THE COMMR. OF INCOME TAX-I CHD. vs. M/S PB. STATE INDL. DEV. CORP. CHD.

I.T.A.

-1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A.

Date of decision: 13.2.2007 The Commissioner of Income-Tax-I, Chandigarh ...appellant Versus M/S Punjab State Industrial Development Corporation, Sector 17, Chandigarh ...Respondent CORAM: HON'BLE MR.JUSTICE M.M.KUMAR HON'BLE MR.JUSTICE RAJESH BINDAL Present: Mr.Sanjiv Bansal, Advocate for the revenue. **** RAJESH BINDAL, J. The Revenue has approached this Court by filing the present appeal under Section 260-A of Income Tax Act, 1961 (for short 'the Act') against order dated 31.1.2006 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A', Chandigarh (for short 'the Tribunal') in ITA No. 6/Chandi/2002 in respect of the assessment year 1995-96 raising the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in law in allowing deduction of Rs. 3,50,36,152/- on account of interest on delayed payment of shares received by the assessee from various collaborators in view of the fact that in Section 2 of the Interest Tax Act, for the purpose of chargeability, interest is defined as “interest on loan and advances made in India”

I.T.A.

-2- *** and also in view of the fact that the scope of Section 5 of Interest Tax Act is very wide and only specific items excluded are interest on loans and advances given to other institutions and interest on loans given to any other co- operative society, engaged in the carrying of the business of banking?” Briefly the facts are that the assessee, which is carrying on business of finance, filed its return of income for the year in question under the provisions of the Interest Tax Act, 1974 ( for short ‘the Act’) declaring total interest income of Rs. 23,98,52,690/- chargeable to tax. The case was taken up for scrutiny. Thereafter the assessee filed revised return declaring total interest income chargeable to tax under the Act at Rs. 12,88,46,250/-. While framing the assessment, the Assessing Officer vide order dated March 27, 1998, inter-alia, made addition of Rs. 3,50,36,152/-, in the interest chargeable to tax under the Act, on account of receipts of amount as interest/compensation/return in terms of agreements with the collaborators for not making payment for purchase of shares in time. In appeal before the Commissioner of Income-Tax (Appeals) ( for short ‘the CIT (A)' ) the addition of Rs. 3,50,36,152/- was deleted treating the same being not part of the interest chargeable to tax under the Act. In further appeal by the Revenue before the Tribunal, the order passed by CIT (A) was upheld. The Tribunal while rejecting the appeal of the revenue observed as under:- “The first ground raised by the revenue pertains to deleting the addition of Rs. 3,50,36,152/- which was made by the Assessing Officer on account of interest received on delayed payments of shares. The learned Assessing Officer has discussed this issue in para 5.3 and 5.4 of the assessment order. During the year under consideration, interest of Rs. 3,50,36,152/- on delayed payment of shares was received by the assessee with various collaborators, whose projects were promoted by the assessee. The assessee promoted them and the payment on purchase of I.T.A.

-3- *** shares were subject to payments of interest at the prescribed rate. The Assessing Officer hold that the interest received on delayed payment of shares was includable in the value of chargeable interest, consequent addition of Rs. 3,50,36,152/- which was reversed by the learned CIT(Appeals). Sector 2(7) of the Interest Tax Act is very specific and sub-clause 7 speaks about the interest on loans and advances made in India which includes commitment charges on un-utilized poriton of any credit sanctioned and discount of promissory notes and bills of exchange availed or drawn or made in India. The interest received by the assessee on amounts recoverable on disinvestment of shares is not synonymous with interest on loans and advances and thus, is not liable to tax as was held by the Hon'ble Kerala High Court in the case of CIT Vs. State Bank of Travancore which has duly considered the decisions relied upon by the revenue. In view of these facts, the learned CIT (Appeals) has rightly deleted the impugned addition. The same is upheld.” To appreciate the contention raised by learned counsel for the Revenue, it would be appropriate to refer to relevant provisions of Section 2(7) of the Act, which defines the term interest. The same is as under:- “2 (7) “interest” means interest on loans and advances made in India and includes- (a) commitment charges on unutilised 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; (ii) discount on treasury bills.”

From a perusal of the above definition of term 'interest' it is crystal clear that what is chargeable to tax as interest under the Act is I.T.A.

-4- *** interest on loans and advances. This definition being in aid to charging section deserves a strict interpretation. The amount which is sought to be added in the interest income of the assessee in the present case is not on account of interest income on any loan or advances disbursed by the assessee to the loanees rather the said amount was invested by the assessee as equity participation in various industrial concerns. It is only on account of delayed payment, if any, on account of purchase of those shares by the promoters that interest on the outstanding amount was charged. The amount so charged cannot, in any way, be termed as interest on the loans or advances. The amount invested in equity participation in an industrial concerns cannot be characterized as loan or advance in terms of Section 2 (7) of the Act. The contention of the counsel for the Revenue that transaction in question, if not strictly a loan, can be termed as a quasi-loan, as interest is chargeable on account of delayed payment of amount, has to be recorded and rejected. While rejecting the appeal of the Revenue, the Tribunal has rightly relied upon the judgment of Kerala High Court in Commissioner of Income-Tax Vs.State Bank of Travancore, (1997) 228 ITR 40 wherein also issue involved was similar to the issue involved in the present appeal and answered in favour of the assessee. In view of our above discussions, we do not find any substantial question of law arises in the present appeal. Accordingly, the same is dismissed. (Rajesh Bindal) Judge February 13 ,2007 (M.M.Kumar) Pka Judge