V.

RC/10/2000

AI Insights

The case revolves around two legal questions referred to the High Court concerning the classification of securities under the Interest Tax Act, 1974. The questions were whether securities should be considered as loans and advances under Section 2(7) of the Act, and consequently, whether the interest on these securities could be treated as interest on loans and advances. The assessee contested the classification of securities as loans and advances, relying on judgments from the Bombay High Court and the Supreme Court which supported their position. The court, referencing these precedents, ruled in favor of the assessee.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 819390 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-01-2014
• Assessment Year: misc
• Other Referred Cases: Discount and Finance House of India Limited v. S.K. Bhardwaj, Commissioner of Income Tax, Commissioner of Income Tax v. Corporation Bank
• Laws Referred To: Interest Tax Act, 1974
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Interest Tax; Legal interpretation; Loans and Advances; Securities
• Section: 2(7)

Judgement Text

"HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.10 OF 2000 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) Two questions of law said to be arising from the orders in Income Tax Appeal No.1/Hyd/96 and Income Tax Appeal No.1684/H/96 for the assessment years 1992-93 and 1993-94 respectively, are referred to this Court for its opinion, at the instance of the assessee. 2. Questions are set out below: 1. “Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that securities are loans and advances within the meaning of the provisions of Section 2(7) of the Interest Tax Act, 1974?” 2. “Whether on the facts and in the circumstances of the case and having regard to the provisions of Section 2(7) of the Interest Tax Act, 1974, the Tribunal was correct in law in holding that interest on securities could be treated as interest on loans and advances?” 3. At the time of hearing, Sri S. Dwarakanath, learned counsel appearing on behalf of Sri N. Siva Swamy, counsel for the assessee would place reliance on the judgment of the Bombay High Court reported in Discount and Finance House of India Limited v. S.K. Bhardwaj, Commissioner of Income Tax[1] which has been approved by the Supreme Court in a judgment reported in Commissioner of Income Tax v. Corporation Bank[2], to contend that the securities of the nature involved in the present case are not loans and advances within the meaning of the provisions of Section 2(7) of the Interest-tax Act, 1974 (for short, “the Act”). Having heard both the learned counsel, we are of the opinion that both the questions are required to be answered in favour of the assessee and against the revenue. In this context, so far as question No.1 is concerned, it is useful to refer to the judgment of the Bombay High Court reported in Discount and Finance House of India Limited (1 supra) and wherein it was held: “Therefore, keeping in mind the object and the scheme of the Act we have to interpret section 2(7) of the Act, which defines “interest” to mean interest on loans and advances including commitment charges, discount on promissory notes but excluding discount on treasury bills. If one reads section 2(7) of the Act, it is clear that an instrument which passes on the burden of interest-tax to the borrower is excluded from the definition of the word “interest” in Section 2(7) like in the case of discount on treasury bills because, in such cases, the Government is the borrower. Further, loans and advances, as a concept, are different and distinct from investments in the commercial sense as also in the accounting sense as ……………………..” 4. In the light of the same, question No.1 is required to be answered in favour of the assessee and against the revenue. 5. Insofar as the question No.2 is concerned, the learned counsel for the assessee would submit that the same is squarely covered by the Judgment dated 25.11.2011 passed by this Court in assessee’s own case in I.T.T.A.No.39 of 1999, for the assessment year 1994-95. This Court after referring to the judgment of the Bombay High court reported in Discount and Finance House of India Limited (1 supra) and also the judgment reported in Commissioner of Income Tax (2 supra), had answered the question in favour of the assessee and against the revenue. Respectfully following the same, the present appeal is disposed of answering both the questions in favour of the assessee and against the revenue. 6. Accordingly, the Referred Case is disposed of. No order as to costs. Miscellaneous Petitions, if any, pending in this Referred Case shall stand disposed of. ______________________ G. CHANDRAIAH,J _____________________________ CHALLA KODANDA RAM, J Date:23.01.2014. Gk. HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM R.C. No.10 OF 2000 Date:23.01.2014. Gk [1] (2003) 259 ITR 0295 [2] (2007) 295 ITR 193 (SC) "