Durga Bhavan, Hede Centre, Tonca, Panaj-Goa v. The Assistant Commissioner Of

IN THE HIGH COURT OF BOMBAY AT GOATAX APPEALS NO.34,35 & 36 OF 2007 Zuari Finance Ltd., (name since changed to Zuari Forex Ltd.), Durga Bhavan, Hede Centre, Tonca, Panaj-Goa.V/s 1. The Assistant Commissioner of Income Tax, Circle i (1), Panaji-Goa. …. Appellant 2. The Commissioner of Income Tax (Appeals), Panaji-Goa. 3. The Income Tax Appellate Tribunal, Panaji Bench, Panaji-Goa. Panaji Bench, Panaji-Goa. …. Respondents Shri Y.V. Nadkarni and Ms. Divya Shirgam, Advocate for the Appellant. Ms. Asha Desai, Advocate for the Respondents. CORAM : B.P. DHARMADHIKARI & F.M. REIS, JJ. DATE : 8[th] OCTOBER, 2014 ORAL JUDGMENT : (Per B.P. DHARMADHIKARI, J.) Assessee is before this Court in these three appeals under Section 260-A of Income Tax Act challenging the demand under Interest Tax Act, 1974 under Section 8(2) thereof read with Rule 7 of Interest Tax Rules, 1974. The demand is for three years i.e. assessment years 1996-97, 1997-98 and 1998-99. ITA has passed a common order and as against said common order, three appeals have been preferred before this Court. The appeals have been admitted on 9/07/2007 with following questions as substantial questions of law: 4(A) Whether in the backdrop of the admitted fact that more than 50% of the income of the Appellant for the relevant assessment year was derived from consultancy business, the Appellant Company would be liable to pay interest tax as it was neither a hire-purchase finance company nor a loan company nor a residuary non-banking company as defined in Section 2(5B) of the Interest Tax Act, 1974? 4(B) Whether the findings reached by the Appellate Tribunal in the Impugned Order accepting the reasoning and conclusion of the Commissioner of Income Tax (Appeals) in his order dated 8/12/2004, are in disregard to the relevant material on record or perverse being contrary to the evidence on record or have been reached without considering the material and relevant evidence on record? 4(C) Whether the Appellate Tribunal was right in accepting the conclusion of the Commissioner of Income Tax (Appeals) that the case of the Appellant was covered under Section 2(5B)(vi) of the Act in the absence of any relevant material in that behalf on record? 4(D) Whether the Appellate Tribunal was right in not giving appropriate reasons and taking a casual view while deciding the core issue involved in the case viz. whether the Appellant was exclusively carrying on two or more classes of business referred to in Clauses (i) to (va) to Section 2(5B) of the Act. 4(C) Whether the Appellate Tribunal was right in accepting the conclusion of the Commissioner of Income Tax (Appeals) that the case of the Appellant was covered under Section 2(5B)(vi) of the Act in the absence of any relevant material in that behalf on record? 4(D) Whether the Appellate Tribunal was right in not giving appropriate reasons and taking a casual view while deciding the core issue involved in the case viz. whether the Appellant was exclusively carrying on two or more classes of business referred to in Clauses (i) to (va) to Section 2(5B) of the Act. consideration of the question of applicability of Interest Tax Act, 1974 in case of appellant in paragraph 3.6 onwards of its order by CIT appeals. He points out the relevant provisions of Interest Tax Act, 1974 to submit that in order to reject the contention of appellant about the “principal” nature of business carried by it, CIT appeals relies upon provisions of Section 2(5B)(vi) by pointing out that clause (va) thereof does not use the word “principal business”. He contends that question whether business of appellant falls under said clause (va) has not been gone into at all and straight away clause (vi) has been made applicable. He also points out the allowance made for hire purchase income and interest received from other credit institutions by CIT appeals. He submits that application of mind in paragraph 3.8 and 3.8.1 of its order by CIT appeals again overlooks the ingredients of clause (va) mentioned supra. He contends that the admitted accounts of appellant for the relevant years show that 59.49%, 50.80% and 51.44 % income, respectively, during above assessment years has been earned out of consultancy charges. Some income has come from lease rentals. He contends that interest derived under the head 'hire purchase income' and 'interest income during these three years' has been roughly varying between 25% to 46%. The said income never formed a principal source and, therefore, was not a principal business. He further contends that when all these contentions were pressed into service in further appeals before ITAT, ITAT has in paragraph 15 rejected the same simply by affirming the findings of CIT appeals without any application of mind. 3.Learned Counsel appearing for Revenue has urged that CIT appeals has properly considered all relevant aspects. The insistence on principal business by Assessee is found misconceived looking to the scheme of Section 2(5B). The reference to Section 2(5A) is only to show this wrong or misconceived notion. After that exercise, CIT appeals has looked into the residuary clause in said provision i.e. Section 2(5B)(vi) and found that appellant was squarely covered thereunder. She submits that in the light of this finding, when ITAT was writing a judgment confirming said exercise, it was not necessary for it to record reasons in detail. 4.Questions which fall for determination have been already mentioned by us supra. The question 4(D) specifically speaks of the absence of appropriate reasons or casual approach by ITAT. In the light of arguments advanced, we find it necessary to restrict the present consideration only to said question. 4.Questions which fall for determination have been already mentioned by us supra. The question 4(D) specifically speaks of the absence of appropriate reasons or casual approach by ITAT. In the light of arguments advanced, we find it necessary to restrict the present consideration only to said question. 5.The appellant wanted to demonstrate before ITAT that it is not a credit institution as defined in Section 2(5A). The charging provision i.e. Section 4(2) exposes appellant to a demand under Interest Tax Act, 1974 if it is shown to the credit institution. Residuary clause of the definition makes reference to Financial Company. Financial Company is defined in Section 2(5B). Clauses (i) to (v) thereof speak of different businesses, but then also specify that those businesses must be carried out by such companies as its principal business. The businesses contemplated are hire-purchase, investment company, housing finance company, loan company and a mutual benefit finance company. The word 'as its principal business' which find mention in clauses (i) to (v) are absent in clause (va). It speaks of a residuary non-banking company and further stipulates that such company has to be other than the financial company referred to in sub-clauses (i) to (v) supra. It is further mentioned that such company has to receive a deposit under any scheme or arrangement in one lump sum or in instalments by way of contributions or subscriptions or by sale of the units or certificates or other instruments or in any other manner. The phrase 'Miscellaneous Finance Company' finds inclusion in clause (vi) appearing thereafter. Said clause includes a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in preceding sub-clauses. Thus, if a company does not fall in clauses (i) to (va) of the Section 2(5B), it may still become a Miscellaneous Finance Company subject to rider stipulated therein. Hence, it was first expected of CIT appeals to find out whether two or more businesses of the appellant Assessee can be placed under any of the clauses mentioned supra i.e. Clauses (i) to (va). That exercise appears not to have been undertaken. 6.When the matter was taken to ITAT, ITAT has observed as under in this respect: 15. We have carefully considered the issue. The claim of the assessee that it was not liable to interest tax only because more than 50% of its income was from the consultancy business cannot be accepted in view of the reasons given by the ld. CIT(A) and the decisions relied upon by him in his impugned order. The decision of the ld. CIT(A) is upheld on this point. The grounds Nos.2 to 4 are rejected. Thus, it has not considered any of the grounds of challenge and proceeded to uphold the observations of the CIT appeals. A statutory appeal is a right given to aggrieved person to ventilate his grievance against the adverse order passed by first authority. The grounds of challenge spell out these objections to the correctness or otherwise of the findings recorded by said first authority. Appellate authority has to therefore consider those grounds of challenges and after due evaluation thereof, conclude whether the same have any substance or not. Such an exercise is lacking in present matter by ITAT. Why ITAT did not find any merit in any of the challenges raised by appellant is not apparent from said order. It is therefore clear that consideration by ITAT in this respect stands vitiated on account of non-application of mind. 7.In view of this discussion question 4(D) is answered in favour of present appellant/assessee and against the department. It is therefore not necessary to consider the other questions at this stage. challenge spell out these objections to the correctness or otherwise of the findings recorded by said first authority. Appellate authority has to therefore consider those grounds of challenges and after due evaluation thereof, conclude whether the same have any substance or not. Such an exercise is lacking in present matter by ITAT. Why ITAT did not find any merit in any of the challenges raised by appellant is not apparent from said order. It is therefore clear that consideration by ITAT in this respect stands vitiated on account of non-application of mind. 7.In view of this discussion question 4(D) is answered in favour of present appellant/assessee and against the department. It is therefore not necessary to consider the other questions at this stage. 8. As a result of this answer, impugned order dated 19/01/2007 delivered by ITAT in Income Tax Appeal no.01 to 03/PNJ/2005 is quashed and set aside. These three appeals are restored back to the file of ITAT for taking fresh decision in the matter in accordance with law after giving parties due opportunity. Parties are directed to appear before ITAT, Panaji on 8/12/2014 and to abide by its further instructions in the matter. 9.Appeals are thus allowed with no order as to costs. F.M. REIS, J. NH/- B.P. DHARMADHIKARI, J.