1. These five appeals - three by the assessees and two by the department - arise out of the different orders of the CIT(A), Central-V, Mumbai and pertain to assessment years 1992-93, 1993-94 and 1994-95. For the sake of convenience, they were heard together and are being disposed of by this consolidated order.
2. All these appeals arise out of the assessments framed under the Interest Tax Act, 1974. One of the issues in these appeals relates to the assessee's contention that it is not a financial institution to be roped in for the liability under the Interest Tax Act. The learned Counsel for the assessee reiterated the stand that was taken before the learned CIT(A). Drawing our attention to pages 4 & 5 of the order of the CIT(A) in the case of Walchand Hindustan Ltd. (Int. T.A No.65/Mum/96) for AY. 1992-93, it was pointed out that nearly 93% of the income is by way of dividend, which was received from investment made in the group companies They were all pan of capital assets and not held as part of business assets. He also drew our attention to the discussions at page 5 of the impugned order that nearly 95% of the deployment of funds is in the group concerns by way of investment and not as stock in trade. The learned Counsel contended that the assessees are not a credit institution or a financial company whose principal business is acquisition of shares, stock, bonds etc. to be held as stock-in-trade of business He drew our attention to the assessment order framed by the Assessing Officer for assessment year 1994-95 under the Income-tax Act, 1961 wherein the department itself has assessed the entire profit on sale of investments as capital gains, which makes it very clear that the investments in the group companies were not at all treated as stock-in-trade. The learned Departmental Representative, on the other hand, strongly supported the findings of the CIT(A) in this regard According to her. Section 2(5B) of the Interest-tax Act does not make a distinction of shares held as investment or as stock-in-trade.
The learned CIT(A), according to her, has correctly dealt with the issue and she relied upon the discussions at page 4, 5 and 6 of the impugned order.
3. We have carefully considered the rival contentions and gone through the record The Interest-tax Act, 1974, in its original form, provided for the levy of tax on chargeable interest accruing or arising to scheduled bank during the previous year The rate of tax-was initially at 7%. The Act was suspended in relation to interest income accruing or arising to Scheduled bank after 28^th day of February 1978.
Subsequently. Finance Act, 1980 which amended the Interest-tax Act, 1974, extended the scope of Interest-tax Act to some selected financial institutions also. In the Finance Act, 1983, the rate of tax was reduced to three and half per cent. The Finance Act, 1985, suspended the operation of the Act from the AY. 1986-87. As an anti inflationary measure, the Finance (No. 2) Act, 1991. reintroduced the Act w.e.f 1^st October, 1991.
4. The tax is levied on the gross interest income of "credit institutions", i.e. bank, including co-operative societies engaged in the business of banking, public financial institutions, state financial corporations and other financial companies The term "financial company" is defined in Section 2(5B) of the Act to mean a hire purchase finance company, an investment company, a housing finance company, a loan company, or mutual benefit financial company, a company which carries on the business consisting of one or more of the activities referred to above. The charge Under Sections 4 & 5 of the Interest-tax Act, 1974 is on a credit institution. A "credit institution" is defined in Section 2(5A) as under: (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949). applies (including any bank or banking institution referred to in Section 51 of the Act) (ii) a public financial institution as defined in Section 4A of the Companies Act, 1956(1 of 1956; (iii)a State Financial Corporation established Under Section 3 or Section 3A or an institution notified Under Section 46 of the State Financial Corporations Act, 1956 (63 of 1951); and.
The above definition includes within the fold of "credit institution" any other financial company. A "financial company" is again defined in Section 2(5B) in the following manner; (5B) "financial company" means a company, other than a company referred to in Sub-clause (i), (ii) or (iii) of Clause (5A), being: (i) a hire-purchase finance company, that is to say, a company which carries o. as its principal business, hire purchase 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 company, that is to say, a company [not being a company-referred to in Sub-clauses (i) to (iii)] which carries on, as it principal business, the business of providing finance, whether by making loans or advances or otherwise; v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government Under Section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; va) a residuary non-banking company [other than a financial company referred to in Sub-clause (i), (ii). (iii), (iv) or (v)] that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner, or vi) 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 sub-clauses A close reading of the above provisions clearly shows that the levy under the Interest-tax Act is mainly on a credit institution, which is basically a financial company or a public financial institution. The Act, as already stated, has included some other companies within the fold of "Financial company" as mentioned in Section 2(5B) there of A hire purchase finance company is again a company whose principal business is hire purchase transaction and an investment company, whose principal business is acquisition of shares, stocks, etc, also becomes a financial company A housing finance company which carries on its principal business of financing of acquisition and construction of house or land is also included within the scope of financial company. A loan company, whose principal business is providing finance is also treated as a financial company. Likewise, Nidhi or mutual benefit society is also treated as financial company. A residuary non banking company doing activities of the nature described above is also to be included within the fold of financial company The basic thread running in all these institutions is their principal business must be dealing with what is known as finance. In the case of an investment company, the acquisition of shares is one spicy of the transaction It can be called a principal business only when it deals in business of acquisition of shares, stocks, bonds and such other marketable securities issued by government or local authority Here the assessee companies are purely holding the shares of group companies as a part of their investment and not as a part of their business of trading in them. Having regard to the scope and intent of the Interest tax Act, 1974. in our view, it was not been the intention to rope in such investment company, whose principal business is just to invest in its group concerns. Although in so many words a distinction is not explicitly spelt out in sub-section 5B(ii) of Section 2 but having regard to the scope of these provisions it can be impliedly roped in only when such principal business involves financing the same. In our view, such is not the case in the facts and circumstances of the assessees before us. In fact, the department itself never treated the investment as part of their principal business. It is only a part of their investment or capital asset, the profit on sale of such investment has been correctly brought to tax as capital gain in the assessments under the Income- tax Act, 1961. We, therefore, are of the opinion that the assessees are not financial companies within the meaning of Section 2(5B)(ii) of the Interest tax Act, 1974.
Accordingly, they are not liable for any levy under the Interest tax Act.
5. Having decided the main issue in favour of the assessee, we are not going into the other issues which are the alternative contentions of the assessee 6. In view of our discussions above the departmental appeal for A. Ys.
1992-93 and 1994-95 have become infructuous. They are accordingly dismissed 7. In the result, the asessees' appeals are allowed while the revenue's appeals are dismissed