High Court Of Madras
CIT vs. Sri Ram Investment Ltd.
Section INT 2(7)
Asst. Year 1996-97
P.D. Dinakaran & N. Kannadasan, JJ.
Tax Case No. 1072 of 2005
27th October, 2005
Counsel Appeared :
T. Ravikumar, for the Revenue
JUDGMENT
P.D. Dinakaran, J. :
Against the order of the Tribunal in ITA No. 98/Mad/1999, dt. 18th March, 2005, the Revenue has preferred the appeal and raised the following substantial questions of law :
“(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that hire purchase finance charges are not subject to interest-tax, without going into the nature of the financial transactions ?
(2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that interest from Government securities is not subject to interest-tax?”
2. The Revenue is the appellant. The assessment year involved in the appeal is 1996-97. The assessee claimed deduction on hire purchase finance charges and interest received on Kisan Vikas Patras. The AO held that finance charges relating to hire purchase contracts and the interest earned from Government securities would be subject to interest-tax. On appeal by the assessee, the CIT(A) decided the issues in favour of the assessee, which was confirmed by the Tribunal on appeal filed by the Revenue. Hence, the Revenue has come forward with this appeal.
3. It is fairly submitted by learned counsel for the Revenue that the issue raised in the first question is covered against the Revenue by an unreported decision of this Court in Tax Case No. 73 of 2000 [CIT vs. Harita Finance Ltd. (2006) 203 CTR (Mad) ??? : (2006) 283 ITR 370 (Mad)] wherein a Division Bench of this Court, by judgment dt. 1st Feb., 2005, held as under : “The point involved in the question is whether the agreement entered into between the parties was a hire purchase agreement or not. We find that the Tribunal has examined the question in great detail and recorded a finding of fact that the agreement between the parties was a hire purchase agreement. The Tribunal in para 10 of its order has found that it is not the case of the Revenue that the hirer is the real purchaser of the asset and the assessee is only a financier to help the purchaser and such things are not coming out from the agreement. We, therefore, hold that the finding recorded by the Tribunal is a finding of fact and there is nothing to interfere with the said finding.”
4. In the instant case, the Tribunal decided the issue in favour of the assessee, following its earlier order in Harita Finance Ltd.’s case (supra), the appeal filed against which was decided in favour of the assessee by this Court as referred to above.
5. Accordingly, Insofar as the first question is concerned, following the unreported decision of this Court in Tax Case No. 73 of 2000, dt. 1st Feb., 2005—since reported in CIT vs. Harita Finance Ltd. (supra), we hold that the Tribunal was right in holding that hire purchase finance charges are not subject to interest-tax. The first question is answered in the affirmative, against the Revenue and in favour of the assessee.
6. Insofar as the second question is concerned, it is submitted by learned counsel for the Revenue that the issue is covered against the Revenue by the decision of the Bombay High Court in Discount & Finance House of India Ltd. vs. S. K. Bhardwaj, CIT (2003) 180 CTR (Bom) 278 : (2003) 259 ITR 295 (Bom), wherein it is held as under :
” ………. one has to read s. 2(7) in the context of the scheme of the Act. If so read, interest received from the Reserve Bank of India on dt. Government securities will not fall within the meaning of the expression ‘interest on loans and advances’ under s. 2(7). The deletion of the exclusionary clause by the Finance (No. 2) Act of 1991 would have no effect on s. 2(7) as the exclusionary clause was only clarificatory in nature.
7. Following the abovesaid proposition of law, we hold that the Tribunal was right in holding that interest from Government securities is not subject to interest-tax. Accordingly, the second question is also answered in the affirmative, against the Revenue and in favour of the assessee. The appeal is dismissed. No costs.
[Citation : 283 ITR 371]
