Commissioner of Income Tax vs Ashok Leyland Finance Ltd.

P.D. Dinakaran, J.—The above tax case appeal is directed against the order of the Tribunal in ITA No. 51/Mad/2000, dt. 24th June, 2005.

The Revenue is the appellant. The assessment year involved in the appeal is 1996-97. The assessee claimed deduction on the interest received

on Kisan Vikas Patra/Indra Vikas Patra, Tamil Nadu State Loan, Andhra Pradesh State Electricity Board Loan and Government of India Bond.

The AO held that the interest on Government securities would be subject to interest-tax. On appeal by the assessee, the CIT(A) decided the

issues in favour of the Revenue. Hence, the Revenue (sic-assessee) preferred an appeal before the Tribunal, which partly allowed the appeal,

holding that the interest on Government securities was not liable for tax and setting aside the issue regarding interest received from the loan for

proper adjudication, since it was not discussed by the CIT(A).

Aggrieved by the same, the Revenue has come forward with this appeal, raising the following substantial question of law :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest received on Kisan Vikas Patra

and Government of India Bonds are not liable for interest-tax u/s 2(7) of the Act ?

It is fairly submitted by learned counsel for the Revenue that the issue raised herein is covered against the Revenue by the decision of Bombay

High Court in Discount and Finance House of India Ltd. Vs. S.K. Bhardwaj, Commissioner of Income Tax and Others, wherein it is held as under

:

...one has to read Section 2(7) in the context of the scheme of the Act. If so read, interest received from the RBI on dated Government securities

will not fall within the meaning of the expression ''interest on loans and advances'' u/s 2(7). The deletion of the exclusionary clause by the Finance

(No. 2) Act of 1991 would have no effect on Section 2(7) as the exclusionary clause was only clarificatory in nature.

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, we answer the question in the affirmative, against the Revenue and in favour of the assessee. The appeal is dismissed.