Case Law Details
Asman investments Ltd. Vs DCIT (Gujarat High Court)
Interest as per Interest Act will be charged on company irrespective of its main object whether it is Finance or not
In the given case the appellant assessee filed return of chargeable interest on 29.1.2002 declaring chargeable interest at ‘Nil’. In the statement attached to the return of chargeable interest, the assessee inter alia claimed that it is not chargeable to interest tax under the Interest Tax Act, 1974 as it is not a credit institution as defined in section 2(5A) read with section 2(5B) of the said Act; that the assessee company is not an investment company; that in the case of the assessee, income is chargeable under the head of business and its income from dealing in shares and securities is and has been assessed as business income; and that the assessee company is not an investment company and it is holding investments worth Rs.55,99,366/- which is 3.76% of the total assets and the income derived from investments is 1.42% of the total income. The Assessing Officer issued notice under section 8(1) of the Interest Tax Act. After considering the submissions advanced on behalf of the assessee company as well as considering the main objects of the assessee company, the Assessing Officer was of the view that the nature of interest income clearly indicates that the company falls within the parameters laid down in section 2(5B) of the Interest Tax Act and, accordingly, held the company to be a finance company within the meaning of section 2(5B) of the said Act.
The contention of the counsel for the assessee that not the objects of the company but its real activities during a financial year which should be used as a parameter to decide the status of the company, cannot be accepted. Firstly, his contention was that awaiting other projects, the company has parked its available funds in shares and stocks and yet further surplus was invested in fixed deposits. Accepting the contention as presented before us would lead to a situation where for the purpose of ascertaining whether a company is a financial company or not, its category from year to year would have to be examined ignoring the objects for which the company is incorporated. This, in turn, would mean for a particular year the company would be a financial company whereas during the later year, it may not fit the description. Clearly something that cannot be easily envisaged.
This brings us to the question whether the interest earned by the assessee company can still be taxed under the said Act. In this context, the contention of the counsel for the Revenue, HC may recall that the interest was not earned by the company on any loan or advance made but was generated out of its deposits. HC are conscious of a clear distinction between a loan or an advance and a This has been elaborately discussed by Delhi High Court in case of Visisth Chay Vypapar Ltd. (supra). Had adequate facts being brought on record, in this respect, HC would have analyzed such material. However, this appears to be an argument raised for the first time. In fact, the stand of the assessee before the lower authorities was evidently different. HC have reproduced the portion of the contention of the assessee before the Commissioner of Income Tax (Appeals), recorded by the Commissioner of Income Tax (Appeals). It was argued that the year under consideration was an initial year of the company. No good project was coming forth and therefore in order to avoid keeping the funds idle, the assessee had advanced money and earned interest income and also carried out activities in trading in shares and securities. Thus, clearly even according to the assessee, the interest was earned by advancing its funds. The case now put up before us that such investment was in the nature of a deposit and not by way of advance was never raised earlier. HC do not dispute that the term “interest” defined under section 2(7) of the Act would mean interest on loans and advances and if therefore in a given case it is established that the interest earned by the assessee was not out of either loan or advance but through some other source, the interest tax would not apply to such interest. However, when no such factual dispute was raised, no material on record to hold contrary to what the assessee itself had contended before the Commissioner of Income Tax (Appeals), the contention of the counsel for the assessee must be rejected.
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