ORDER
K.K. Gupta, A.M.
These two appeals are taken together in respect of assessment years 1993-94 and 1994-95 relating to the same issue arising out of the common order dated 26-7-2000, by the Commissioner (Appeals) wherein the assessee is in appeal raising the issue that in the facts and circumstances of the case, the learned Commissioner (Appeals) erred in considering the business of providing finance as its principal business in terms of section 2(5B)(iv) of the Interest Tax Act, 1974, as assessed by the assessing officer under section 8(3) of the Interest Tax Act.
2. The learned counsel for the assessee submitted that the learned assessing officer in his order considered the financial statement of the assessee and in view of section 2(5B)(iv) considers the assessees income as business of providing finance whether by making loans and advances or otherwise. He, therefore, proceeded to consider his own application of mind in applying earning of interest as that of credit instituted as per section 2(5A) of the Interest Tax Act. He, therefore, completed the assessment ex parte under section 8(3)of the Interest Tax Act which the learned Commissioner (Appeals) on examination of assessment record inclined to agree with the finding of the assessing officer. He submitted a paper book wherein copies of balance-sheet and profit & loss account were appended and the details of loans and advances given were annexed. He also submitted a list of directors and their connection with the borrowers to whom the loans and advances had been given. He also submitted the connection of directors with the-borrowing companies and also partners of the borrower who had connection as directors of the assessee-company. He pointed out the mistakes as envisaged by learned assessing officer in considering the loans given to the closely-held company from the account of security offered by the sister-concern of the assessee-company. He also furnished the list of advances which, inter alia, did not comtemplate earning of interest as visualised by the assessing officer. The security deposit also did not earn any interest which was made with the suppliers of the goods of the assessee-company inasmuch as the profit & loss account forming part of the financial statement indicated that the main business of the assessee was trading in paper for assessment year 1993-94 as well as 1994-95. He pointed out that earning of interest was incidental to the main business of the assessee-company and the funds available which were lent to the borrowers and were made out of free funds available can be easily perused from the balance-sheet. He submitted that the working capital ratio which can be worked out on the basis of balance-sheet available could easily lead to the fact that it was healthy practice of the assessee-company to make available funds to earn interest in the normal course of business having transacted trading business by dealing in paper which fact has not been dealt with by the lower authorities at all. The amounts of interest received were from the closely-held companies to whom the amounts had been advanced and, therefore, there was never a case where the assessee-company was making available as a principal business, the business of providing finance. He, therefore, submitted that there was no basis before the authorities below to assume that the assessee-company is an investment company which is mainly trading company duly registered with the West Bengal Sales Tax Act to deal in paper goods.
3. The learned Departmental Representative submitted that the learned assessing officer in his order had categorically found from the balance-sheet that the total funds available with the assessee-company amounted to only Rs. 32,75,856 against which the investment in loan and advances was Rs. 24,58,578. Therefore, the claim of running a trading business has failed to fulfil the condition as principal business with reference to section 2(5B)(iv) of the Act which, inter alia, includes a business of providing finance, whether by making loans or advances or otherwise for the purpose of Interest Tax Act. Therefore, the learned Commissioner (Appeals) rightly upheld the decision of the assessing officer inasmuch as the learned Commissioner (Appeals) did not interfere with the figures of chargeable interest assessed by the assessing officer in the sum of Rs. 2,15,370 the amount of interest chargeable under section 8(3) of the Interest Tax Act.
4. We have considered the rival submissions. We have also perused the orders of the lower authorities. We have carefully considered the facts and financial statements as brought out by learned counsel for the assessee before us as part of his submissions. We do not find merit in the observation of taxing authorities to bring to tax the interest amount of Rs. 2,15,370 under section 8(3) of the Interest Tax Act. The principal business of the assessee is trading in paper and the loans and advances have been advanced to companies or firms in which the directions are interested under section 301 of the Companies Act. The interest received from the sister-concerns is for having advanced to the borrower with whom the principal remains secured on account of faniliarities. The learned assessing officer proceeded to base his observation read with section 2(58)(iv) of the Interest Tax Act by considering the capital against loans and advances, In our view, this method is erroneous inasmuch as the funds diverted were available after having conducted the principal business of trading in paper by the assessee-company. The assessee holds West Bengal Sales Tax Registration which clearly indicates that they are not advancing loans as principal business which has been misconstrued by the assessing officer as real, substantial, systematic and organised course of activity and are conducted for the said purpose of earning profit or income. We find force in the submissions of the learned counsel here wherein the total advance had been made to sister-concerns in which the directors are interested and hence there is no ground that the services or financing had been provided by the assessee as its main principal business. In view thereof, we are not inclined with the findings of the lower authorities and have no hesitation in allowing the appeals filed by the assessee.
5. In the result, the assessees appeals for assessment years 1993-94 and 1994-95 are allowed.