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2022 Supreme(Mad) 158
IN THE HIGH COURT OF JUDICATURE AT MADRAS
R. MAHADEVAN, MOHAMMED SHAFFIQ, JJ.
M/s. Dadha Pharma (P) Ltd., Rep. by its Managing Director, Mohan Chand Dadha - Appellant
Versus
The Income Tax Officer, Company Circle 1(4), Chennai & Another - Respondent
T.C.A. Nos. 1377 to 1380 of 2009
Decided On : 27-01-2022
For the Appellant :A. Ramesh Kumar, Advocate.
For the Respondents: T. Ravikumar
Headnote:
Income Tax Act, 1961 - Section 260A - Interest Tax Act, 1974 - Section 2 (5B), 10, 2(7), 2(5A)(iv), 2(5B) (va) - Companies Act, 1956 - Chargeable interest -R non-banking financial company - Appellant was incorporated under Companies Act, 1956 and engaged in business of distribution of pharma products, besides finance, investments, etc. - They transferred the pharma distribution business to a new company while retaining business of finance and investments - During assessment years 1997-98, 1998-99, 1999-2000 and 2000-2001, appellant had made loans and advances and credited interest in profit and loss account - But, they had not filed returns under Interest Tax Act, 1974 - Whether on facts and circumstances of case, Appellate Tribunal was right in concluding that reopening of assessment beyond period of four years is valid in law as per section 10 of Interest Tax Act, 1974 - Whether on facts and circumstances of case, Appellate Tribunal was right in law in concluding that interest income as chargeable interest under section 2(7) read with section 2(5B) V-A of Interest Tax Act, 1974 without considering Memorandum of Appellant Company, which does not contain finance business - Whether on facts and circumstances of case, Appellate Tribunal was right in law in concluding that advances given were not in nature of finance to attract provisions of clause (ii) or (va) to section 2 (5B) of Interest Tax Act – Held, It appears from aforesaid findings of the Authorities below that assessing authority has proceeded with case of the appellant on the premise that appellant would fall within meaning of “residuary non-banking financial company” - Whereas, first appellate authority confirmed the order of assessing authority, treating the appellant as “any other financial company” - Order of first appellate authority was affirmed by Tribunal, by merely extracting findings of first appellate authority - Such course adopted by Appellate Authorities does not appear to be correct, in opinion of this court - Court find that expression “financial company” as defined under section 2(5B) of Interest Tax Act, 1974, means “a company” carrying on activities as enumerated in sub-clauses (iv) to (v) thereon - Both appellate authorities have not set out the sub-clause to definition of “financial company” which covers appellant company - Aspect relating to identifying “taxable person” is an essential criterion for charge to get attracted. However, appellate authorities failed to mention sub-clause to Section 2(5B) of Interest Tax Act, 1974, under which appellant would fall - On this score alone, we are inclined to set aside order of Tribunal and remand matter to Tribunal for fresh consideration - we set aside order impugned herein and remand matter to Tribunal for fresh consideration. Tribunal shall examine facts as regards the activity of appellant, and set out under which sub clause to definition of “financial company” under section 2(5B), appellant company would fall, so as to attract charge under Interest Tax Act, 1974 and thereafter, pass appropriate orders – Appeal disposed of.
JUDGMENT :
Mohammed Shaffiq, J.
Prayer: T.C.A.No.1377 of 2009: Appeal under Section 260A of the Income Tax Act, 1961 against the order dated 03.04.2009 made in Int.T.A.No.0013/Mad/2008 on the file of the Income Tax Appellate Tribunal, “A” Bench for the assessment year 1997-98.
T.C.A.No.1378 of 2009: Appeal under Section 260A of the Income Tax Act, 1961 against the order dated 03.04.2009 made in Int.T.A.No.0014/Mad/2008 on the file of the Income Tax Appellate Tribunal, “A” Bench for the assessment year 1998-99.
T.C.A.No.1379 of 2009: Appeal under Section 260A of the Income Tax Act, 1961 against the order dated 03.04.2009 made in Int.T.A.No.0015/Mad/2008 on the file of the Income Tax Appellate Tribunal, “A” Bench for the assessment year 1999-2000.
T.C.A.No.1380 of 2009: Appeal under Section 260A of the Income Tax Act, 1961 against the order dated 03.04.2009 made in Int.T.A.No.0016/Mad/2008 on the file of the Income Tax Appellate Tribunal, “A” Bench for the assessment year 2000-01.
1. We have heard the learned counsel for the appellant and the learned standing counsel appearing for the respondents and also perused the materials available on record.
2. These appeals are filed by the appellant/assessee questioning the legality and validity of the order dated 03.04.2009 passed by the Income Tax Appellate Tribunal under the Interest Tax Act, 1974.
3. The appellant was incorporated under the Companies Act, 1956 and engaged in the business of distribution of pharma products, besides finance, investments, etc. On 01.08.1996 they transferred the pharma distribution business to a new company called M/s Dadha Pharma Marketing Pvt. Ltd., while retaining the business of finance and investments. During the assessment years 1997-98, 1998-99, 1999-2000 and 2000-2001, the appellant had made loans and advances and credited interest in the profit and loss account. But, they had not filed returns under the Interest Tax Act, 1974.
4. According to the Assessing Officer, since the appellant carried on the business of finance and investment as a finance company as defined in section 2 (5B) of the Interest Tax Act and the interest earned by it was within the purview of section 2(7) of the Act, notices under Section 148 read with section 10 of the Interest Tax Act, 1974 came to be issued on the premise that chargeable interest had escaped assessment. In response to the same, the appellant filed its return disclosing ‘nil’ chargeable interest, stating that its principal business is not lending and financing and thus they do not come within the purview of the Interest Tax Act, 1974. Being dissatisfied with the same, the assessing authority rejected the plea of the appellant and passed the assessment orders for the assessment years in question, the details of which are tabulated below:
| S.No | Assessment Year | Chargeable interest | Interest payable |
| 1 | 1997-1998 | 85,521/- | 6,210/- |
| 2 | 1998-1999 | 72,790/- | 3,164/- |
| 3 | 1999-2000 | 20,81,238/- | 1,34,006/- |
| 4 | 2000-2001 | 38,62,126/- | 2,48,680/- |
5. Aggrieved by the orders of the assessing authority, the appellant carried the matter by way of appeals and further appeals before the Appellate Authorities viz., Commissioner of Income Tax (Appeals)-VIII, Chennai and the Income Tax Appellate Tribunal respectively. The appellant reiterated its stand as raised before the assessing authority that its principal business is not lending and financing and thus, the appellant company does not come within the purview of the Interest Tax Act, 1974, before the Appellate Authorities. However, it was held by both the Appellate Authorities that the income earned on account of the interest was liable to tax under the Interest Tax Act, 1974. Taking note of the object of the company as set out in the Memorandum of Association coupled with the fact that interest was offered as business income in the return of incom
