Per K.K. Boliya, Accountant Member. - 1. & 2. [These paras are not reproduced here as they involve minor issues].

3. The ground No. 2 is as under :

"On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the DCIT in charging interest tax on interest of Rs. 5,96,921."

4. It appears that there is some discrepancy in the quantum of interest which is claimed to be at Rs. 5,96,921, whereas in the order of the CIT(A), the quantum is mentioned to be Rs. 4,47,343. The ld. counsel appearing for the assessee explained that the assessee received interest on inter-corporate deposits amounting to Rs. 14,47,290, the break-up of which is as under:

(a)Interest received up to 30-9-91Rs. 8,50,369

(b)Interest received from 1-10-91Rs. 4,47,353

The relevant facts are that in the assessment order passed by the Assessing Officer under section 8(2) of the Interest Tax Act, the aforesaid interest of Rs. 14,47,290 was included in the computation of chargeable interest. The assessee had claimed that the aforesaid interest was earned on inter-corporate deposits and therefore it was beyond the purview of charge of interest tax. The Assessing Officer did not indicate any reasons for rejecting the claim. The learned CIT(A) has dealt with this issue at paras 3 and 3.1 of his order, which may be reproduced below :

"Ground No. 2 is against charging Interest-tax Act on interest of Rs. 14,47,290 being inter-corporate deposits. The appellant has pressed the same arguments as advanced in the case of interest on debentures and bonds. For the reasons given above, it is held that the interest on inter-corporate deposits represent interest on loans and advances and accordingly the provisions of section 2(7) of the Interest Tax Act, 1974 applied to such interest. The appellant has also raised an alternative plea that interest received up to 30-9-91 amounting to Rs. 8,50,369 ought to have been excluded from the chargeable interest in view of the fact that the amendment to the Act was effective from 1-10-91.

I am inclined to agree with the counsel for the appellant that in so far as the interest received up to 30-9-91 is concerned, the same is to be excluded from the charging of interest tax. The Assessing Officer is directed to verify and modify the same accordingly."

From the above, it is seen that the ld. CIT(A) held that interest on inter-corporate deposits is in the same nature as interest on loans and advances. However, the alternative claim of the assessee was accepted that interest received up to 30-9-91 should be excluded. He directed the Assessing Officer to verify and modify the assessment accordingly.

5. In the background of the above-mentioned facts, the ld. counsel appearing on behalf of the assessee submitted that the definition of ‘Interest’ has been provided under section 2(7) of the Interest Tax Act, which is reproduced below :

"‘Interest’ means interest on loans and advances made in India and includes—

(a)commitment charges on unutilized portion of any credit sanctioned for being availed of in India; and

(b)discount on promissory notes and bills of exchange drawn or made in India,

but does not include—

(i)interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);

(ii)discount on treasury bills."

The ld. counsel argued that for the purposes of Interest Tax Act, the interest on loans and advances is includible in the chargeable interest. It is pointed out that inter-corporate deposits are not covered in the definition and therefore interest tax cannot be levied on interest received on such deposits. It is submitted that a deposit cannot be equated with loan and both have distinct features and characteristics. It is argued that charging section has to be strictly construed and only interest on loans and advances can be included in chargeable interest. The ld. counsel has placed strong reli