C.N. Ramachandran Nair, J.
1. The question raised in the connected appeals filed by the revenue against the same assessee is whether the assessee, which is mainly engaged in chitty business, is liable to be assessed under the Interest Tax Act, 1974 (for short 'the Act') on the interest received in the hire purchase business, lending etc. Even though assessments were sustained in first appeal, the Tribunal held that the respondent is not assessable under the Interest Tax Act, against which these appeals are filed.
2. We have heard Senior Standing Counsel Sri. P.K.R. Menon appearing for the revenue and Sri. P. Balakrishnan, appearing for the respondent/assessee.
3. The respondent is assessable to interest tax under the Act only if it falls within the definition of credit institution as defined under Section 2(5-A) of the Act. Since the appellants do not have a case that the respondent is a credit institution within the meaning of Clauses (i), (ii) or (iii) of Section 2(5-A), the question to be considered is whether respondent is a credit institution by virtue of being a 'financial company' as defined under Section 2(5-B) of the Act. For easy reference, we extract Section 2(5-B) of the Act as follows:
2. Definitions.- In this Act, unless the context otherwise requires,:
xxxxx xxxxxx xxxxxxx(5-B) 'financial company' means a company, other than a company referred to in Sub-clauses (i),(ii) or (iii) of Clause (5-A), being:
(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions;
(ii) 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;
(iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith;
(iv) 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.
(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under Section 620-A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society;
(v-a) a residuary non-banking company other than a financial company referred to in Sub-clauses (i),(ii),(iii),(iv) or (v), that is to say, a company which receives any deposit under any scheme or arrangement, by whatever, name called, in one lumpsum or in instalments, by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or
(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses;
Even though the respondent is admittedly engaged in hire- purchase business, it is not covered by Sub-clause (i) of the definition clause because admittedly, the finding of the lower authorities including the Tribunal is that its principal business is chitty and not hire-purchase business or the financing of such transaction, The respondent will come under the tax net as a hire-purchase finance company only if it's principal business is hire-purchasing or financing of such transactions. The Department admittedly does not have a case that the respondent's principal business is in hire-purchase or in financing of such transaction. On the other hand, it is on record that the respondent is mainly engaged in chitty business. So much so, it does not fall within Sub-clause (i) of the definition clause above stated. Since the respondent does not engage in investment or in housing finance, it does not fall within Clauses (ii) and (iii). Though the respondent is engaged in money lending also, admittedly, that is also not its principal business and so much so, it does not fall under Clause (iv) above. The respondent is admittedly not a mutual benefit finance company and therefore, falls outside Sub-clause (v). Senior counsel appearing for the appellant prays for acceptance of the position that the respondent would fall under Sub-clauses (v-a) or (vi).
4. Even though the appellants have relied on notes and clauses explaining the scope of financial company reported in 194 ITR (Statutes) 206, on going through the same, we do not find, the assessee is engaged in the business as contemplated in Sub-clause (v-a). Even though counsel submitted that the assessee is collecting kuri subscription and paying prize amount, we do not think, the contributions or subscriptions referred to in Sub-clause (v-a) relate to chitty subscription. In our view, the question whether the assessee would fall within the definition of 'finance company' should be considered with reference to the object of the statute which is to levy tax on chargeable interest. Fundamentally, liability is on interest income, which as defined under Section 2(7) of the Act, means interest on loans and advances made in India and also includes the nature of receipts covered by Sub-clauses (a) and (b) of Section 2(7). It is common knowledge that the chitty business is not one which involves advancing of loans. In fact, interest happens to be levied only when subscriber fails to remit the kuri subscription amount in time. The interest on default charged on subscribers cannot be treated as interest on loans or advances. Since chitty business does not involve advancing of loan, we do not think, the legislature intended to cover chitty business under the Act. Therefore, in our view, so long as respondent's principal business is chitty, it will not fall within the definition of 'financial company' as defined under Section 2(5-B) of the Act.
5. The next contention raised by senior counsel appearing for the appellant, which is alternative in nature, is that respondent may fall within Sub-clause (vi), which covers 'miscellaneous finance company', which it will be, if it carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses. We have already noticed that the principal business of the respondent is chitty business which does not fall under Sub-clauses (i)to(v-a)of Section 2(5-B). Further, only one of its activities falls within Sub-clauses (i) to (v-a), which is hire purchase financing which being a subsidiary business, will not bring the respondent within the definition clause under Section 2(5-B). We therefore reject this contention of the appellant also. Consequently, the appeals are dismissed upholding the order of the Tribunal declaring that the respondent's principal business is outside the scope of the Act.