JUDGMENT - KAPADIA S.H., J.:---The short question of law which arises for determination is : Whether interest on debentures, bonds and securities is taxable under section 5 of Interest Tax Act, 1974.

FACTS :

2. The petitioner is a company incorporated under the Companies Act, 1956. It was promoted by RBI, ICICI, UTI, SBI, IDBI etc. It is an investment company as defined under section 2(5-B)(ii) of the Interest Tax Act, 1974, as it then stood. The petitioner is a dealer in money market instruments such as call/notice/term money, treasury bills, commercial paper, certificate of deposit and Government Dated Securities. The Government Dated Securities Market has two segments viz. Primary market and secondary market. The primary market consists of issuers and subscribers. The issuers are Central and State Government. The secondary market includes Banks, Financial Institutions, Insurance Companies, Provident Funds, Trusts, individuals, Primary dealers etc. The petitioner is a primary dealer in dated Government Securities. The petitioner subscribes to, buys stocks and trades in dated Government Securities regularly. At the end of the year the petitioner shows the Dated Government securities in its accounts under the Head "Current Assets" as stock-in-hand. The profits on sale of Dated Government Securities as well as the interest earned on Dated Government Securities are shown as business income and are assessed under the Income-Tax Act, 1961.

On 1st August, 1974, the Interest Tax Act came into force for the first time. It remained in force upto 28th February, 1978. It was revived from 1st July, 1980. It continued upto 31st March, 1985. Thereafter, from 1st April, 1985 upto 1st October, 1991, it was withdrawn. However, with effect from 1st October, 1991, the Act 1974 was once again revived and it continued upto 31st March, 2000.

As stated above, the petitioner is an Investment Company. As an Investment Company, it came within the ambit of the expression "Financial Company" as defined under section 2(5-B)(ii) and as a Financial Company it came with the ambit of Credit Institution as defined under section 2(5-A)(iv). As a Credit Institution, the petitioner filed its return of Chargeable Interest for the year ending 31st March, 1994 relevant to the assessment year 1994-95. The return was filed on 5th December, 1994 returning a total chargeable interest at Rs. 24.83 lakhs (approximately). The said interest included interest on Rs. 15.69 lakhs received from RBI during the financial year 1993-94 on dated Government securities directly subscribed by the petitioner at the time of its initial issue by the Government. The assessment was completed under section 8(2) of the Act vide order dated 7th March, 1997 accepting the Return of Chargeable Interest, after scrutiny. However, the petitioner came across a Circular issued by RBI under which it was clarified that interest earned on Government Securities does not amount to Interest within the meaning of section 2(7) of the Interest Tax Act. In view of the said Circular (Exhibit I to the petition), the petitioner filed a revision petition on 22nd July, 1997 under section 20 of the Interest Tax Act, 1974 contending that the dated Government Securities held by the petitioner did not represent monies lent to the Government and, therefore, interest earned on such dated Government Securities was not in the nature of Interest on Loans and thus such interest was not chargeable to tax under section 4 of the Interest Tax Act 1974. By order dated 28th February, 2002, the revisional authority rejected the revision on the ground that the new claim cannot be considered for the first time under section 20. It was also rejected on merits. The revisional authority took the view that the word "interest" is defined under section 2(7) to mean interest on loans and advances. That the expression "loans and advances" included interest on dated Government Securities. Accordingly, the revision petition filed by the assessee

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