Back
2015 Supreme(Guj) 275
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
M.R. Shah and S.H. Vora, JJ.
Commissioner of Income Tax - Appellants
Vs.
Axis Bank Ltd. - Respondent
Tax Appeal No. 1028 of 2005
Decided On: 01.04.2015
For Appellant/Petitioner/Plaintiff:Varun K. Patel, Advocate
For Respondents/Defendant:R.K. Patel, Advocate
The main legal point established in the judgment is that the true nature of a transaction may be determined from the terms of the agreement considered in light of the surrounding circumstances, and the court has the power to go behind the documents to determine the nature of the transaction.
Headnote:
Interest Tax Act - Finance Agreement - Section 2(7)
Fact of the Case:
The case involved UTI Bank Ltd. disputing the chargeability of interest tax on the interest component of lease rental income under the Interest Tax Act. The bank argued that the lease transactions were purely lease transactions and not in the nature of finance transactions.
Finding of the Court:
The court found that the transaction between the bank and the lessee was in substance a financial lease/transaction, and therefore, the bank was liable to pay interest tax on the interest component as defined under Section 2(7) of the Act.
Issues: The main issue was whether the transaction was a Finance Agreement or a Lease/Operating Agreement, and whether the bank was liable to pay interest tax on the interest component.
Ratio Decidendi: The court considered the agreement as a whole, relevant clauses, and the intention of the parties. It relied on the decision in Asea Brown Boveri Ltd. v. Industrial Finance Corporation of India to determine the nature of the transaction.
Final Decision: The court set aside the Tribunal's judgment, upheld the Assessing Officer's order levying interest on the interest component, and answered the substantial question of law in favor of the Revenue and against the assessee.
M.R. Shah, J.
1.0 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 16.09.2014 passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench 'C' (hereinafter referred to as "Tribunal") in ITA No. 5/AHD/2001 for Assessment Year 1996-97 by which the learned Tribunal has allowed the Appeal preferred by the respondent assessee - UTI Bank Ltd. and has held that the lease rental on the lease of certain assets' interest under the Interest Tax Act (hereinafter referred to as "Act") is not chargeable to the Revenue has preferred the present Tax Appeal raising the following substantial question of law.
"Whether the ITAT is right in law and on facts in deleting the addition made to the chargeable interest, under Section 2(7) of the Interest Tax Act by the Assessing Officer?"
2.0 Facts leading to the present Tax Appeal in nut-shell are as under:
2.1 That the assessee UTI Bank Ltd. was a Banking Company to which the Banking Regulation Act, 1949 applies and was admittedly a Banking Company. That the assessee was having banking business and during the course of the banking business, it used to finance the loan/advances and was entering into the higher purchase transactions.
2.2 That the assessee Bank filed its return of chargeable interest on 31.12.1996 disclosing the chargeable interest of Rs. 668,698,930/-. That the assessee computed the interest tax at 3% on the same and paid the tax along with the interest on the same. That the notice under Section 2(7) of the Act was issued on 24.11.1997 and served on the assessee on 26.11.1997 to appear on 01.12.1997. The said notice was followed by another notice dated 24.08.1998. The Chartered Accountant of the assessee appeared before the Assessing Officer and filed the relevant details. That the assessee was asked to furnish the details of interest portion on the higher purchase transaction and whether such interest was offered to tax. That the assessee by letter dated 06.10.1998 communicated the details of finance interest component included in the lease rental income in accordance with the CBDT Circular No. 760 :, without prejudice, which are as under:
Name of the lessees
Amount of interest component
Western Paques (India) Ltd.
78,74,993
Prakash Industries Ltd.
24,72,172
Total Interest Component
1,03,47,165
That the assessee denied the chargeability of interest tax on the aforesaid interest component of Rs. 1,03,47,165/- contending inter alia that the interpretation of Section 2(7) of the Act made by the CBDT in Circular No. 738 : and Circular No. 760 : to include deemed interest component in higher purchase/lease rental in the definition of 'chargeable interest' is contrary to the provisions of the Act. It was submitted that the CBDT had substantially expanded the scope of interest as defined in Section 2(7) of the Act beyond its delegated authority. In the alternative it was submitted that the assessee bank is not covered by the definition of Hire Purchase Finance Company as given in Section 2(5B)(i) of the Act and therefore, the provisions of the Act would not be applicable to the assessee Bank. It was submitted that the assessee Bank is a Banking Company to which the Banking Regulation Act, 1949 is applicable and is, therefore, a credit institution covered under Section 2(5A)(i) of the Act and therefore, the extended definition contained in Section 2(5B) of the Act cannot be applied in the case of the assessee bank as the assessee bank is not covered by residuary clause mentioned in Section 2(5A)(iv) of the Act. It was further submitted that section 2(5B) of the Act was an extension of Section 2(5A)(iv) only. That the Assessing Officer did not accept the contentions of the assessee for the reasons elaborated in paras 3.1 to 3.4 of the assessment order and finalized the assessment under Section 8(3) of the Act on 26.03.1999 on ch
