The Commissioner of Income Tax vs Sri Ram Investment Ltd.

P.D. Dinakaran, J.—Against the order of the Appellate Tribunal in ITA. No. 98/Mds/1999, dated 18.3.2005, the Revenue has preferred

the appeal and raised the following substantial questions of law:

(1) Whether in 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 in the facts and circumstances of the case, the Tribunal was right in holding that interest from Government securities is not subject to

interest tax?

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 Pathras. The assessing officer 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 Commissioner of Income Tax

(Appeals) decided the issues in favour of the assessee, which was confirmed by the Appellate Tribunal on appeal filed by the Revenue. Hence, the

Revenue has come forward with this appeal.

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 T.C.No. 73 of 2000 (between the Commissioner of Income Tax, Madras and M/s.Harita Finance Ltd.,

Madras) wherein a Division Bench of this Court, by judgment dated 1.2.2005, 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 Appellate 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 Appellate Tribunal in paragraph-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 Appellate Tribunal is a finding of fact and there is nothing to interfere with the said finding"".

In the instant case, the Appellate Tribunal decided the issue in favour of the assessee, following its earlier order in Harita Finance Ltd. Case, the

appeal filed against which was decided in favour of the assessee by this Court as referred to above.

Accordingly, in so far as the first question is concerned, following the unreported decision of this Court in T.C.No. 73 of 2000, dated 1.2.2005,

we hold that the Appellate 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

In so far as the second question is concerned, it is submitted by the learned counsel for the Revenue that the issue 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 Reserve Bank of India 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 Appellate 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.