Ita/199/2009 Of The Commissioner Of Income Tax, Cochin v. Little Flower Kuries And Enterprises Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 22ND DECEMBER 2009 / 1ST POUSHA 1931 ITA.No. 199 of 2009() ------------------------------ ITA.48/COCH/2002 of INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT -------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. MR.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: --------------------------------------- LITTLE FLOWER KURIES AND ENTERPRISES LTD., KUNNUMPURAM, KOCHI-1. BY ADV. MR.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22/12/2009, ALONG WITH ITA NO.288 OF 2009 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rs. C.R. C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ---------------------------------------------I.T.A.Nos.199,288, 292,305,309,335,341,358,365,370 & 379 of 2009 --------------------------------------------- Dated this the 22[nd] day of December, 2009 J U D G M E N T Ramachandran Nair,J: The question raised in the connected appealsfiled by the revenue against the same assessee iswhether the assessee, which is mainly engaged in chittybusiness, is liable to be assessed under the Interest TaxAct, 1974 (for short 'the Act') on the interest received inthe hire purchase business, lending etc. Even thoughassessments were sustained in first appeal, the Tribunalheld that the respondent is not assessable under theInterest Tax Act, against which these appeals are filed. 2.We have heard Senior Standing CounselSri.P.K.R.Menon appearing for the revenue andSri.P.Balakrishnan,appearingforthe respondent/assessee. I.T.A.Nos.199 of 2009 and connected cases :-2-: 3.The respondent is assessable to interest taxunder the Act only if it falls within the definition of creditinstitution as defined under Section 2(5-A) of the Act.Since the appellants do not have a case that therespondent is a credit institution within the meaning ofclauses (i)(ii) or (iii) of Section 2(5-A), the question to beconsidered is whether respondent is a credit institution byvirtue of being a 'financial company' as defined underSection 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 contextotherwise requires,-- xxxx xxxxxxxx xxxxxxx (5-B) “financial company” means a company, otherthan a company referred to in sub-clauses (i),(ii)or (iii) of Cl.(5-A), being--- (i) a hire-purchase financecompany, that is to say, a company whichcarries on, as its principal business,hire-purchase transactions or thefinancing of such transactions; (ii) an investment company, thatis to say, a company which carries on, as its principal business, the acquisition ofshares, stock, bonds, debentures,debenture stock or securities issued bythe Government or a local authority, orother marketable securities of a likenature; (iii) a housing finance company,that is to say, a company which carrieson, as its principal business, thebusiness of financing of acquisition orconstruction of houses, includingacquisition or development of land inconnection therewith; (iv) a loan company, that is to say,a company not being a company referredto in sub-clauses (i) to (iii) which carrieson, as its principal business, thebusiness of providing finance, whetherby making loans or advances orotherwise. (v) a mutual benefit financecompany, that is to say, a company whichcarries on, as its principal business, thebusiness of acceptance of deposits fromits members and which is declared bythe Central Government under Sec.620-A of the Companies Act,1956 (1 of1956), to be a Nidhi or Mutual BenefitSociety; (iii) a housing finance company,that is to say, a company which carrieson, as its principal business, thebusiness of financing of acquisition orconstruction of houses, includingacquisition or development of land inconnection therewith; (iv) a loan company, that is to say,a company not being a company referredto in sub-clauses (i) to (iii) which carrieson, as its principal business, thebusiness of providing finance, whetherby making loans or advances orotherwise. (v) a mutual benefit financecompany, that is to say, a company whichcarries on, as its principal business, thebusiness of acceptance of deposits fromits members and which is declared bythe Central Government under Sec.620-A of the Companies Act,1956 (1 of1956), to be a Nidhi or Mutual BenefitSociety; (v-a) a residuary non-bankingcompany other than a financial companyreferred to in sub-clauses (i),(ii),(iii),(iv)or (v), that is to say, a company whichreceives any deposit under any schemeor arrangement, by whatever, name called, in one lumpsum or in instalments,by way of contributions or subscriptionsor by sale of units or certificates orother instruments or in any othermanner; or (vi) a miscellaneous financecompany, that is to say, a company whichcarries on exclusively, or almostexclusively, two or more classes ofbusiness referred to in the precedingsub-clauses;” Even though the respondent is admittedly engaged in hire- purchase business, it is not covered by sub-clause (i) of thedefinition clause because admittedly, the finding of thelower authorities including the Tribunal is that itsprincipal business is chitty and not hire-purchase businessor the financing of such transaction. The respondent willcome under the tax net as a hire-purchase financecompany only if it's principal business is hire-purchasingor financing of such transactions. The Departmentadmittedly does not have a case that the respondent'sprincipal business is in hire-purchase or in financing ofsuch transaction. On the other hand, it is on record that I.T.A.Nos.199 of 2009 and connected cases the respondent is mainly engaged in chitty business. Somuch so, it does not fall within sub-clause (i) of thedefinition clause above stated. Since the respondent doesnot engage in investment or in housing finance, it does notfall within clauses (ii) and (iii). Though the respondent isengaged in money lending also, admittedly, that is also notits principal business and so much so, it does not fallunder clause (iv) above. The respondent is admittedly nota mutual benefit finance company and therefore, fallsoutside sub-clause (v). Senior counsel appearing for theappellant prays for acceptance of the position that therespondent would fall under sub-clauses (v-a) or (vi). 4. Even though the appellants have relied on notesand clauses explaining the scope of financial companyreported in 194 ITR (Statutes) 206, on going through thesame, we do not find, the assessee is engaged in thebusiness as contemplated in sub-clause (v-a). Even thoughcounsel submitted that the assessee is collecting kuri I.T.A.Nos.199 of 2009 and connected cases :-6-: 4. Even though the appellants have relied on notesand clauses explaining the scope of financial companyreported in 194 ITR (Statutes) 206, on going through thesame, we do not find, the assessee is engaged in thebusiness as contemplated in sub-clause (v-a). Even thoughcounsel submitted that the assessee is collecting kuri I.T.A.Nos.199 of 2009 and connected cases :-6-: subscription and paying prize amount, we do not think, thecontributions or subscriptions referred to in sub-clause(v-a) relate to chitty subscription. In our view, thequestion whether the assessee would fall within thedefinition of 'finance company' should be considered withreference to the object of the statute which is to levy taxon chargeable interest. Fundamentally, liability is oninterest income, which as defined under Section 2(7) ofthe Act, means interest on loans and advances made inIndia and also includes the nature of receipts covered bysub-clauses(a) and (b) of Section 2(7). It is commonknowledge that the chitty business is not one whichinvolves advancing of loans. In fact, interest happens tobe levied only when subscriber fails to remit the kurisubscription amount in time. The interest on defaultcharged on subscribers cannot be treated as interest onloans or advances. Since chitty business does not involveadvancing of loan, we do not think, the legislature I.T.A.Nos.199 of 2009 and connected cases intended to cover chitty business under the Act.Therefore, in our view, so long as respondent's principalbusiness is chitty, it will not fall within the definition of'financial company' as defined under Section 2(5-B) of theAct. 5. The next contention raised by senior counselappearing for the appellant, which is alternative in nature,is that respondent may fall within sub-clause(vi), whichcovers 'miscellaneous finance company', which it will be, ifit carries on exclusively, or almost exclusively, two or moreclasses of business referred to in the preceding sub-clauses. We have already noticed that the principalbusiness of the respondent is chitty business which doesnot 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 asubsidiary business, will not bring the respondent withinthe definition clause under Section 2(5-B). We therefore I.T.A.Nos.199 of 2009 and connected cases :-8-: reject this contention of the appellant also. Consequently,the appeals are dismissed upholding the order of theTribunal declaring that the respondent's principal businessis outside the scope of the Act. C.N.Ramachandran Nair, Judge. V.K.Mohanan, Judge. MBS/ I.T.A.Nos.199 of 2009 and connected cases :-9-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. --------------------------------------------------- I.T.A.NO. OF 200 -------------------------------------------- J U D G M E N T :-10-: DATED: -9-2009 I.T.A.Nos.199 of 2009 and connected cases :-11-: C.N.Ramachandran Nair, Judge. V.K.Mohanan, Judge. MBS/ C.N.RAMACHANDRAN NAIR I.T.A.Nos.199 of 2009 and connected cases :-12-: &V.K.MOHANAN, JJ. --------------------------------------------------- I.T.A.NO. OF 200 -------------------------------------------- J U D G M E N T DATED: -9-2009 I.T.A.Nos.199 of 2009 and connected cases