P.M. Jagtap, Accountant Member - (1.) THESE four appeals preferred by the assessee against four separate orders- of the Id CIT (A) -XVII, New Delhi dt 28.22003 involve common issue and the same are, therefore, being disposed off by a single order for the sake of convenience.
(2.) The solitary effective ground raised by the assessee which is common in all these appeals reads as under:- "That the Id CIT(A) was not justified in confirming the additions made by AO in respect of interest tax recovered by the Appellant Bank from its borrowers in the chargeable interest as it does not form part of interest. It is accordingly prayed that interest tax @ 2/102 (3/103 for AY 97-98) is to be charged instead of 2/100 (3/100 for AY 97-98) from the Bank" The relevant facts of the case giving rise to these appeals are as follows. The assessee in the present case is a Nationalized Bank, which filed its return of interest for the years under consideration declaring chargeable interest as follows: JUDGEMENT_3516_TLIT0_20050.htm
(3.) DURING the course of assessment proceedings, it was noticed by the AO that the assessee has computed the interest tax liability by multiplying gross interest by 2/102 (3/103 for AY 97-98). It was explained on behalf of the assessee that interest collected by it from the borrowers was inclusive of interest tax and therefore, interest tax liability was worked out by applying a factor of 2/102 (3/103 for AY 97-98) and not 2/100 (3/100 for AY 97-98). It was also submitted that interest tax included in the interest amount charged by the assessee from its borrowers was collected as an agent and the same having been paid over to the Government, it did not form part of its interest income. The explanation of the assessee was not accepted by the AO and he proceeded to work out its liability towards interest tax by applying a factor of 2/100 (3/100 for AY 97-98) to the gross interest earned by it. Aggrieved by the same, the assessee preferred its appeals before the Id. CIT (A) and it was submitted on its behalf before him that interest on various loans was being charged to the borrowers as per RBI guidelines issued from time to time and since a note was given at the end of the lending rate structure as "interest tax is to be charged @ 2% (3% for AY 97-98) on the ex-tax interest amount", the interest tax which was included in the interest amount did not have the character of chargeable interest right from its inception. It was also submitted that as per the agreement between the bank and the borrower, the borrower was to bear the burden of interest tax and accordingly the gross interest income earned by the bank on its loans and advances was inclusive of the interest tax recovered. It was therefore, contended that the amount credited to the interest account in reality was 102% & 103% (100% interest plus 2% & 3% inertest tax) and therefore a multiplication factor of 2/102 (3/103 in A.Y. 97-98) was rightly applied to workout the interest tax liability in respect of gross interest income. Reliance was placed on behalf of the assessee on the decision of the Hon'ble Madras High Court in the case of CIT v. Bank of Madhura Ltd. 215 ITR 928. The Id CIT (A) found no merit in the submissions made on behalf of the assessee and proceeded to uphold the action of the AO in computing the internet tax liability by applying a formula of 2/100 (3/100 for AY 97-98) for the following identical reasons given in all his impugned orders for the years under consideration. "I have examined all the relevant facts of the case and the arguments of the appellant bank in its submissions have conceded that it is not maintaining separate heads of accounts of interest and interest tax recovered from the borrowers. The fact that no interest tax has separately been charged from the customers or declared in the accounts also becomes clear from a perusal of statement of interest earned. Thus, there is no question of allowing any deduction on account of payment of any alleged interest tax. Even if any interest tax was actually received by the appellate company, even then no deduction on this account can be allowed as no such deduction has been provided for in the Interest tax Act. The argument that interest tax would not form part of interest earned by the appellant company also cannot be accepted because any interest earned by the appellant company either as interest or any tax paid by the client would form part of the interest earned. If any liability of appellant company is discharged by its customers, it would certainly form part of total amount earned. This view finds support from the Supreme Court decision in the case of Mcdowell & Co Ltd. v. Commercial Tax Officer 154 ITR 148. Relevant portion is reproduced below: "Head, affirming the High Court, that under Rule 76 of the Distillery Rules, as amended in 1981, the liability for payment of excise duty was that of the manufacturer and Rules 80 to 84 did not detract from the position that payment of excise duty was the primary and exclusive obligation of the manufacturer and if payment be made under a contract or arrangement by any other person, it would amount to the meeting of the obligation of the manufacturer and nothing more. Payment of excise duty was a condition precedent to the removal of the liquor from the distillery and payment by the purchaser was on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the appellant's bill either as merged in the price or shown separately. In the hands of the buyer, the cost of liquor was what was charged by the appellant under its bill together with the excise duty, which the buyer had directly paid on seller's account. The consideration for the sale was thus the total amount and not what was reflected in the bill Excise duty, though paid by the purchaser to meet the liability of the appellant, was part of the consideration for sale and was includible in the turnover of the appellant." From the above discussion, it is clear that no deduction on account of alleged interest tax recovered from the customer can be allowed because (i) on the facts of the case, no interest tax has separately been recovered from customers (ii) even if such interest is accepted to have been recovered from the customers, it forms part of the interest earned by the appellant company in view of the relevant provisions of law and the above mentioned judgment of the Supreme Court. The law does not provide any deduction on account of the interest tax recovered from customers. Therefore, the action of the AO in computing the interest tax liability by applying the formula of 3/100 is upheld." Aggrieved by the orders of the Id CIT (A), the assessee is in appeal before us.;