon'ble High Court of Madhya Pradesh in case of State Bank of Indore (supra) and other judgments quoted before Commissioner (Appeals) which were directly on the point. It was clearly held in these cases that rediscounting charges paid are not exigible to interest-tax, it was pointed out.
The learned senior Departmental Representative on the other hand defended the orders of lower authorities. It was argued by her that deduction while computing the chargeable interest can be allowed as provided in section 6 of Interest-Tax Act and not otherwise. The rediscounting charges were the expenditure incurred and, therefore, these had been rightly disallowed by the assessing officer.
We have perused the records and considered the rival contentions carefully. The assessee after discounting the bills had rediscounted the same to other institutions. The issue is whether the gross discounting charges or the discounting charges net of rediscounting should be chargeable to Interest-Tax Act. At the time of discounting of the bills, the assessee received some discount and at the time of rediscounting the same to other institution, it had to part with a part of the discount received and, therefore, the effect of the rediscount was to lower the realisation. It is like trade discount which is not expenditure but which goes to reduce the sale price directly. The net effect is of lowering of income/realization. We, therefore, agree with the submission of learned authorised representative that the discounting charges net of rediscounting will only be chargeable to Interest-Tax Act. This view is also supported by the judgment of Hon'ble High Court of Madhya Pradesh in case of State Bank of Indore (supra). We, therefore, reverse, the order of Commissioner (Appeals) and allow the claim of the assessee.
The facts regarding the second issue are that the assessee who is in the business of hire-purchase, lease, etc., had received interest on delayed payment of lease rent, hire-purchase instalments etc. The assessing officer included this interest in the chargeable interest under the provisions of Interest-Tax Act. In appeal, the assessee submitted that the interest received on delayed payment of dues is not the interest on loans and advances. The loan is a positive act of lending coupled with acceptance of the same whereas overdue debt is an undue advantage enjoyed by the borrower without the sanction of the lender. The assessee also relied on the judgment of Hon'ble High Court of Madhya Pradesh in case of State Bank of Indore (supra) and the judgment of Hon'ble High Court of Kerala in case of State Bank of Travancore (supra). Commissioner (Appeals), however, did not accept the plea on the ground that these judgments were in respect of banks and not applicable to all financial institutions. She held that interest on delayed payment of instalments is outcome of a financial transaction and not out of any trade transaction. Accordingly, she confirmed the action of the assessing officer against which the assessee is in appeal before the Tribunal.
Before us, the learned authorised representative reiterated the submissions made before Commissioner (Appeals). It was submitted that overdue instalments or overdue trade bills are not of the same nature as loans and advance. Under the Interest-Tax Act, only the interest on loans and advances is chargeable to tax. He relied on the following judgments in support of his case, which were directly on the point The learned CIT departmental Representative on the other hand, supported the order of Commissioner (Appeals). It was submitted by her that Interest-tax Act applied to charges received from hire-purchase also.
We have perused the records and considered the rival contentions carefully. Interest-tax is applicable in respect of interest on loans and advances. The overdue debt or amount receivable on account of any overdue bill or any instalment does not have the same nature as that of the loans and advances. The Hon'ble High Court of Madhya Pradesh in case of State Bank of Indore (supra) have held that the amount charged by the assessee for delayed payment of bill cannot be held to be interest on loans and advances. It is only a compensation for late payment. Hon'ble High Court of Kerala in case of State Bank of Travancore (supra) have held that the character of an overdue bill is not synonymous with loans and advances and, therefore, interest on overdue bills is to be excluded from chargeable interest under the Interest-Tax Act. Tribunal, Hyderabad in case of State Bank of Hyderabad, (supra) have also followed the same view i.e. compensation on delayed payment of bill beyond the grace period does not constitute interest. Respectfully following these decisions, we hold that Commissioner (Appeals) was not justified in confirming the order of the assessing officer charging interest-tax in respect of interest received on delayed payment of lease rent, hire-purchase instalment, etc. The order of Commissioner (Appeals) is, therefore, set aside and the claim of the assessee is allowed.
Interest-Tax Appeal No. 56/Del/2001 G.E. Capital Services India Ltd. v.Jt. CIT (asst. yr. 1997-98): The only dispute raised by the assessee in this appeal is that on the facts and in the circumstances of the case, Commissioner (Appeals) was not justified in treating the interest received by the assessee on delayed payments made by customers on lease rental, hire-purchase instalment, etc. as chargeable to interest-tax. The same issue we have already considered and decided in connection with the ITA Nos. 36 and 37/Del,/2001 and following our decision in the said appeals vide para 3.3 of this order, we hold that the interest receivable on delayed payment of lease rental, hire-purchase instalments will not be chargeable to interest-tax. Accordingly, we set aside the order of Commissioner (Appeals) and allow the claim of the assessee.
Interest-Tax Appeal No. 55/Del/2001 Addl. CIT v. G.E. Capital Services India (assessment year 1997-98) : The revenue in this appeal has raised dispute on the following two grounds : (i) Commissioner (Appeals) was not justified in holding that interest on Government securities and NCDs amounting to Rs. 4.76 crores are not chargeable to tax.
(ii) Commissioner (Appeals) was not justified in holding that a sum of Rs. 5.40 crores on account of hire-purchase transaction is not chargeable to tax.
The ground No. (i) relates to chargeability of interest-tax on interest received from Government securities and non-convertible debentures.
Commissioner (Appeals) following the judgment of Hon'ble High Court of Madras in case of CIT v. Laxmi Vilas Bank Ltd. (1997) 228 TTR 697 (Mad) held that interest received on such investments is not chargeable to interest-tax and accordingly, allowed relief to the assessee against which the revenue is in appeal.
Before us, the learned authorised representative for the assessee argued that the case was covered in favour of the assessee by the decisions of Special Bench, New Delhi, in case of Housing & Development Corpn. Ltd. (Interest-Tax Appeal No. 6/Del/2000). The learned CIT-Departmental Representative on the other hand placed reliance on the order of the assessing officer.
We have perused the records and considered the matter carefully. We have also gone through the order of Special Bench mentioned above. The issue before the Special Bench was identical i.e., chargeability of interest-tax on interest earned on short-term deposits with public undertakings and also from securities and bonds.. The Special Bench after going through the various judgments on the subjects and after taking into account the amendments made in the definition of interest in section 2(7) of the Interest-Tax Act with effect from 1-10-1991, held that Interest-Tax Act is not applicable to interest received on such investments. The relevant portion of the decision of Special Bench is reproduced below for the sake of convenience "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 the distinction can be summed up by stating that in the case of loan, the needy person approaches the lender for obtaining the loan therefrom. 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 view of this legal position, it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in section 2(7) of the Act and as such, would not be liable to interest-tax. The answer to the question under reference in our humble opinion is, that investments made by way of short-term deposits and also in the form of securities and bonds cannot be considered as loans and advances and as such interest thereon shall be outside the scope of 'interest' defined under section 2(7) of the Act." Respectfully following the order of Special Bench (supra), we confirm the order of Commissioner (Appeals) and reject the ground taken by the revenue.
The second ground relates to the order of the assessing officer treating the income from hire-purchase transactions as interest chargeable to interest-tax, which has been reversed by Commissioner (Appeals). The assessee submitted before Commissioner (Appeals) that the assessing officer had examined the hire-purchase agreement and invoices and without giving any reason for not treating transactions as one of hire-purchase, rejected the claim of the assessee, which is not correct. Commissioner (Appeals) after examination of the case, concluded that on similar facts the assessing officer had treated the income from hire-purchase transactions as interest income in case of M/s GE Capital Transportation financial Services Ltd. for assessment years 1996-97 to 1998-99 and the same after detailed examination, had been found to be allowable in appeal by her. Following her order in that case, Commissioner (Appeals) deleted the addition made by the assessing officer.
We have heard both the parties in the matter, perused the records and after careful consideration, we find that the assessing officer though he had examined the hirepurchase agreements did not give any reason for rejecting the same as not being a genuine hire-purchase case. A copy of the hire-purchase agreement has also been filed before us as part of the paper book and perusal of the same shows the various terms and conditions prescribed therein conform to normal hire-purchase agreements. Similar addition had also been made by assessing officer in case of M/s GE Capital Transportation Financial Services Ltd. for assessment years 1996-97 to 1998-99 and the order of Commissioner (Appeals) in that case has been upheld by us vide our order of even date in Interest-Tax Appeal No. 38 and 39/Del/2001. The facts of this case are identical. The learned CIT-Departmental Representative has not been able to point out any distinguishing feature in this case. We, therefore, confirm the order of Commissioner (Appeals) and reject the ground taken by the revenue following our decision in case of GE Capital Transportation Financial Services Ltd. (supra).
(i) Appeals of M/s GE Capital Transportation Financial Services Ltd. in Interest Tax Appeal Nos. 36 and 37/Del/2001 are allowed; (ii) Appeal of M/s GE Capital Services India Ltd., in Interest-Tax Appeal No. 56/Del/2001 is also allowed; (iii) Appeal of the revenue in Interest-Tax Appeal No. 55/Del/2001 in case of M/s GE Capital Services India Ltd. is dismissed.