Judgment:
1. These six appeals by the assessee are against the orders of Commissioner of Income-tax (Appeals) for the Asst. Years 1998-99 to 2000-01 arising out of assessment orders and penalties levied by the Assessing Officer. For the sake of convenience, . they are being disposed of by this common order.
2. The dispute in all these appeals is as to whether the income from interest on inter corporate deposits was chargeable to tax under Interest Tax Act or not and their consequent assessment entails penalty Under Section 13 of the said Act. In assessments, the Assessing Officer has observed as under: Since the assessee company's activity is to give intercorporate deposits and making investments in shares of other companies, the assessee company is covered by Sub-section (ii) and (iv) of the Section 2(5B) of the Interest Tax Act, 1974.
3. The CIT(A) agreed with the assessments by observing in paragraph 2.3 of his order as under: 2.3 I have carefully considered the observation made by the A.O. in the asst. order, the detailed submission as advanced by the counsel of the appellant along with the case laws and I am of the opinion that the A.O. is fully justified in observing that the main business of the appellant company is to give loans and advances, bill discounting, investments, equity participation, etc. especially when the memorandum of association of the appellant company itself narrates such activities i.e. to carry on all kinds of financial operations including long term short term loans and capital, bridge loans, working capital, bill discounting, bill purchasing and deferred payment, equity participation, preferential capital bonds, giving of guarantees, counter guarantees, indemnities and sureties etc. The case laws as relied upon by the appellant's counsel are not applicable in the case of the appellant and I am inclined to agree with the conclusion arrived at by the A.O that the appellant is covered by Sub-section (iv) of Section 2(5B) of the Interest Tax Act. In view of the above facts, I don't see any reason to interfere in the action of the A.O in charging the income under the Interest Tax Act for both the asst. years. The action of A.O. is hereby confirmed.
4. The dispute, it seems, has proceeded on the basis as to whether the assessee is a chargeable entity under the Interest Tax Act in view of Clause (iv) of Section 2(5B) of the Act. The submission before us is in all these appeals, is that even if it were chargeable entity, the interest on intercorporate deposits is not assessable in view of the decision of the Tribunal in the case of Gujarat Industrial Investment Corporation Ltd. in Interest Tax Appeal No.3/Ahd/1997 for assessment year 1993-94 and others dated 31-1-2005. The ld. counsel of the assessee has relied upon the decisions some of which though are not directly on the issue but makes a distinction between the deposit and a loan. These are (i) Sahara India Saving and Inv. Corp. 264 ITR 646 (All.); (ii) United Western Bank 259 ITR 312(Bom.); (iii) Baidya Nath Plastic Industries (P) Ltd. 230 ITR 522 (Del.) ; (iv) A.M. Shamsudeen 244 ITR 266 (Mad.); (v) The decision of the Tribunal in the case of Oriental Insurance Co. Ltd. 89 ITD 520(Del.); and (vi) Sahara India Saving and Inv. C6rp. 79 ITD 56 wherein the interest from deposit and security deposits are held to be not interest on loans and advances.
The ld. Departmental Representative, on the other hand, relied upon the decision of Mumbai Tribunal in the case of Bajaj Auto Holdings Ltd 95 ITD 356 (Mum.) wherein it was held that interest on deposit is interest on advance. Here in this case, the decision of the Delhi Tribunal in 89 ITD 521 was not discussed.
5. We have heard the parties and considered their rival submissions.
Section 4 of the Interest Tax Act is a charging section and it reads as under: 4. Charge of tax.- Subject to the provisions of this Act, there shall be charged on every scheduled bank for every assessment year commencing on or after the 1st day of April, 1975, a tax (in this Act referred to as interest-tax) in respect of its chargeable interest of the previous year at the rate of seven per cent, of such chargeable interest.
6. The term "interest" is defined in Section 2(7) of the said Act as under: (7) "interest" means interest on loans and advances made in India and includes- (a) commitment charges on unutilized 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); 7. The interest received by the assessee is interest from intercorporate deposit. These inter-corporate deposits are governed by Section 58A of the Companies invested through issue of prospectus required under the Companies Act. To assess a person under this Act, we have to examine whether the interest is received by the assessee on the loans and advances and in that context, we have to understand what a loan and a deposit means. The terms "deposit" and "loan" have come up before the courts in many cases which are discussed hereunder.
8. The Privy Council in the case of Mohd. Akbar Khan v. Attar Singh AIR 1936 PC 171 observed with regard to the true concept of "loans and deposits" as under: It should be remembered that the two terms ('deposit' and 'loan') are not mutually exclusive. A deposit of money is not confined to a bailment of specific currency to be returned in specie. As in the case of a deposit with a banker, it does not necessarily involve the creation of a trust, but may involve only the creation of the relation of debtor and creditor, a loan under conditions. This distinction which is perhaps the most obvious is that the deposit not for a fixed term does not seem to impose an immediate obligation on the depositee to seek out the depositor and repay him. He is to keep the money till asked for it. A demand by the depositor would therefore, seem to be a normal condition of the obligation of the depositee to repay.Ram Janki Devi v. Juggilal Kamlapat held as under: 12. The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction.Ram Ratan Gupta v. Director of Enforcement, Foreign Exchange Regulation , The Supreme Court in the context of Section 4 of FERA of 1947 discussed the definition between loan and deposit as under: The expression 'to lend' in the ordinary use means to deliver to another a thing or on condition that the thing lent shall be returned with or without compensation for use made of it by the person to whom it lent. The subject-matter of lending also be money.
Though a loan contract created a debt, there may be a debt and without contracting a loan, in other words, the concept of debt is more comprehensive than that of loan.
It is settled law that the relationship between the banker and a customer qua debtor and creditor. Though, ordinarily a deposit of an amount in the current account of a bank creates a debt it does not necessarily involve a contract of loan. The question whether a deposit amounts to a loan depends upon the terms of the contract under which the deposit is made. . Ref. to .
When a person deposits foreign currency in the current account of a bank in order to draw it whenever necessary for the purpose for which it was given, it cannot be said that he enters into a contract of loan with the bank within the meaning of Section 4(1) of the Act.
He only deposits the money for the said purpose, such deposit is not a loan, the person cannot be held to have contravened Section 4(1) of the Act.
11. The Madras High Court in the case of Abdul Hamid Sahib v. Rahmat Bi also considered the definition between loan and The terms 'loans' and 'deposits' are not mutually exclusive terms.
There are a number of common features between the two. In a sense a deposit is also a loan with this difference that it is a loan with something more. Both are debts repayable. But, the question as to when the repayment is to be made furnishes the real point of distinction between the two concepts. A loan is repayable the minute it is incurred. But this is not so with a deposit. Either the repayment will depend upon the maturity date fixed therefor or the terms of the agreement relating to the demand, on making of which the deposit will become repayable. In other words, unlike a loan there is no immediate obligation to repay in the case of a deposit.
That is the essence of the distinction between a loan and a deposit.
12. The Madhya Pradesh High Court in the case of Sharda Talkies (Firm) v. Smt. Madhulata Vyas AIR 1966 NMP 68 observed as under: There is a subtle distinction between a deposit and a loan. In the case of a loan, the amount is given by the creditor to the debtor at the request of and for the requirements and dues of the debtor under certain terms and conditions. In the case of a deposit, the depositee receives money at the instance of the depositor. In the case of a deposit, the requirement of the depositee is neither relevant nor material. The depositor has to go to the depositee for depositing the amount or the depositee may go and collect the amount. But in case a loan, the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount. However, the question in a given case whether the debit is deposit or a loan will be one of fact which will have to be decided on the facts and circumstances of each case. The use of the term 'loan' or 'deposit may not itself be conclusive, though, of course, it is a circumstance which would be taken into account. What should be regarded is the cumulative effect of the evidence which bears on the character of the debt as a loan or a deposit. Where certain amount are paid or given by a particular person to other without there being a requirement of the person receiving the same, without applying the above test, it would certainly be a deposit. This is the only distinction.
13. The Bombay High Court in the case of Pennwalt (India)Ltd. v.Registrar of Companies (1987) 62 Comp. Cases 112 (Bom.) discussed the concept of loan and deposit with reference to Section 58A and 227(1A)(d) as under: Held, allowing the petition, that there was a distinction between a loan and a deposit for the purpose of the Companies Act, 1956, and in the absence of anything to hold that the deposits made by the appellant company with well known independent companies were in fact loans or amounts lent by the appellant company and borrowed by those companies, they had to be considered as deposits for the purposes of Section 370. Section 371 laid down penal consequences for failure to comply with the provisions of Section 370. Since non-compliance involved penal consequences, Section 370 could not be given an interpretation wider than that warranted by the actual words used therein. Without any provision to that effect, the word 'loan' as used in Section 370 could not be given a wider interpretation so as to include deposits.
14. Similar was the observation of Madras High Court in the case of A.M. Shamsudeen 244 ITR 266 wherein it was held as under: Held that, in the instant case, the Commissioner as well as the Deputy Commissioner had accepted the fact that the assessee-firm had repaid the loan in cash. Further, the Deputy Commissioner had also accepted that the assessee-firm had borrowed certain sums of money which were regarded as loan transactions. It was not possible to enlarge the scope of the term "deposit" in Section 269T of the Act to include the transaction of the loan. Therefore, the allegation that there was a violation of the provisions of Section 269T and the subsequent levy of penalty under Section 271E was not justified in law.
15. In the case of Sahara India Savings and Investment Corporation Ltd. 264 ITR 646 before the Allahabad High Court, the question was as to whether the deposits under various schemes were "loans" and "advances" the interest on which is chargeable under the Interest Tax Act. The Tribunal in this case as reported in 79 ITD 56 observed that: The Companies Act also make a distinction between the loan and advances and investments in securities and debentures. Therefore, the investment in securities and debentures is not the same as 'loans' or 'advances' envisaged in Section 2(7) and consequently the interest on securities and debentures cannot be equated or take colour of such 'interest of loans' or 'interest on advances'. The interest on investment in securities or debentures is, therefore, outside the scope of definition of 'interest' given under Section 2(7), which otherwise means that interest on investments made in securities and debentures by the assessee was not taxable. To sum up (i) the definition of the term 'interest' given under Section 2(7) was exhaustive and the general meaning of the term 'interest could not be read into it, (ii) it was only the interest on loans and advances which was within the ambit of definition of the term 'interest' and consequently, liable to interest tax, and (iii) the assessee's investments in securities, debentures and F.Ds, etc.
being investments as per the R.B.'s directions were for carrying on the business of Residuary Non Banking Co. and could not partake the character of investment by way of loans and advances and consequently the income there from could not take the colour of interest on loan or interest on advances." The Revenue in that case, contended that since earlier definition of Section 2(7) specifically excluded interest on securities from the definition of "interest", while the new definition of the word "interest" does not specifically exclude interest on securities, the legislative intend was obviously that now interest on securities will also be treated as interest within the meaning of Section 2(7) of the Act. This contention of the Revenue was not accepted by the High Court.
16. In the case of United Western Bank Ltd. 259 ITR 312 the Bombay High Court held that the Interest Tax Act applies strictly to loans and advances and not to investment and, therefore, this Act would not apply to interest by an assessee bank on securities/debentures held by the assessee under the category "Permanent". In this case also, the contention of the Revenue was that prior to amendment the word "interest" in Section 2(7) of the Act excluded by an express provision interest on securities and when it was re-introduced then the legislature deleted the exclusionary clause from Section 2(7) which indicated the intention of the legislature to tax interest on securities and that there is no difference between the investment and loan and when a bank subscribes to Government securities, it gives a loan to the Government although the balance sheet it is shown as investment. In that context, the Bombay High Court held that the difference between the "loan" and "investment" is well-known in a commercial sense, accounting sense and also under the Companies Act (see Sections 370 and 372). It is also borne out by Section 13(1)(d)and Section 11(5) of the Act. It also borne out by Section 2(28A) of the I.T. Act, 1961 and Section 2(7) of Interest Tax Act and, therefore, it was held that Interest Tax Act will not apply to interest received by the assessee bank on securities/debentures under the category "permanent".
17. In the case of Baidyanath Plastic Industries (P) Ltd. 230 ITR 522, the Delhi High Court considering the case with reference to Section 276E and 269T has held that since the legislature specifically used the word "deposit" in contradistinction to the term "loan", the provisions would only be attracted if the repayment has been made in respect of a deposit. The meaning of the word "deposit" occurring in Section 269T cannot be stretched to include a loan. The distinction between a loan and a deposit is that in the case of the former, it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according the agreement and in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. While Articles 19 and 21 of the Limitation Act fix the period within which a suit for recovery of a loan can be filed, Article 22 deals with the period of limitation for suits for money on account of deposit.
18. In the case of A.M. Shamsudeen 244 ITR 266 (Mad.) again, in connection with the provisions of Section 269SS, 269T and 271E, the Madras High Court held that the mere presence of some attributes of the loan transaction in a deposit would not be sufficient to regard a loan as a deposit. They are two transactions in the commercial world and by interpreting and expanding the scope of the term "deposit" in Section 269T, it is impermissible to enlarge the concept and take in the concept of loan transaction also within the meaning of Section 269T.The submission of the ld. counsel of the Revenue that the expression "deposit" is widely defined Under Section 269T and it would include the loan was not accepted.
19. In the case of Life Insurance Corporation of India 82 ITD 749, the Mumbai Bench of the Tribunal in the context of the term "interest" used in Section 2(7) of the Interest Tax Act it was held that interest tax has to be levied only on loans and advances and not on investment as a whole and in that context the investment in debentures, bonds and Government securities was held to be outside the scope of Section 2(7) of the Act. When a person deposits money in a bank, a debtor-creditor relationship is created, but the transaction cannot be regarded as a loan and simply because a debtor-creditor relationship is created, it cannot be regarded as a loan transaction. It was further observed that when the term "means" is used while defining an expression, it gives a hard-and-fast meaning of the" expression defined. Thus, the term "interest" means interest only on the loan segment of the investment and leaves out other segments of investments. The Tribunal held that the term "advance" has many meanings but for our purpose, it only means advances which are in the nature of loan. In paragraph 46, the Tribunal observed as under: 44. In the light of the above discussion, let us consider the definition of the term "interest" given in the Interest Tax Act.
Primarily, the term "interest" is meant to be interest on loans and advances. But the definition does not stop here. It goes on to include two more items. The two items are commitment charges on unutilized portion of credit and discount on promissory notes and bills of exchange. As per the natural import of the term "interest", but for the specific inclusion, these would not have been considered as interest. It is perceived that, though by nature as well as nomenclature, the two items may not strictly be regarded as interest, but they have some hue of interest and hence the meaning of the term "interest" is extended to include these two items. But the extension has to stop here only and cannot go further. There may be some other items also which, though strictly may not be interest, but may be having some characteristics of interest. However, considering the meaning of the expression "means and includes" as explained by the above two decisions of the Supreme Court, no more items can be included in the definition except the two specifically included by the Legislature.
20. The Delhi Bench of the Tribunal in the case of Oriental Insurance Co. Ltd. observed in the context of Section 5 of the Interest Tax Act as under: 13. In view of the above discussion, we are of the considered view that although the terms 'loans' and 'deposits' are not mutually exclusive yet, they are not the same thing. The most distinguishing feature which is relevant for resolving the controversy before us is that in case of loan, the needy person approaches the lender for seeking loan at the terms of the lender while in the case of deposit, it is the depositor, who goes to the depositee for investing his money primarily with the intention to earn interest.
That is why the Hon'ble Supreme Court held in the case of Ram Ratan Gupta that deposit even in current account with the bank did not amount to loan. In view of such distinction, we are of the view that the interest on deposits would not fall within the ambit of the expression 'chargeable interest' appearing in Section 5 of the Act.
21. The Ahmedabad Bench of the-; Tribunal relying upon the decision of Delhi Tribunal in Oriental Insurance Co. Ltd. (supra) directed the Assessing Officer to exclude the interest earned by the assessee on the deposits made with financial institutions while computing the total chargeable income under the Interest Tax Act. It had quoted the following observations from the decision of the Tribunal in the case of Oriental Insurance Co. Ltd.: In view of the above, provisions, the case of the revenue is that deposits with banks and other institutions would fall within the ambit of the word 'loans'. While the case of the assessee is that 'loans' and 'deposits' are different expressions having different meanings and, therefore, interest on deposits is not chargeable to tax. Our study reveals that 'loans' and 'deposits' are not mutually exclusive terms in as much as (i) both are debts repayable; (ii) in both the cases, money passes from one hand to another; (iii) in both the cases, there is relationship of debtor and creditor; (iv) there is a liability to return the money depending upon the terms and conditions between the parties. Still there is fine distinction between the two. In the case of deposit, it is made at the instance of the depositor whereas a loan is given at the instance of the borrower for his use with or without compensation. Consequently, a deposit is repayable only on demand by the depositor without the debtor having to seek out the creditor, while in the case of a loan, the obligation to repay is forthwith incur (though the obligation may have to be discharged in future) and the borrower must seek out the lender to repay the loan. Even the Legislature has made distinction between these two terms. Limitation Act prescribes the different period of limitation, i.e., three years' from the date when the loan is made while in the case of deposit, it is three years from the date when the demand is made. Even the Income-tax Act, 1961 has made distinction between these two terms. Section 269SS prohibits acceptance of loan or deposit in cash exceeding the prescribed limit. Section 269T prohibits the repayment of deposit in cash exceeding the prescribed limit. It is apparent from these provisions that repayment of loan in cash is not prohibited.
Consequently, no penalty is leviable under Section 27IE where repayment of loan is made in cash. On the other hand, penalty is leviable under Section 271E if deposit is repaid in cash exceeding the prescribed limit.
Thus, it is apparent from these provisions that even the Legislature recognizes the distinction between the loan and the deposit.
22. It has also referred to the decision of Mumbai Bench of the Tribunal in the case of Oriental Insurance Co. 82 ITD 749 and earlier decision of the Delhi Tribunal in the case of Life Insurance Corporation 87 ITD 11(Del.) wherein the Tribunal has pointed out the disparity in the expression "loans and deposits" while discussing the differential meaning of the term "loans and deposits".
23. The Mumbai Tribunal in the case of Bajaj Auto Holdings Ltd. 95 ITD 356 however, observed with regard to assessability of interest on deposit under Interest Tax Act as under making a distinction of the judgment of the Bombay High Court in the case of Pennwalt (India) Ltd. (supra) by stating that while interpreting Section 2(7) of the Interest Tax Act the ratio of Bombay High Court decision would not be applied and the ambit and scope of the term 'interest' has to be independently determined. Similar would be the position with regard to cases which arise Under Section 269 SS and 269T of the Act. The relevant observations are: 9. The definition of the word 'interest', as contained under Section 2(7), has been already reproduced above. For the purposes of the Interest Tax Act, 'interest' means interest on loans and advances made in India. The definition further goes to say that it includes certain items, but, does not include certain other items. There is no other provision in the Interest Tax Act which refers to 'deposit' in contra-distinction to 'loan' of 'advance'. Interest on 'deposit' is not specifically excluded from the definition under Section 2(7).
Interest on loans as well as advance is chargeable to interest tax.
The word 'advance' has wide connotations and it means any money advanced to any person. In the present case, the assessee company had advanced moneys by way of interest earning deposits, to other companies for a fixed term on which interest income is earned. Such deposits have not been made in response to any invitation to make such deposits by the other companies. The transactions have been finalised through brokers. The object and purpose of Interest Tax Act is to levy tax on interest income earned on loans and advances.
Even the Bombay High Court has observed that in certain circumstances 'loan' may include a 'deposit' and a 'deposit' may include a loan. It has also been observed that the term 'loan' is a 'generic' term which includes a 'deposit' also. Further, the scope of the definition under Section 2(7) is also enlarged as it includes interest not only on loans, but also on advances. There is no specific provision in the Interest Tax Act, which grants exemption in respect of interest on inter-corporate deposits. Considering the entire facts and circumstances and the provisions of law, we hold that interest tax is leviable on the interest income earned by the assessee company from inter-corporate deposits. The CIT(A) has already directed the Assessing Officer to exclude interest for the period up to 30-9-1991. Therefore, on this issue, the finding of the ld. CIT(A) is confirmed.
24. The Delhi case which has been followed by Ahmedabad Tribunal has proceeded on the footing that there is a distinction between a loan and a deposit. The Mumbai Bench, on the other hand, proceeded on a footing that deposit would be an advance and would be includible in the term "interest on deposit and advance". The Mumbai Bench was more persuaded by the reason that the interest on deposit is not excluded from the definition of interest and the term "interest on loans and advances" is wide enough to include the same. They have, however, not considered what is advance and as to whether the amended definition of "interest" under the Act was exhaustive or inclusive. We may refer to the term 'advance' as understood in the commercial words and as stated under the title "What is advance" in the following words: It was held in K.M. Mohommed Abdul Kadir Rowther v. S. Muthich Chettiar, (1960) 2 Mad LJ 13 at 15 that "advance" means literally a payment beforehand; in certain cases it may be a loan but it cannot be said that a sum paid by way of advance is necessarily a loan. In Raja of Venkatagiri v. Krishnayya Rao Bahadur, AIR 1948 PC 150 at p.155, it was observed that ordinarily an advance does not connote any idea of repayment. It is, therefore, clear that the word 'advance' used in Section 296 means an advance in the nature of a loan and not merely an advance as is understood in common parlance in the sense of payment of money beforehand and which is likely to become due at some future time.
25. It may be stated here that Section 296 of Companies Act provides for the applicability of Section 295 regulating loans to directors for book debt which is in the nature of loans or advances from its inception.
26. The term "loans and advances" should be understood conjointly and not in isolation. If so read, the advances which are in the nature of loan alone should be covered in the term. As observed by the Madras High Court and the Privy Council decisions aforesaid, the advances may in certain circumstances be loan but not necessarily always. Ordinarily an advance is a payment beforehand and it does not connote the idea of repayment. It is adjusted when the action for which the money is advanced is completed and if not repaid on expiry of the loan like a deposit. The company is not bound to accept the deposit made, if proceeding on the basis of the prospectus a person interested to make a deposit. By issuing prospectus the company invites offer for making deposit and that is not offer to receive deposit whereas in case of loan the assessee prays for a loan. It offers to borrow money and once that offer is accepted, the lender is bound to give money to the borrower on terms settled.
27. It is also to be noticed that a taxing statute has to be strictly construed and the subject cannot be taxed unless comes within the letter of the law. The argument that a particular income falls within the spirit of the law cannot be availed of by the Revenue. It is a trite law that no tax can be imposed on the subject without the words in the Act. No tax can be imposed by inference or analogy. The cardinal principle of interpretation of fiscal law is that it should be considered strictly is the long standing principle which is reiterated by the Supreme Court in the case of Federation of APCCI v. State of A.P. 247 ITR 36 and CIT v. Kasturi 247 ITR 24(SC). So long as the provision is free from ambiguities there could be no need to draw an analogy and unless the language of the provision is clear tax liability cannot be fastened upon a person.
28. In the case of Sahara India Savings and Investment Corporation Ltd. 264 ITR 646 the Allahabad High Court discussed the rule of interpretation while discussing Section 2(7) of the Act observed as under: We do not agree. It is a well settled principle of interpretation of taxing statutes that while interpreting a taxing statute we have only to see the words used in the statute and not the intention or the spirit of the statutory provision. In a taxing statute the literal rule of interpretation applies, and it is, well settled that if a transaction comes within the letter of the law it has to be taxed, however great the hardship, but if it does not, it cannot be taxed, however great the loss may be to the public exchequer. This view was best expressed by Lord Cairns in Partington v. Attorney-General [1869] 4 LR 100 (HL) as follows : If the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand if the court seeking to recover the" tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.
The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J. in his classic statement: In a taxing statute one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax.
There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One must only look fairly at the language used.In A.V. Fernandez v. State of Kerala , the Supreme Court of India stated the principle as follows (page 661 of AIR 1957 SC) : "If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed.
If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter.
Where the language of a provision is plain, courts cannot ordinarily concern themselves with the policy behind the provision, or the intention of the Legislature. As Lord Watson said in A. Salomon v. A.Salomon and Co. [1897] AC 22, 38 (HL) "'intention of the Legislature' is a common but slippery phrase". In ITO v. T. S. Devinatha Nadar , the Supreme Court of India observed that : "we must look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the Legislature contemplated" was made while construing a non-taxing statute. The said rule had only a limited application in interpreting a taxing statute. It follows from this decision that the mischief rule laid down in Heydon's case [1584] 3 Co.
Rep. 7a has only a limited application to taxing statutes.
Hence there is no question of looking into the legislative intent or spirit of the law in a taxing statute. We have only to see the actual words used. In other words, in a taxing statute we have to go by the letter of the law, and not its spirit or intent.
The new definition of the word "interest" in Section 2(7) is in two parts. Firstly, it says that "interest" means interest on loans and advances. Secondly, it includes two other items in the definition of the word "interest".
In our opinion, the only correct interpretation of this provision can be that firstly nothing is interest except interest on loans and advances. Secondly, two other categories are also included in the definition of the word "interest" as specified in clauses (a) and (b) of Section 2(7). In our opinion, the word "means" can only have one meaning, that is, it is an exclusive definition vide P. Kasilingam v.P. S. G. College of Technology [1995] Supp 2 SCC 348. When we say that a word has a certain meaning then by implication we mean that it has no other meaning vide Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court . However, when certain other categories are added then it means that only those additional categories will be included within the definition and none others, vide Mahalakshmi Oil Mills v. State of A. P. .
Learned counsel for the appellant has relied on the decision of the Supreme Court in Krishi Utpadan Mandi Samiti v. Shankar Industries [1993] Supp 3 SCC 361 (II). In that decision the question came up for interpretation before the Supreme Court about the definition of "agricultural produce" in Section 2(a) of the U. P. Krishi Utpadan Mandi Adhiniyam. Section 2(a) reads as follows : 2(a) 'agricultural produce' means such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry or forest as are specified in the Schedule, and includes admixture of two or more of such items, and also includes any such item in processed form, and further includes gur, rab, shakkar, khandsari and jaggery.
It is a well settled rule of interpretation that where the Legislature uses the words 'means' and 'includes' such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. Thus the meaning of 'agricultural produce' in the above definition is not restricted to any products of agriculture as specified in the Schedule but also includes such items which come into being in processed form and further includes such items which are called as gur, rab, shakkar, khandsari and jaggery.
On the strength of the observation made in paragraph 12 of the above judgment, Sri Agarwal contended that the word "interest" in Section 2(7) should be deemed to include its natural meaning and should not be limited to interest on loans and advances. We do not agree.
Firstly, all that has been held by the Supreme Court in the case of Krishi Utpadan Mandi Samiti [1993] Supp 3 SCC 361 (II) is that agricultural produce in Section 2(a) of the U. P. Krishi Utpadan Mandi Adhiniyam will not only include the items mentioned in that provision but also such items in the processed form. This decision does not mean that the expression" agricultural produce" can be given its natural meaning. It can only be given the meaning as defined in Section 2(a), namely, that agricultural produce will only mean the items mentioned in Section 2(a) of the Mandi Adhiniyam and also such items in processed forms, but it obviously does not mean that other items which are not mentioned in Section 2(a) will also be deemed to be included. This decision therefore does not help the appellant in any way. Sri Agarwal then relied oh a decision of the Supreme Court in Regional Director, Employees' State Insurance Corporation v. High Land Coffee Works of P.F. X. Saldanha and Sons . In our opinion that decision too has no relevance to the present case as the Supreme Court there was considering the definition of the words "seasonal factory" in Section 2(12) of the Employees State Insurance Act. The expression "seasonal factory" is defined in Section 2(12) to mean a factory which is exclusively engaged in one or more of certain manufacturing processes (cotton ginning, cotton or jute processing, etc.) or any manufacturing process which is incidental to or connected with any of the aforesaid processes, and includes a factory which is engaged for a period of not exceeding seven months in a year- (a) in any process of blending, packing or re-packing of tea or coffee; or (b) in such other manufacturing process as the Central Government may, by notification in the official gazette, specify.
The Supreme Court observed that the word "includes" in the above definition is used to enlarge the meaning of the preceding words and it is by way of extension, and not for restriction. In fact this is precisely the meaning, which we are giving to the word "interest" in Section 2(7) of the Interest-tax Act. The word "includes" used there also enlarges the meaning of the preceding words, that is to say, the word "interest" means interest by way of loans and advances, and two other items also. However, the enlargement of the definition is only to the extent mentioned in the definition itself, and no further. Hence we do not agree with the submission of learned Counsel for the appellant that the natural meaning of the word "interest" must be given to it. It may be mentioned that legal fictions are well known in law. A statute often defines something, which is different from the meaning, which it has in common parlance. For example, Section 43(3) of the Income-tax Act defines a plant to include books. Ordinarily a plant means a factory, and no one in common parlance regards a book as a factory. However, in the Income-tax Act a book is treated as a factory for the purpose of depreciation under Section 32. A large number of such other instances of legal fictions can be given. It is open to the Legislature to define words and, if the Legislature has defined it, we cannot go by the meaning in common par-lance or what may be called as its "natural meaning". We have to strictly abide by the meaning given to it by the Legislature, as in the present case. The new definition of Section 2(7) defines interest only to mean interest on loans and advances. No doubt two other categories have also been included, i.e., commitment charges on unutilised portion of any credit sanctioned for being availed of in India, and discount on promissory notes and bills of exchange drawn or made in India. We are not concerned with these two additional categories in the present case. Hence, in our opinion, "interest" in the new Section 2(7) only means Interest on loans and advances, and we cannot give it an extended meaning as contended by learned Counsel for the appellant.
29. In view of the above rules of interpretation of a taxing statute which will be strictly applied, the interest on inter-corporate deposits unless they clearly fall within the meaning of "interest on loans and advances" would not be taxable. We accordingly hold that intercorporate deposit can neither be a loan nor an advance. We, therefore, following the aforesaid decision of the Ahmedabad Bench of the Tribunal, direct the Assessing Officer to exclude the interest on intercorporate deposit from the assessment of the .assessee.
Consequently, the levy of penalty made would also not stand. They are, accordingly, deleted.