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Sahara India Savings and Investment Vs. Assistant Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
AppellantSahara India Savings and Investment
RespondentAssistant Commissioner of
Excerpt:
1. since the issue involved in all the aforesaid appeals are common, we, for the sake of convenience proceed to decide all these appeals by this consolidated order.intt. tax appeal nos. 1 & 2/alld/1996 (asst. yrs :1992-93 & 1993-94 -sahara india savings & investment corpn. ltd.): 2. ground nos. 1 to 6 of intt.tax appeal no. 1(alld) of 1996 and ground nos. 1 to 4 of intt.tax appeal no. 2(alld) of 1996 pertains to the issue whether the appellant-company, which is a 'residuary non banking company', can be brought within the purview of the interest tax act and whether it can be considered a miscellaneous finance company as defined in section 2(5b) & (vi) of the interest tax act, as amended by the finance (no. 2) act of 1991.3. we have heard the parties and the brief facts.....
Judgment:
1. Since the issue involved in all the aforesaid appeals are common, we, for the sake of convenience proceed to decide all these appeals by this consolidated order.

Intt. Tax Appeal Nos. 1 & 2/Alld/1996 (Asst. Yrs :1992-93 & 1993-94 -Sahara India Savings & Investment Corpn. Ltd.): 2. Ground Nos. 1 to 6 of Intt.Tax Appeal No. 1(Alld) of 1996 and Ground Nos. 1 to 4 of Intt.Tax Appeal No. 2(Alld) of 1996 pertains to the issue whether the appellant-company, which is a 'Residuary Non Banking Company', can be brought within the purview of the Interest Tax Act and whether it can be considered a Miscellaneous Finance Company as defined in section 2(5B) & (vi) of the Interest Tax Act, as amended by the Finance (No. 2) Act of 1991.

3. We have heard the parties and the brief facts necessary for the decision of the issue are as under : The appellant-company was incorporated on 11th August, 1987 and its main objects are reproduced in para-7 Page 4 of the C.I.T.(A)'s order for the Asst. Year 1992-93. The objects as per the memorandum are in confirmative with the Residuary Non Banking Company (Reserve Bank) Directions, 1987.

3.2 Reserve Bank classified the Appellant-Company as a Residuary Non Banking Company (R.N.B.C.) within the meaning of R.N.B.C. Directions, which were notified by the Government vide Notification No. DFC.55/ DC(0)-87 dated 15-5-1987 and the assessee was informed of the same as per letter dated 16lh September, 1987.

3.3 When the Interest Tax Act of 1974 was amended by the Finance (No.2) Act of 1991 w.e.f. 1-10-1991 a Residuary Non-Banking Company was not included within the definition of a 'Financial Company' as defined in Section 2(5B).

3.4 A Residuary Non Banking Company was included in definition of the Financial Company in section 2(5B) by inserting clauses (va) by Finance Act of 1992 vv.c.f. 1-4-1993. The explanatory memorandum to the Act in Paragraphs 55.3 to 55.5 stated as under : "55.3 When the Interest Tax Act was revived last year, the intention was to cover all Non-Banking Financial Companies. It has, however, been found that there are a number of finance and investment companies which earn substantial income from interest on loans and advances are yet not covered by the definition given in section 2(5B). These companies received deposits under schemes or other arrangements, in one lump sum or in instruments by way of contributions or subscriptions or by sale of units or certificates or other instruments. The Reserve Bank of India being, vide Notification No. DFC.55/DG(0)-87, issued on 15th May, 1987 treated such financial companies as Residuary Non Banking Companies.

55.4 In view of the fact that, Government's intention is to impose tax on the gross amount of interest earned by all banks, financial institutions and non banking financial companies in respect of loans and advances made in India, the Finance Act has included, in the definition of Financial Company, all Residuary Non Banking Companies.

55.5 This amendment will take effect from 1st April, 1993 and will accordingly, apply in relation, to Assessment Year 1993-94 and subsequentyears." 3.5 The Assessing Officer, despite the claim by the Appellant-Company that in the Assessment Year 1992-93 the Appellant-Company being a Residuary Non Banking Company, did not fall within the provisions of Interest Tax Act in paragraph-6 of the assessment order, after referring to the sources of interest income of the Company held that Company was a 'Miscellaneous Finance Company' as defined in section 2(5B)(vi) of the Interest Tax Act.

3.6(i) The C.LT.(A) in Para 7 of the appellate order referred to the objects in the memorandum of the Company and held that second object fell within the expression of Investment company. This was despite the fact that second main object in the memorandum of association of the company reads are under : "To buy, sell, invest or otherwise deal in securities, bonds or fixed deposits issued by any institution, body corporate, corporation, established or constituted under any central or state enactments or in other securities in which the company may be required to invest under any law in force." 3.6(ii) The C.I.T.(A) also referred to definition of Investment Company in the Finance Act, despite the fact that an Investment Company is defined in Section 2(5B)(ii) of the Interest Tax Act as follows : "an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority or other marketable securities of a like nature." 3.6(iii) Applying the definition of an Investment Company under the Finance Act, the C.I.T.(A) held that this definition apply to the Appellant-Company. The C.I.T.(A) thereafter referred to the definition of a loan Company as defined in Section 2(5B)(iv) of the Interest Tax Act, which reads as under : "a loan Company, that is to say, a Company (not being a Company) referred to in Sub-clauses (i) to (iii) which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise.' 3.6(iv) In view of above, the C.I.T.(A) was of the view that this definition applies to the Appellant-Company. The C.I.T.(A) was of the view that since almost 50% of the gross income was from securities and dividends, the Appellant had been rightly treated by the A.O. as a 'Miscellaneous Finance Company'.

3.6(v) The above view of the C.I.T.(A) that the appellant is Miscellaneous Non-Banking Company was taken despite the fact that in its appellate order in para-7 on page-3 he has stated as under : "I have duly considered the submissions urged on behalf of the Company. It claims to be covered in the category of "Residuary Non-Banking Companies" as per rules set up by R.B.I. That being so, it claims that it is beyond the scope of Section 2(5B) of the Interest Tax Act for the Assessment Year 1992-93 as the said extended definition of "Finance Company* came only in Assessment Year 1993-94. So far as the prospective operation of the definition is concerned, I agree with the contention of the learned counsel." 4. In view of the aforesaid facts, the assessee's counsel has submitted that, (i) the C.I.T.(A) was in error in applying the test as laid down in the definition of an Investment Company under the Finance Act while determining whether the appellant was an Investment Company or a Loan Company despite the fact that both these categories of Companies have been separately defined for the purpose of the Interest Tax Act and the tests for determining whether a particular company is an Investment Company or a Loan Company have been laid down in these definitions in the Act and according to the definition of these two types of companies given under the Interest Tax Act, (a) an Investment company would be a company which carries as its principal business the acquisition of shares, stock, bonds, debentures etc.

(b) a loan company is defined to be a company which carries on principle as its principal business providing of finance whether by making loans or advances or otherwise.

(ii) It was further submitted that Appellant-Company carries on the business of principal business of either of investment company or of a loan company as defined under Section 2(5B)(ii) & (iv) of the Interest Tax Act. In law it is not possible to import the definilion given in another Act in another context and to apply the same to the law under consideration; particularly and specially where there in specific separate definition under the Act under consideration. In view of the fact that since the Appellant carries on the business of running schemes of deposits as permitted by the R.B.I. under the R.N.B.C. Directions, 1987, and is not permilled in law to carry on any other business. The appellant cannot be classified under any circumstances as a 'Miscellaneous Non Banking Company' which, as defined in sub-clause (vi) of Section 2(5B) of the Interest Tax Act as under : "a Miscellaneous Finance Company, that it to say, a Company which carries an exclusively, or almost exclusively, two or more clauses of business, referred to in the preceding sub-clauses." It is seen from the above that in order to fall within the ambit of Miscellaneous Non Banking Company, the appellant company must be cany ing on exclusively or almost exclusively as its principal business "the business of an investment company" as defined in sub-clause (iz) or of a loan company as defined in sub-clause (iv) of section 2(5B) of the Interest Tax Act, which is not the case here.

4.1 The Residuary Non Banking Company (R.N.B.C.) Directions in Part-11 clearly state that a Residuary Non-Banking Company is not- (b) Further referred to regulation No. 6, Explanation 1(b)(2), Explanation 3, Part-3 item Nos. 7 & 8, of Appendix 119, item Nos. 2 & 3 of Part-5, to bring home the point that investment in Debenture, Bond, commercial papers, share and security has to be made in compliance to the mandatory direction of the R.B.I. and that the investments made by the company are in accordance with the second object of the main objects to the memorandum of association and are in compliance of mandatory requirements of Section 6 of the R.N.B.C. Directions. Investments are mandatorily prescribed by the Reserve Bank of India under the R.N.B.C. directions in order to safeguard the interest of the depositors.

4.2 If a Residuary Non-Banking Company by its nature of activities fell within the definition of any of the financial companies, as defined in section 2(SB) of clauses (i) to (v) or of within the definition of a Miscellaneous Non Banking Company, as defined in clause (vi) of the Section 2(5B), then there would have been no need to amend the law and insert sub-clause (va) in Section 2(5B) of the Interest Tax Act by Finance Act, 1992 w.e.f. 1-4-1993 to include a Residuary Non-Banking Company even the explanatory memorandum as stated above to bring out that the Residuary Non Banking Company had not been covered earlier but was being brought under the purview of the Interest Tax Act by the amendment as per the Finance Act, 1992. The Ld. Special Counsel for the Department basically relied on the reasoning given by the C.I.T.(A) in its appellate order for the assessment year 1992-93 in rejoinder the arguments made by the appellant's counsel were re-stated.

5. We have considered the rival submissions, facts and circumstances of the case, R.B.I/s regulations, assessee's main objects and the other evidence placed on record carefully and are of the opinion that reliance of the C.I.T.(A) on the object No. 2 contained in assessee's Memorandum and Articles of Association is absolutely misplaced because the C.LT.(A) has missed to take note of the words "in which the company may be required to invest under any law in force", appearing in the last sentence of objcct-2. The nature of investment to be made under this object was not at the option or choice of the assessee but was to be made as per the requirement of any law for carvying on the business listed in object No. 1.

5.1 From the Banking Regulation Act, the R.B.I.'s Directions for Residuary Non Banking Companies (R.B.I.) Directions, 1987 - copy placed at pages-31 to 60 of the assessee's Paper Book - and the R.B.I.'s letter dated 16-9-1987 written to the assesee (copy at page-33 of the Assessee's Paper Book), we have no doubt about the nature/status of the assessee company which, in our view, was definitely that of a 'Residuary Non Banking Company' and since it was not carrying on any other business except as listed under object-1, the conditions for a company to be a miscellaneous company as defined under section 2(5B)(vi) were not satisfied. Consequently, prior to insertion of clause 2(5B)(via) with effect from 1-4-1993, according to which Residuary Non Banking Companies were also brought within the definition of 'financial company', the assessee company was not liable to interest tax. We hold accordingly.

Ground Nos. 7 to 9 of Interest Tax Appeal No.l (Alld) of 1996 and Ground Nos, 5, 6 & 7 of Interest-tax Appeal No. 2(All) of 1996 : 6. The next issue pertains to whether the interest earned by the appellant company on investments in securities can be considered as interest which is chargeable to lax under the Interest Tax Act.

7. We have heard the parties and the brief facts appearing from the records and necessary for the disposal of the issue are as under : The Assessing Officer brought to tax a sum of Rs. 8,21,60,590 in the Assessment Year 1992-93 as chargeable interest. This represented total interest, under various categories earned by the appellant after taking it on a pro rata basis from 1-10-1991 to 31 -3-1992. The interest was taken on pro rata basis from 1-10-1991 to 31-3-1992 because the Interest Tax Act, 1972 was amended by the Finance (No. 2) Act, 1991 w.e.f. 1-10-1991 and brought to tax certain categories of financial companies within the meaning of credit institution. However, a Residuary Non Banking Company was not brought within the purview by the said amendment but came on the statute book by amendment made by the Finance Act of 1992 w.e.f. 1-4-1993.

7.2 The appellant-company filed an appeal against this charge levied.

This charge on interest levied under the interest Tax Act by the Assessing Officer the objection was two-fold : (a) that the appellant being a Residuary Non-Banking Company did not fall within the purview of Jnterest Tax Act, 1972 (this aspect has already been dealt with earlier).

(b) It also objected without prejudice to the computation of chargeable interest under the Interest Tax Act at the figure of 8.21 crores.

(c) That the sum of Rs. 8.21 crores has been brought to lax by the Assessing Officer without giving any reason in support of treating this amount as interest which is chargeable under the Interest Tax Act.

7.3 The C.I.T.(A) in the appellate order granted certain reliefs in respect of cerlain categories of interest. However, the C.I.T.(A) did not accept the submissions of the appellant company that interest on securities amount- ing to Rs. 18.84 crores (for the full year) was not chargeable to tax as it did not fall within the purview of definition of interest as defined in Section 2(7) of the Interest Tax Act. The reasons given by the C.I.T.(A) in taking the view that interest on securities fell within the definition of interest in Section 2(7) of the Interest Tax Act as per para 12 of the appellate order are as under : "As regards the exclusion of interest on securities it is seen that they are in the nature of mostly debentures and loans. Even if they may be loosely called as investment they fall within the expression of Loans and Advances. The distinction between the expression Investment and Lending is judicially noticed in the following manner:-- As the expression 'Lend' and 'invest' are sought to be made applicable in different situations, the legitimate inference is that they bear a distinct interpretation. In commercial parlance, lending is associated with advancing money for an agreed rate of interest returnable within a specified period or on demand. Though the expression 'invest' in a broad sweep takes a lending also, it should be considered as confined to the laying out of an amount in a venture or institution with a profit motive and with no promise of assured return. In the process of investment, an element of risk is involved and the expectation of return or profit is not assured and the depletion of capital itself is not an abnormal feature. In the case of lending, the return by way of interest is generally assured and the element of risk is minimal.' The above observation is made out by their Lordships in the case of CIT v. Polisetty Somasundaram Charities [1990) 183 ITR 377 (A.P.).

Keeping in view the aforesaid principle the amount in the securities in the nature of loans & advances and interest therefrom has rightly been brought within the scope of 'Chargeable interest'." It must be pointed out that interest on securities is not interest on loans though the statement that interest on securities is mostly on investments made in debentures is correct.

7.4 The second basis given by the C.LT.(A) to come to the conclusion that interest on securities is chargeable to Interest Tax Act.

C.I.T.(A) relies on the judgment of the Andhra Pradesh High Court in the case of CIT v. Polisetty Somasundaram Charities, 183 ITR 378.

8. In the light of the above facts, the assessee has submitted that Section 4 of Interest Tax Act is the charging section and Sub-section (2) of the said Section as inserted by the Finance (No. 2) Act, 1991 w.e.f. 1-10-1991 to bring to charge the interest on loans and advances of every credit institution. The scope of the charge is given in Section 5 of the Interest Tax Act which states that chargeable interest of any previous year of the credit institution will be total amount of interest on Loans and Advances (other than interest on Loans and Advances made to other credit institutions). Chargeable interest has been defined in Section 2(5) as under : " 'Chargeable Interest' means the total amount of interest referred to in Section 5, computed in the manner laid down in Section 6." Section 6 provides for the computation of chargeable interest by stating that chargeable interest will be total amount of interest on loans and advances (other than interest on loans made to credit institution) accruing or arising to assessee in the previous year.

Subject to a deduction being granted in respect of the amount of interest which is established to become a bad debt during the previous year. Therefore, in order to find what is chargeable interest one will have to go to the definition of chargeable interest in Section 2(5) and thereafter will go to the definition of interest in Section 2(7).

Finally only that interest which falls within the definition of interest under Section 2(7) of the Interest Tax Act will be considered as chargeable interest under Section 2(5) r.w. Sections 4, 5 & 6 of the Interest Tax Act.

8.1 The most vital definition is that of 'interest' under Section 2(7) of the interest Tax Act which is as under : 'Interest' means interest of Loans and Advances made in India and includes-- (a) Commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) Discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) Interest referred to in Sub-Section (1B) of Section 42 of Reserve Bank of India Act, 1934 (2 of 1934); 8.2 Elaborating the principles of "Interpretation of Statutes" submitted that the definition, while defining interest uses the words 'means' and 'includes', which has to be taken as a special definition of the term 'interest'. According to the Id. Sr. counsel, the settled principal of interpretation of a definition, where the word 'means' is used or the words 'means and includes' are used, is that it is an exhaustive definition and nothing more than what is stated has to or can be read into the definition.

8.3 In support of this, he relied on the judgment of the Supreme Court in the case of Mahalaxmi Oil Mills v. Slate of Andhra Pradesh [1989] 1 SCC 164 wherein the Hon'ble Supreme Court had to deal with the definition of the word 'tobacco' as defined in Schedule-I, Item-4 of the Central Excise and Salt Act, 1944. The definition reads as under : "Tobacco means any form of tobacco whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and sterns of the tobacco plant, but does not include in part of a tobacco plant while still attached to the earth.' The Supreme Court, while interpreting this definition held that the expression 'means and includes' used in a definition clause indicates the exhaustive nature of the definition.

8.4 He further stated that a similar view has been taken by the Supreme Court in the case of P. Kasilingam v. P.S.G. College of Technology [1995] Supp. (2) SCC 348. The Supreme Court in the case, while considering the significance of the words 'means' and 'includes' used in a definition has held that the words 'means' and 'includes' used in a definition has held that the words 'means' and 'includes' indicate that the definition is exhaustive. The Supreme Court has held that : "A particular expression is often defined by the Legislature by using the word 'means' or word 'includes'. Sometimes the words 'means and includes' are used. The use of the word 'means' indicates that 'definition' is a hard and fast definition, and no other meaning can be assigned to the expression then is put down in the definition. The word 'includes', when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The words 'means and includes', on the other hand, indicate 'an exhaustive explanation of the meaning which, for the purposes of the Act, most invariably be attached to these words or expressions'." 8.5 Reference was also made to the judgment of Supreme Court in the case of Punjab Land Development and Reclamation Corpn. Ltd. [1990] 3 SCC 682 where the Supreme Court has held : "When a statute says that a word or phrase shall 'mean' the definition is hard and fast definition and no other meaning can be assigned to the expression then is put down in the definition. Such a definition is an explicit statement of the full connotation of a term." 8.6 Having referred to the principle of interpretation of the definition clause defining interest, the counsel submitted that the basic issue is whether the interest on securities which appellant has earned because of investments made in securities/debentures in order to comply with the R.N.B.C. directions can be considered to be the 'interest' so as to fall within the purview of this definition of in terest given in section 2(7) of the Interest Tax Act and negativing such an interpretation and after referring to the definition of the term 'interest' under section 2(7) of the Act, under which 'interest' has been defined to mean- (b) to include commitment charges on unutilised portion of any credit institution for being Government of India and discount on promissory notes and bills of exchange drawn or made in India; (c) but does not include interest referred to in section 42(1B) of the RBI Act and discount of treasury bills; submitted that since interest on securities does not fall within what is included in the definition of interest, i.e., commitment charges or discount on promissory notes and/or bills of exchange nor it is covered by what it does not include interest on deposits kept under the provisions of section 42(1B) of the RBI Act on discount of treasury bill. The sole point to be examined is whether interest on securities can be said to be covered by the concept of 'loans and advances'.

8.7 It is also settled principle of law that the words in a section have to be interpreted on the basis of what is clearly stated in the section. He relied on the decision of the Supreme Court in the case of CIT v. Shahzada Nand & Sons [1966] 60 ITR 393, wherein it has been stated : "In a taxing Act one has to look merely at what is clearly stated, and in a case of reasonable doubt the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. The underlying principle is that the means and intention of statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the Court as to what is just or expedient. The expressed intention must guide the court." 8.8 A similar view has been expressed by the Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 wherein Supreme Court has stated that : "Intention of the Legislature is to be gathered from the words used in statute. One has to look only at the language used for the statute. Bearing this principle of interpretation the phrases loans and advances' has to be interpreted." 8.9 However, it is submitted that on the principle of Ejusdem Generis the word 'advance' will take its colour and meaning from the word 'loans'. Advances here mean advances in the nature of loans.

Prior to the amendment by the Finance Act of 1991 w.c.f. 1-10-1991 the definition of interest in section 2(7) of the Interest Tax Act stood as under : Interest' means interest on loans and advances made in India and includes : (a) Commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) Discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) any amount chargeable to Income-tax under the Income-tax Act under the head 'Interest on securities'.

(ia) Interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); From the above definition, it is noticed that earlier definition of interest carries an exclusion in respect of any amount chargeable to Income-tax under the Income-tax Act under the head 'interest on securities'. The point at issue is whether in the absence of a specific exclusion in the newly inserted definition of interest by the Finance Act, 1991 can it be said that interest on securities would now stand covered and to decide the issue submitted that in the present definition, as stated earlier, since interest on securities is not specifically included nor specifically excluded, it will have to be determined whether interest on securities would stand covered by the concept of 'loans and advances' and to decide this, he submitted that when the Interest Tax Act was introduced in 1974, the statement of Object and Reason for introducing the Bill was stated as under (96 ITR St. 31) : "The object of this Bill is to impose a special tax on the total amount of interest received by scheduled banks on loans and advances made in India. However, interest on Government securities as also debentures and other securities issued by local authorises, companies and statutory corporations will not be included in the tax base." The notes on clauses to the said bills also clarify as under (96 ITR St. 31) : "Sub-clause (7) of this clause defines 'interest'. According to the definition, 'interest' means interest on loans and advances made in India. It includes commitment charges on unutilised portion of any credit sanctioned for being availed of in India and discount on promissory notes and bill of exchange drawn or made in India. It does not include any amount chargeable to income-tax under the Income-tax Act under the head 'interest on securities' (e.g., interest on Government securities, debentures or other securities issued by local authorities, companies or statutory corporations) and also discount on treasury bills." From the above, it is noticed that purpose and object was to tax the interest received by the Scheduled Banks on loans and advances made in India. The intention was not to tax interest on Government securities, debentures and other securities.

8.10 When the Finance Bill of 1991 was introduced to revive and amend the Interest Tax Act, the reasons for moving the said amendment as stated by the mover of the bill, i.e., Finance Minister. The Finance Minister stated as follows (190 ITR St. 114) : "In view of the binding fiscal constraints and the need to mobilise resources, I propose to revive the interest-tax which was first introduced in 1974 and withdrawn in 1978, re-introduced in a modified form in 1980 and finally withdrawn in 1985. I am enlarging, slightly, the coverage of this tax.

The new tax will be levied on the gross amount of interest received by all banks, financial institutions and non-banking financial companies in the corporate sector on loans and advances made in India. These institutions would reimburse themselves by making necessary adjustments in the interest rates charged from borrowers.

The proposed lax is expected to raise the cost of borrowing and yield revenue to the Government. It should, therefore, have both monetary and fiscal impact." It is essential to look at the speech of the Finance Minister in order to determine what would be the effect of the deletion of the exclusion in respect of the interest on securities from the definition of interest in section 2(7). It is seen that the Finance Minister has not specifically stated whether interest on securities is includible or not. Therefore, it can be said that if the Parliament wanted to include interest on securities in the definition of interest there would have been no difficulty to include the same. Merely because the exclusion in the earlier definition in respect of interest on securities is deleted; it does not mean that the Parliament wanted to include interest on securities within the purview of the Act. It may be otherwise, i.e., Parliament omitted to make an exclusion clause to correct the previous wrong drafting. Elaborating this point, he submitted that in the unamended definition, the exclusion clause seems to have been incorporated due to misdrafting and now the same has been corrected. He further submitted that in order to determine whether loans and advances will cover interest on securities, the following factors need to be considered : (a) The Appellant Company is Residuary Non Banking Company and as per the R.N.B.C. Directions, 1987, section which provides mandatorily that every R.N.B.C. Company shall invest and include in accordance with the provisions of said section. Sub-section (B) to the said section provides that not less than 60% of the liability to the depositors shall be invested or depositors of the commercial Bank, paper of the Government company or public sector Bank or public financial corporation or any other company incorporated under the Companies Act. The Appellant Company has invested any debentures in accordance with the provisions of section 6 of the R.N.B.C. Directions. These investments are mandatory; and the appellant, if it docs not make these investments, can loose its rights to continue to do business as an R.N.B.C. Company. Further, as per sub-section (2) of section 6 of the R.N.B.C. Directions, these investments are in the nature of trusteeship investment or held in a factuary capacity for and on behalf of the depositors. Sub-section (2) of section 6 provides that every R.N.B.C. Company shall entrust one to a designated public sector Bank the unencumbered approved securities to such Bank to be held by the Bank for the benefit of the depositors and such securities and deposits shall not be withdrawn or otherwise dealt with by the R.N.B.C. Company except for repayment to depositors : (b) even under the R.N.B.C. Directions, distinction is drawn between the loans and advances and interest on securities in Part 3 return which is statement of net owned funds. Item-7 deals with the book value of debentures and bonds whereas Item-8 separately deals with the outstanding loans and advances. Similarly in Part-5 Items 2 & 3 deal with the investments made in the debentures whereas this statement given in Part-5 which is statement of investments does not at all take cognizance of loans and advances. Part-7, which deals with the business statistics and information under IV dealing with the heads selected Income & Expenditure Particulars. Item-9 deals with the investments Income and in sub-clause (c) talks of dividends/interest on other investments and (d) talks of provides which loans on sale of shares, debentures etc. Whereas Item-10 deals with the interest income and clearly shows two items : (a) Interest on intercorporate deposits and loans and (6) other loans and advances. This itself shows that law under which appellant company .is governed clearly makes a distinction between interest income from investments/debentures and interest income on loans and advances.

(c) Even under the Interest Tax Act distinction is drawn between interest income from investment in debentures/bonds etc. while dealing with the definition of an investment company in section 2(5B)(ii) and an interest on loans and advances while dealing with the distinction of a loan company in section 2(5B)(iv).

(d) Distinction is also drawn even under the Banking Regulation Act.

Distinction is drawn between loans and advances and investments in section 6(1)(a). Similarly, the Reserve Bank of India Act also makes a similar distinction between loans and advances and income from investments/debentures in section 17 as well as section 45-I Explanation II(c).

(e) Even under the Companies Act, distinction is drawn between the loans and advances and investments in sections 370 and 372 of the Act. Section 370 deals with the loans and advances whereas section 372 deals with the investments and in sub-section (12) of section 372 it is slated that investments would be deemed to include debentures.

A debenture has been defined under the Companies Act section 2(12) to include debentures/bonds and any other securities of a company where constituting a charge on the assets of the Company or not. The treaties on the Companies Act by Ramaiya, 14th Edition (1998) on page 32 draws a distinction between debentures and a loan : "Since a debentures means a document which creates or acknowledges a debt, the distinction between a debentures and a loan can be understood from the following passage, "The substance of a loan is a right in the creditor to demand repayment and the substance of a debt is a liability upon the debtor to repay the money" per Chakravarti J. in Ram Ratan Karmarkar v. Amulya Charan Karmarkar 56 CWN 728 1 P. 729." (f) Similarly, difference between loans and advances and investment in securities/debentures has been recognised under the Income-tax Act in section 13(c) r.w. section 13(h) and section 193. Apart from this recognised distinction consistently made in law between loans and advances and investment in securities/debentures.

(g) It would be useful to take note of the fact that Finance Minister in his speech, while introducing the bills amendment by the Finance Act of 1991 clearly states that interest tax levied on the amount of interest (190 ITR St. 214) clearly states that : "The new lax will be levied on the gross amount of interest received by all banks, financial institutions and non-banking financial companies in the corporate sector on loans and advances made in India. These institulions would reimburse themselves by making necessary adjustment in the interest rates charged from the borrowers." It clearly shows that such interest can be reimbursed of the interest rate negotiable to take into account the levy of Interest Tax Act only in the case of loans and advances and not in case of investments made in securities. Because the interest rate on the investments made in securities is beyond the conlrol of the institution making such investment. Section 26C of the Interest Tax Act also gives the power to credit institution to vary agreements pertaining to the term loans and to increase the rale of interest stipulated in such agreement of term loans to the extent institution is liable to pay interest tax. As stated above, this short of an act is not feasible in case of investments made by the institution.

8.11 In support of above, reliance was placed on the following judgments and Tribunal Order : (i) CIT v. Lakshmi Vilas Bank Ltd [1997] 228 ITR 697. Though this was a judgment rendered prior to the amendment by the Finance Act of 1991, the ratio of this judgment is still relevant for the purpose of determining whether interest earned on investment in securities/ debentures would fall within the meaning of loans and advances. The Madras High Court held that where : "Banks are bound by the Banking Regulation Act, 1949, in the matter of maintaining the balance sheet and in the balance sheet, in accordance with section 29 of the said Act, and the third schedule thereto, banking companies have to make investments to the prescribed percentage and enter the same under the head Investments', even though there are other heads in the balance sheet like advances and loans etc. Where Banks so debenture under the head 'investments' the debentures are in the nature of securilies.

Interest on such debentures must be treated as interest on investments, which fall outside the purview of the Interest Tax Act, 1974, and not as interest on loans and advances taxable under the Interest Tax Act, 1974." (ii) The Karnataka Bank v. Dy. CIT [1998]. It is an order of the Bangalore Bench of the Tribunal in 60 TTJ (Bang.) 103. The Bangalore Tribunal held as follows : "In the definition of 'interest' in the Interest Tax Act, 1991, 'Interest on securities' has not been mentioned at all and is silent while in the 1974 Act it was specifically excluded. Therefore, one can look into the speech of the Finance Minister to sec whether the definition takes in its stride 'Interest on securities' also. The expression 'means' and 'includes' in the definition is exhaustive and not extensive and thus the definition of 'interest' in the Interest Tax Act, 1991 does not take any interest on securities also. The terms 'loans and advances' are different from the term 'securities' and ihat 'securities' are investments whereas 'loans and advances' did not fall under that category. Both the interest cannot be treated on par with each other. Therefore, interest on securities is not liable to be taxed under the provisions of the Interest Tax Act, 1991. Hence, the authorities below are not justified in bringing the interest on securities received by the assessee to lax under the Interest Tax Act." (III) Canara Bank v. Dy. CIT : The ITAT, Bangalore [Int Tax Appeal Nos. 5, 6, 7 & 8 (Bang.)/1997] in respect of the assessment years 1992-93 to 1995-98 the Tribunal in the said case vide its order dated 16th September, 1997 for the reasons given in the said order has held as under : " 'Interest on Securities' cannot be brought to tax but only interest on loans and advances is chargeable to tax under the provisions of Interest Tax Act as amended by the Finance Act of 1992." 8.12 The CIT (Appeals) in his order for the assessment year 1992-93 while holding that interest on securities is liable to tax under the Interest Tax Act has relied on the judgment of Andhra Pradesh High Court in the case of CIT/CWT v. Polisetty Somasundaram Charities [1990] 183 ITR 377 but the said judgment has no application to the facts of the case. In fact, paragraphs relied on by the Commissioner of Income-tax (Appeals) which is taken from Page 381 of the judgment does not clearly support the contentions of the CIT(A). In fact, if the paragraphs are read further on page 381 of the judgment, but which has not been reproduced by the C1T(A) it will be clear that holding of shares' debentures etc. have been held to be investments (relying on the judgment of the Supreme Court in Na\\m Estates (P.) Ltd. v.C/r[1997] 106 ITR 45. Therefore, it is humbly submitted that reliance of the CIT(A) on the said judgment is incorrect and misplaced.

8.13 In support of these submissions, the Id. counsel also referred to the order of the CIT(A) for assessment year 1994-95/1995-96 in case of M/s. Sahara (India) Financial Corporation, I.T. Nos. 4 & 5/CC-III/Lko/96-97 dated 5-1-1998 and also in case of M/s Sahara India Mutual Benefit Co. Ltd. where in the CIT(A) held that : (i) interest on securities is not liable to Interest tax (Para - 23), (iii) Interest on security/debenture/FDRs is not the interest on loans/ deposits.

"I have considered the submissions raised on behalf of the appellant and when the issue was decided earlier by the CIT(A) the benefit of the judgment of the Madras High Court and the judgment of the Bangalore Bench of the Tribunal referred to by the ld. counsel was not available to the CIT(A). 1 have carefully considered the submissions and gone through the judgment of the Madras High Court and the judgment of the Tribunal referred to by the learned representative and in my opinion in both these judgments the issue has been decided in favour of the appellant. The Tribunal in para 12(i) held as below : 'We have to hold that though interest on securities has not been specifically excluded from the purview of Interest Tax Act (No. 45/ 1974), there is no circumstance available to hold that interest on securities is intended to be taxed under the provisions of Interest Tax Act (45/1974) as amended by Finance Act, 1992. As stated earlier, exclusion of interest on securities from the taxability to interest tax Act led to ambiguity. Hence, the speech of the Finance Minister, at the time of reintroducing the Interest Tax Act in the year 1991 by amending Act No. 45/74 by Finance Act, 1992, can be relied on to clarify the position. If the Legislature intended to include the interest on securities chargeable to tax under the Interest Tax Act, there was no difficulty for it to have used the expression 'including the interest on securities' within the ambit of section 2(7) of the Interest Tax Act. From the speech of the Finance Minister on 1-10-1991 while re-introducing the Interest Tax Act, it is clear that he intended to extend the number of institutions and his intention was not to include the 'interest on securities' under the provisions of the Interest Tax Act." 9. Arguments of the special counsel for the Department referred to definition of interest in section 2(7) and stated that upto the amendment by the Finance Act of 1991 interest was specifically excluded and that exclusion being not retained in the amended definition of section 2(7) which would mean that it stood included within the definition of interest. He relied on Jagir Singh v. State of Bihar AIR [1976] SC 997.

9.1 The Special Counsel also stated that speech of the Finance Minister could not be relied on to interpret the provisions of law and for that purpose he relied on the judgment of the Supreme Court in the case of Sole Trustee Loka Shikshana Trust v. CIT MR 1976 SC 10.

9.2 It was further submitted that the Bangalore Tribunal in the case of Karnataka Bank Ltd (supra) had wrongly placed reliance on the judgment of the Madras High Court in the case of Lakshmi Vilas Bank Ltd (supra) since that judgment had been pointed out by the Departmental Representative in that matter to the Tribunal was prior to the amendment by the Finance Act of 1991. The Special Counsel submitted that reasons given by the Tribunal for not accepting the Departmental submissions were not proper as Tribunal observed on Page 116 as under : "This object cannot also be sustained. The decision of the Madras High Court of Lakshmi Vilas Bank Ltd (supra) was delivered on 29th August, 1996 when the Interest Tax Act of 1991 was in course." 9.3 He relied on the judgment of the Supreme Court in Jagir Singh's case (supra) to submit that words 'means' and 'includes' should be given a wide meaning.

9.4 The Special Counsel submitted that reliance could not be placed on the judgment of Madras High Court in the case of Lakshmi Vilas Bank Ltd (supra) as that was the judgment rendered prior to the amendment by the Interest Tax Act, 1991.

9.5 The Special Counsel also relied on the judgment of Andhra Pradesh High Court in the case of Polisetty Somasundaram Charities (supra) which was relied on by the CIT(A).

9.6 Referring to the meaning of the term 'loan', as given in the Black's Dictionary, definitions of Government securities, as defined under section 2(2) of the Public Debts Act, 1974, and also the CBDT's instructions, according to which the CBDT, while clarifying the impact of amendment in section 2(7) of this Act, has clarified that interest on debentures after the amendment was taxable under the Act, the Special Counsel submitted that under me doctrine of interpretation of Statutes a definition, which defines a particular word to 'mean' 'A' and to include 'B' and 'C', then it does not mean that the definition is confined to 'A', 'B' and 'C' only and does not include the natural meaning of 'A'. The ld. counsel further relied on the decision of the Supreme Court in Jagir Singh's case (supra).

10. In response to the Departmental Representative's submissions relating to the deletion of the erstwhile clause 'exclusion of interest on securities' in sub-clause (1) of the former section 2(7) of the Interest Tax Act, 1974 by the Finance Act of 1991, the counsel for the asscssce stated that it would lead to inference that interest on securities was now included within the meaning of interest as defined in section 2(7) of the Finance Act, 1991. It was submitted that (a) deletion of exclusion of interest on securities would not operate to include the same within the purview of interest unless it is explicitly stated in the provisions of law.

(b) As no specific reason has been ascribed either in the Finance Bill, 1991, or in the presenting speech of the Finance Minister or in the Statements of Objects and Reasons of the Bill, the well recognised mischief rule of interpretation laid down in Heydon's case [1984] 76 ER 637 does not and cannot apply to the omission of this hitherto erstwhile- sub-clause (i).

(c) Sub-clause (i) either to in section 2(7) existed to explicity exclude the interest on Government securities and debentures the deletion of this exclusion does not mean that but for this exclusion all interest including interest on investment on securities/debentures would become chargeable to Interest Tax and that it would be presumed that the word to that effect in the amended provisions that interest on securities would be covered by the concept of loans and advances.

(d) The Finance Minister stated in his speech white moving the Finance Bill, 1991 making the amendments to section 2(7) of the Interest Tax Act that new tax could be reimbursed From the borrowers : "The new lax will be levied on the gross amount of interest received by all officers, finance institutions and non banking financial companies in the corporate sector on loans and advances made in India. This institution would reimburse themselves by making necessary adjustment in the Interest rates charged from borrowers." It would not be feasible to make adjustments of the nature visualised by the Finance Minister in respect of interest on investment made in securities/debentures by an institution. This type of adjustment would only be feasible in case of loans and advances given by the institution to borrowers. This view is also supported by the provisions of section 26C of the Interest Tax Act.

(e) As stated earlier by the Supreme Court in several cases cited above, whatever the 'means' and 'includes' have been used in a definition, the definition is exhaustive and complete and nothing further can be referred or read into the definition. This view is also supported by treaties on interpretation by Justice G.P. Singh Pages 146 to 147 and also by the Landmark by Maxwell on the Interpretation of Statutes 12th Edition Page 272.

(f) Interest in section 2(7) has been defined to mean 'Interest on loans and advances' made in India and while interpreting the words 'loans and advances' one has only to look what is clearly stated.

There is no room for any intendmcnt in interpreting these words as has been held by the Supreme Court and referred to earlier.

(g) Loans and advances and investments in securities/debentures have been consistently recognised in several analogous laws has been different in specie and not the same. Even under the Residuary Non Banking Companies Directions, 1987, under which appellant is governed, this dislinclion is recognised.

10.1 The Special counsel by relying on the judgment of the Supreme Court in Loka Shiskhana Trust's case (supra) staled that the speech made in Parliament cannot be used for the purpose of interpretation of statutes but has missed the further observation in the same judgment which says that though nothing can be gathered what is said by any speaker in course of debate in Parliament, but since interpretation of a statutory provision is always a question of law on which the reasons staled by the mover of the amendment can only be used as an aid in interpretation if it holds considerably in understanding the meaning of the amended law. In fact, this judgment supports the case of the appellant that the speech of the Finance Minister, i.e., mover of the bill can be referred in interpreting provisions of law. Reference was also invited to the judgment of the Supreme Court in the case of K.P.Varghesev. ITO [1981] 131 ITR 597 wherein it has been slated by the Supreme Court that : "Speeches made by the members of the Legislature on the floor of the house when the bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the bill explaining the reason for its introduction can certainly be referred for the purpose of ascertaining the mischief sought to be remained by the Legislature and the object and purpose for which the Legislature is enacted. This is in accord with the recent trend in juristic thought only in western countries but also in India, that the interpretation of a statutory being an exercise in the ascertained of meaning, every thing which is logically relevant should be admissible." 10.2 The reasoning given by the Special Counsel for stating that Karnataka Bank Ltd. Judgment has given no proper reasoning for relying on the High Court judgment in the case of Laxmi Vilas Bank (supra) shows that the T.O. has not been properly understood. The Bangalore Bench of the ITAT in the case of Karnataka Bank Ltd. (supra) after citing various reasons, has come to the conclusion that interest on securities cannot be brought to lax under the Interest Tax Act as amended by the Finance Act of 1991. The Bench has not placed sole reliance on the judgment of the Madras High Court in coming to that conclusion, but has merely drawn support from the judgment of the Madras High Court. Even otherwise, the Madras High Court judgment, though rendered prior to the amendment by the Finance Act of 1991, has clearly held that debentures which were acquired by the Bank as investment in accordance with the requirements of Banking Regulation Act could not be considered to be loans and advances within the meaning of section 2(7) of the Interest Tax Act.

10.3 The ld- counsel further submitted that in coming to this conclusion, they have decided the matter on merits and not based their conclusions on sub-clause (i) of the section 2(7) of the prior amended provisions excluding interest on securities. He further pointed out to the observation of the Madras High Court on pages 709 & 710 which reads as under : "The Income-tax Act did not define 'debentures'. To understand the meaning of the word 'debentures' we have to depend upon various other enactments as mentioned hereinbefore. Considering those aspects and the fact that the assessee is also obliged to follow the provisions of the Banking Regulation Act, we are of the opinion that the conclusion arrived at by the Tribunal in holding that the interest on debentures is interest on investment, is not in violation of any of the recognised meanings given to the word 'debenture' in various other enactments. Further, it also remains to be seen that the Interest Tax Act is applicable only to the interest received by the banks. In such circumstances, placing reliance on the provisions of the Banking Regulation Act in the matter of understanding the meaning of the word 'debenture' and in ascertaining the character of the interest received on debentures would not be out of context. Therefore, we find no infirmity in the conclusion arrived at by the Tribunal that interest on debentures cannot be considered as interest as 'loans and advances', liable to be taxed under the Income-lax Act." 10.4 The Special Counsel, for interpreting the definition whereas words 'means' and 'includes' are used, relied on the judgment of the Supreme Court in the case of Jagir Singh (supra). In that case. Supreme Court was dealing with the expression of the word 'owner' as defined in Bihar Taxation on Passengers and Goods (carried by Public Service Motor Vehicles) Act. The definition of owner in section 2(d) of the said Act was as under : "Owner' means the owner of a public service motor vehicle in respect of which a permit has been granted by a Regional or State Transport Authority under the provisions of the Motor Vehicles Act, 1939 and includes the holder of a permit under the said Act in respect of a public service motor vehicle or any person for the time being in-charge of such vehicle or responsible for the management of the place of business of such owner." It would be seen that what is included in the definition was exceptionally wide in its phraseology and that is why Supreme Court in para 21 held as under : "The definition of the term 'owner' is exhaustive and intended to extend the meaning of the term by including within its sweep bailee of a public carrier vehicle or any manager acting on behalf of the owner. The intention of the Legislature to extend the meaning of the term by the definition given by it will be frustrated if what is intended to be inclusive is interpreted to exclude the actual owner." It is obvious from the above that this case is confined to the peculiar working as given in the definition clause of the word 'owner" in the said Act and does not lay down, in principle, the interpretation doctrine.

10.5 As already pointed out earlier, the judgment of the A.P. High Court in the case of Polisetty Somasundaram Charities (supra) is distinguishable and reliance by the Department on the said case is misplaced.

(a) In the assessment year 1992-93 the appellant was a RNBC Company and, therefore, did not fall within the purview of the Interest Tax Act. The assessment year 1992-93 it could not be classified in law as a Miscellaneous non Banking Company on the facts and circumstances of the case and in law.

securities/debentures would not be covered by the definition of 'interest' in section 2(7) even after the amendment by the Finance Act, 1991.

11. We have considered the rival submissions, facts and circumstances of the case, provisions of law and the case laws referred to by the parties carefully and are of the opinion that for the decision of the issue involved here, it is necessary to decide two more questions, namely, (i) the first question relates to the scope of the term 'interest' as defined under section 2(7) of the Act, and (ii) the second question relates to the nature of investments made in securities, i.e., whether the investments made by the assessee were by way of 'loans' or 'advances' as appearing in section 2(7) of the Act or were pure investments not in the nature of loans and advances and consequently outside the (sic.).

11.1 As far as the first issue is concerned, we are inclined to agree with the interpretation of the term 'interest' as defined in section 2(7), put forward by the assessee, and hold that the definition is 'exhaustive' and the term 'interest' takes into its ambit only the following : (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discretion on promissory notes and bills of exchange drawn or made in India.

11.2 This conclusion is based on the reasoning that according to the settled principles of doctrine of 'interpretation of statutes', if a definition, while defining a particular term, uses the words "means 'A', 'B' and 'C'" and includes 'D', 'E', 'F' but does not include 'G', 'H' and T, then such a definition has to be termed as exhaustive one - which otherwise means that nothing more can be read or brought in within the definition of such term. This conclusion is fortified by the following decisions : (i) Mahalaxmi Oil Mills' case (supra) - In this case, the Hon'ble Supreme Court had occasion to deal with the definition of the word 'tobacco' as defined in Schedule 1 item 4 of the Central Excise and Salt Act, 1944. The definition of the word 'tobacco' given therein was as under : "tobacco means any form of tobacco, whether cured or uncured, or whether manufactured or not, and includes the leaves, starchs and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth." 11.3 The Supreme Courl, while interpreting this definition, held that the expression "means and includes" used in a definition clause, indicates the exhaustive nature of the definition. The Supreme Court has held that : "A particular expression is often defined by the Legislature by using (he word 'means' or word 'includes'. Sometimes the words 'means and includes' are used. The use of the word 'means' indicates that 'definition is a hard and fast definition, and no other meaning can be assigned to the expression then is put down in the definition'. The word 'includes' when used, enlarges the meaning of the expression defined so as to comprehend not only such things is they signify according to their natural import but also those things which the clause declares that they shall include. The words 'means and includes', on the other hand, indicate 'an exhaustive explanation of the meaning which, for the purposes of the Act, most invariably be attached to these words or expression'." Reference was also made to the judgment of Supreme Court in the case of Punjab Land Development and Reclamation Corpn. Ltd. (supra) where Supreme Court has held that, "When a statute says that a word or phrase shall 'mean' the definition is hard and fast definition and no other meaning can be assigned to the expression then is put down in the definition. Such a definition is an explicit statement of the full connotation of a term." 11.4 So far as the submission of the Id. Special Counsel for the revenue are concerned, we are of the opinion that the submission that the question of exclusion of something arises only when 'that something' has already been included and the submission that exclusion clause omitted in the amended definition of the term 'interest' under section 2(7) of the Act by which the interest on securities was excluded from the ambit of the 'interest' signifies that the definition of the term 'interest' in the pre-amendcd definition was to take into its ambit all types of interest, i.e., the term 'interest' was to mean the general term of the interest and was not confined to interest on loans and advances etc. alone, may logically seem to be attractive but at the same time, the interpretation put up by the assessec can also not be ignored. In the pre-amended definition, the exclusion clause might have been incorporated due to some error and the Legislature in its wisdom might have preferred to correct the same in the amended definition.

11.5 If we consider the decision of the Hon'ble Supreme Court in the case of Mahalaxmi Oil Mills (supra) whereby the Supreme Court has defined the expression 'means and includes' in a definition clause as 'exhaustive' nature of the definition on the one hand and the pica taken by the revenue in conjunction with Board's instructions whereby the Board, while explaining the impact of amendment brought in section 2(7) of the Act has explained that interest on debentures is taxable under the Act, on the other hand, we find that the provisions of section 2(7) of the Act are liable to two interpretations. In other words, if the amended provisions are considered in isolation, the interpretation goes in favour of the assessce but if considered in conjunction with the old provisions, the interpretation goes in favour of the revenue. This dual interpretative nature of amended provisions goes to show that there is ambiguity in the provisions, that is, the provisions are liable to two different interpretations--one in favour of the assessce and the other in favour of the revenue and if that is the case, then one has to go by the settled proposition of law with regard to the adoption of interpretation under such a situation.

11.6 If the provisions of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity. However, if the provisions are couched in a language which is not free from ambiguity and admits of two interpretation, a view which is favourable to the subject should be adopted. This doctrine for resolving ambiguity in a provision in favour of the assessee is now the law of the land because of the recognition of the same by the Hon'ble Supreme Court in the following eases :(SC), Alladi Venkateswarlu v. Govt. of Andhra Pradesh [1978] 41 STC 394, 398 (SC).

11.7 In view of above discussion, the fact remains that the provisions of section 2(7) of the Act, as they stood at the relevant time, are coucbed in a language which is not free from ambiguity and admits of two interpretations. That being the case, we, in view of the settled proposition of law on the resolution of ambiguity, arc of the opinion that the interpretation, which is favourable to the assessee, should be adopted and we do so.

11.8 Having held as above, the next question for our consideration is whether the investment made by the assessee was in the nature or form of 'loans' or 'advances' and our answer is 'no' because first of all, the investments have been made in compliance to the statutory directions of the RBI and not during the course of carrying on of business of making of such investments and secondly the provisions of section 2(5B)(ii) and 2(5B)(iv) of the Act, and the provisions of section 6(1)(a) of the Banking Regulation Act clearly spell out a distinction between interest on securities and interest on loans and advances. Under the Companies Act also, section 370 deals with loans and advances and section 372 deals with investment. Section 212 of the Companies Act defines debentures to include debentures, bonds and in all the securities. Section 13(c) read with section 13(b) and section 193 of the Companies Act also make a distinction between the loans and advances and investments in securities and debentures.

11.9 In view of above discussions, we are of the opinion that the investment in securities and debentures is not the same as 'loans' or 'advances' envisaged in section 2(7) of ihe Act and consequently the interest on securities and debentures cannot be equated or take colour of "such interest on loans" or "interest on advances". The interest on investment in securities or debentures is, therefore, outside the scope of definition of 'interest' given under section 2(7) of the Act which otherwise means that interest on investments made insecurities and debentures by the assessee is not taxable. Our aforesaid conclusion is supported by the decision in the following cases : (iii) Canara Bank v. D. CIT [Interest Tax Appeal Nos. 5 to 8 (Bang.) of 1997].

11.10 In view of the above discussions and following the ratio of the decisions (supra) as well as for the reasons stated by the CIT(A) in the case of M/s Sahara India Financial Corporation for assessment years 1994-95 and 1995-96 (supra), we are of the opinion that (i) the definition of the term 'interest' given under section 2(7) is exhaustive and the general meaning of the term 'interest' cannot be read into it, (ii) it is only the interest on loans and advances which is within (he ambit of definition of the term 'interest' and consequently liable to interest tax, and (iii) the assessee's investments in securities, debentures and F.Ds. etc. being investments as per the R.B.'s directions are for carrying on the business of Residuary Non Banking Co. and cannot partake the character of investment by way of loans and advances and consequently the income therefrom cannot take the colour of interest on loan or interest on advances.

So far as the present appeals are concerned, the orders of the CIT(A) and that of the Assessing Officer on this score are, therefore, reversed. The assessee's appeals are allowed.


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