Ita/275/2002 Of The Commissioner Of Income Tax,Tvm v. Kerala Financial Corporation,Tvm

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 4TH JUNE 2008 / 14TH JYAISHTA 1930 ITA.No. 275 of 2002() --------------------- ITA.12/COCH/1998 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ------------------------------------ THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: RESPONDENT ----------------------- KERALA FINANCIAL CORPORATION VELLAYAMBALAM, THIRUVANANTHAPURAM. BY ADV. SRI.SARANGAN (SR.) ADV. SRI.K.VINOD CHANDRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 04/06/2008, ALONG WITH ITA NO.306 OF 2002 & ITA NO.333 OF 2002, THE COURT ON 04/06/2008 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. .................................................................... I.T. Appeal Nos.275, 333 & 306 of 2002 ....................................................................Dated this the 4th day of June, 2008. JUDGMENT Ramachandran Nair, J. Heard Senior counsel appearing for the Revenue and Senior counselSri.Sarangan appearing for the respondent-assessee. The question raised iswhether interest on deposits held by the assessee with banking institutions isliable to be taxed under the Interest Tax Act. While counsel for theRevenue contended that what is excluded under the amended provisions ofSection 2(7) of the Interest Tax Act is interest on securities and since interstreceived on deposit is not covered by this head of income, it is taxable underthe Interest Tax Act, Senior counsel appearing for the assessee contendedthat in assessee's own case for subsequent years, the department hasaccepted the claim and orders of the Tribunal in favour of the assessee havebecome final. We are unable to accept the contention of the Revenue thatmerely because interest on deposit is not interest on security, the same willcome under the definition of interest for the purpose of Interest Tax Act.In fact after deletion of the head "interest on securities" from the IncomeTax Act, the interest earned on deposits by the assessee will attract tax under the head "income from other sources" under the Income Tax Act.Interest income under this head is not specifically brought under thedefinition clause, Section 2(7) of the Interest Tax Act. What attractsinterest tax is interest income on loans and advances which means that forthe purpose of interest tax, such income of a credit institution should fallunder the head "business income". Therefore, we are of the view thatinterest on deposit does not fall within the meaning of interest as definedunder Section 2(7) of the Interest Tax Act. Besides this, the chargingSection namely, Section 5 specifically excludes from chargeable interest,interest from loans and advances made to other credit institutions.Therefore, even if the argument of counsel for the department that thedeposit is also a loan or advance is accepted, the interest therefrom is to bespecifically excluded by virtue of the charging Section. So much so, theTribunal was right in excluding interest on deposit from the scope ofInterest Tax Act. The appeals filed by the Revenue are consequentlydismissed. C.N.RAMACHANDRAN NAIRJudge V.K.MOHANANJudge