Ita/304/2002 Of The Commissioner Of Incometax, Tvm v. Kerala State Industrial Enterprises Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 9TH AUGUST 2011 / 18TH SRAVANA 1933 ITA.No. 304 of 2002() --------------------- ITA.10/COCH/1998 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT/ RESPONDENT: ----------------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SMT.PRIYA MANJOORAN SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT/APPELLANT: --------------- KERALA STATE INDUSTRIAL ENTERPRISES LTD, THIRUVANANTHAPURAM. ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SMT.PRIYA MAHESH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09/08/2011,ALONG WITH ITA NO. 311 OF 2002, THE COURT ON THE SAME DAY DELIVEREDTHE FOLLOWING: I.T.A.No.304/2002 PA TO JUDGE C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ.------------------------------------------I.T.A.No.304 & 311 OF 2002 ------------------------------------------- Dated this the 9[th] day of August, 2011 J U D G M E N T ~~~~~~~~~~~ C.N.Ramachandran Nair, J. The question raised in the connected appeals filed by theRevenue is whether the respondent is liable for interest taxunder the Interest Tax Act. 2.We have heard the learned senior counsel appearingfor the Revenue and the counsel appearing for the respondent. 3.The transactions that lead to the assessment anddemand of interest tax is the State Government's fundtransacted by respondent Company which is by way of financingother Government owned Companies. The respondent is aholding company for several subsidiary companies also fullyowned and managed by the Government. Government usedrespondent as an agency for funding the companies under it'scontrol. It is seen from the findings of the Tribunal that theentire funds transferred from the Government to the respondentwere in turn transmitted by them to the beneficiary companiesand the amount collected with interest was credited to the I.T.A.Nos.304 & 311/2002 Government's account. In other words, the clear finding is thatthe respondent is not a beneficiary of the financial transactionand it was used by the State Government as a channelisingagency for fund flow from Government to it's ailing public sectorcompanies. Since the respondent is not the beneficiary of thetransactions and was only used as a channellising agency by theGovernment, we do not think Section 5 or Section 6 of the Act isattracted and so much so, the interest received by therespondent on behalf of the Government and transferred to theGovernment cannot be treated as interest accrued or received bythe respondent that is chargeable to tax under the Act. We,therefore, do not think there is any need to consider the otherquestions raised that is whether the respondent is a financialcompany and consequently a credit institution that could beassessed under the Act. 3.It is also seen from the Tribunal's order that in 1999the Government discontinued the arrangements with therespondent by just declaring that the benefits or loss on accountof all money transactions made by the respondent on behalf of I.T.A.Nos.304 & 311/2002 the Government will go to Government in the same form andstyle of the asset. In view of the findings of the Tribunal thatrespondent is only a channelising agency for transfer of fundsand it is not a beneficiary of the interest earned on such fundstransferred by the Government through it, the respondentcannot be assessed under the Act. We, therefore, dismiss boththe appeals filed by the Revenue. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) ps/16/8 I.T.A.Nos.304 & 311/2002 C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. I.T.A.Nos.304 & 311/2002 J U D G M E N T DT.9.8.2011.