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2003 Supreme(All) 2048
IN THE HIGH COURT OF ALLAHABAD
M. Katju and Umeshwar Pandey, JJ.
COMMISSIONER OF INCOME TAX SAHARA INDIA SAVINGS AND INVESTMENT CORP. LTD. - Appellant
Versus
SAHARA INDIA SAVINGS AND INVESTMENT CORPORATION LTD. ASSTT. CIT - Respondents
IT Appeal 72 Of 2003
Decided On : 09/22/2003
BHARATJI AGARWAL, PERCY PARDIWALA, S.D.SINGH
The main legal point established in the judgment is the application of the literal rule of interpretation in taxing statutes, emphasizing the specific definitions of 'interest' and 'financial company' under the Interest-tax Act.
Headnote:
IT Act - Taxability of Assessee-Company - Sections 4(2), 2(5a), 2(7), 2(5b), 260a - The court interpreted the provisions of the Interest-tax Act, 1974, specifically focusing on the definition of 'interest' and 'financial company' under Sections 2(7) and 2(5b) respectively. The court emphasized the literal rule of interpretation in taxing statutes and held that interest only means interest on loans and advances as per the new definition in Section 2(7). It also clarified the criteria for a company to be considered a financial company under Section 2(5b), emphasizing the requirement of carrying on exclusively or almost exclusively the specified classes of business.
Fact of the Case:
The appeals related to the taxability of the assessee-company under the Interest-tax Act, 1974. The respondent-company was registered under the Indian Companies Act and its objects included promoting savings and wise economy among the public. The appeals contested the taxability of the company under Section 4(2) of the Act, which imposed interest-tax on credit institutions for chargeable interest.
Finding of the Court:
The court analyzed the provisions of the Interest-tax Act, focusing on the definition of 'interest' and 'financial company'. It emphasized the literal rule of interpretation in taxing statutes and held that interest only means interest on loans and advances as per the new definition in Section 2(7). The court also clarified the criteria for a company to be considered a financial company under Section 2(5b), emphasizing the requirement of carrying on exclusively or almost exclusively the specified classes of business.
Issues: The key issues revolved around the interpretation of the definition of 'interest' and 'financial company' under the Interest-tax Act, and the taxability of the assessee-company under Section 4(2) of the Act.
Ratio Decidendi: The court's decision was based on the literal rule of interpretation in taxing statutes, emphasizing the exclusive or almost exclusive requirement for a company to be considered a financial company under Section 2(5b). It also highlighted the specific criteria for defining 'interest' under the Act.
Final Decision: The court dismissed the appeals, affirming the finding that the respondent-company was not a miscellaneous finance company as defined in the Act and was not liable to interest-tax prior to the insertion of Clause 2(5b)(va) with effect from 1st April, 1993.
( 1 ) THIS is an appeal under Section 260a of the IT Act challenging the order dt. 15th Oct. , 1999, of the Tribunal, Allahabad. This appeal and connected appeals ITA Nos. 72 of 2003, 36 of 2000, 38 of 2000, 40 of 2000, 154 of 2000 and 155 of 2000 are being disposed of by a common judgment.
( 2 ) HEARD Shri Bharatji Agarwal, learned senior standing counsel for the Department, and Shri percy Pardiwalla and Shri S. D. Singh for the respondents.
( 3 ) WE have carefully perused the record. The respondent-company is a company registered under the Indian Companies Act. In the order of the CIT (A) in ITA No. 154 of 2000, it is mentioned that as per the memorandum of association the objects for which the company was established are :
"1. To establish, promote, conduct, manage, maintain, improve, regulate, run, work and control the different types of schemes for encouraging the habit of savings and wise economy amongst the public on scientific, practical lines and also help men, women and children for their economical, social and educational welfare through its schemes. The company shall carry on business as per the guide lines of RBI directives but shall not carry on business of chain letters, prize chit schemes, money circulating schemes, chit funds auction, nor the banking business as defined under the Banking Regulation Act, 1949, or any other scheme banned by any law. 2. To buy, sell, invest or otherwise deal in securities, bonds or fixed deposits issued by any institution, body corporate, corporation, established or constituted under any central or state enactments or in other securities in which the company may be required to invest under any law in force. "
( 4 ) THIS appeal is being pressed on three grounds which are stated in the memorandum of appeal. The facts of the case are narrated in detail in the orders of the IT authorities and the Tribunal, and we shall refer to them when we deal with the submissions of learned counsel for the parties.
( 5 ) THESE appeals relate to the taxability of the assessee-company under the Interest-tax Act, 1974 (hereinafter referred to as the Act ). Originally, as mentioned in the Statement of Objects and reasons to the Act, the object of the AO was to impose a special tax on the total amount of interest received by scheduled banks on loans and advances made in India. However, major amendments were made to the Act by Finance No. 2 Act, of 1991 w. e. f. 1st Oct. , 1991.
( 6 ) ORIGINALLY Section 4, which is the charging section, imposed a tax only on scheduled banks. However, by Finance Act, 2 of 1991, Section 4 was renumbered as Sub-section (1), and sub-section (2) was inserted which states :
"notwithstanding anything contained in Sub-section (1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April, 1992, interest-tax in respect of its chargeable interest of the previous year at the rate of three per cent of such chargeable interest. "
Thus, Section 4 (2) now imposes interest-tax on credit institutions in respect of the chargeable interest. Hence, to impose interest-tax under Section 4 (2) two requirements must be fulfilled : (1)it can be imposed only on credit institutions, (2) it can be imposed only on the chargeable interest. Credit institution has been defined in Section 2 (5a) of the Act to mean : (i) a banking company to which the Banking Regulation Act, 1949, applies; (ii) a public financial institution as defined in Section 4a of the Companies Act, 1956; (iii) a State financial corporation established under Section 3 or Section 3a or an institution notified under Section 46 of the State Financial Corporation Act, 1951, and (iv) any other financial company. The word interest in Section 2 (7) of the Act, prior to its amendment w. e. f. 1st Oct. , 1991, was defined as follows :"interest means interest in loans and advances made in India and includes : (a) commitment
