Commissioner of Income-tax Vs. Sahara India Finance Corporation Ltd. - Court Judgment

1. Heard the learned Counsel for the appellant, Sri Pradeep Agarwal and Sri P.J. Pardiwalla, learned Counsel for the respondent.

This appeal under Section 260A of the Income-tax Act, 1961 has been filed by the Revenue challenging the order passed by the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal, by means of which the order passed by the assessing authority which has assessed the amount of total chargeable interest at Rs. 68,10,23,228 was under Section 8(1) of the Interest-tax Act and directed for initiating penalty proceedings under Section 13 of the Interest-tax Act, has been set aside. This amount of total chargeable amount allegedly was much in excess of the total chargeable income furnished by the assessee-company in its return, namely, Rs. 2,28,11,919.

2. Against the assessment so made the assessee-company had gone in appeal and the appellate authority not agreeing with the assessing authority deleted the additions and confirmed the return furnished by the assessee-company. In this appeal a question has been raised as to whether interest on securities can be taken into consideration for the purpose of assessing chargeable interest.

3. Sri Pradeep Agarwal tracing the history of the Interest-tax Act and in particular the definition given under Section 2(7) of the Interest-tax Act prior to October 1, 1991, and by comparing the definition given thereafter says that a substantial question of law arises in the appeal, viz., since in the earlier definition the interest on security was specifically excluded from the definition of interest which provision has been deleted or dropped in the subsequent definition, therefore the amended definition will include interest on securities also. His argument further is that it should be presumed that the interest on securities would fall within the definition of interest under Section 2(7).

4. This argument does not detain us any longer in view of the fact that the similar controversy has been considered by the Allahabad High Court in the case of CIT v. Sahara India Savings and Investment Corporation Ltd. in Revision No. 39 of 2001 (IT Appeal No. 39 of 2000) reported in [2003] 264 ITR 646. A Division Bench of this Court did not agree with the same submission raised by learned Counsel for the Department, Sri Bharatji Agarwal, and held that the interest on securities cannot be taken to be interest within the meaning of Section 2(7) of the Act and therefore no substantial question of law is involved. The Tribunal has relied upon the judgment of the Allahabad High Court.

5. The same question arose before the Bombay High Court in the case of Discount and Finance House of India Ltd. v. S.K. Bhardwaj CIT : [2003]259ITR295(Bom) saying that Section 2(7) is to be read in the context of the scheme of the Act which means that tax on the amount received from the RBI cannot be levied under the Interest-tax Act. The court also observed that the deletion of the aforesaid clause which excluded Government securities could not also mean the interest on securities within the aforesaid definition. The judgments however, clarified that the interest matter related to the Government securities only and not with respect to a person. No such case has been pleaded in this appeal.

6. The next judgment relied upon by Shri P.J. Pardiwalla is the case of CIT v. United Western Bank Ltd. reported in : [2003]259ITR312(Bom) . The question involved in that case was as follows (page 313):

Whether, the Tribunal was justified in holding that loans and advances do not include interest on securities, bonds and debentures and, therefore, not liable to tax under the provisions of the Interest-tax Act when the interest on securities fall within the meaning of 'interest chargeable to tax as defined under Section 2(7) of the Interest-tax Act, 1974. Moreover, requirements of tax deduction at source from interest on securities as per Section 193 of the Income-tax Act makes it clear that interest on securities is chargeable to tax under the Interest-tax Act, 1974

7. The Bombay High Court in this case considered the question of interest on securities, bonds and debenture and after holding that loans and advances do not include interest on securities, bonds and debentures, answered the question in the affirmative, i.e., in favour of the assessee and against the Revenue. The next case relied upon by Sri Pardiwalla is of the Madras High Court in the case of CIT v. Lakshmi Vilas Bank Ltd. reported in : [1997]228ITR697(Mad) , which is also in the same context.

8. In view of the aforesaid legal position and in view of the definition of the 'interest' taken in the Act by the Allahabad High Court in the case of CIT v. Sahara India Savings and Investment Corporation Ltd. [2003] 264 ITR 646, viz., the same assessee, we do not find any reason to differ with the same.

9. Thus the appeal has no substantial question of law and it is accordingly dismissed.