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Section 2 – The Interest Tax Act, 1974

The Interest Tax Act, 1974

 

2. Definitions

 

In this Act, unless the context otherwise requires,—

 

(1) “assessee” means a person by whom interest-tax, or any other sum of money is payable under this Act and includes—

 

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his chargeable interest or of the amount of refund due to him or of the chargeable interest of any other person in respect of which he is assessable or of the amount of refund due to such other person;

 

(b) every person who is deemed to be an assessee in default under any provision of this Act;

 

(2) “assessment” includes reassessment;

 

(3) “assessment year” means the period of twelve months commencing on the 1st day of April, every year;

 

(4) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);

 

(5) “chargeable interest” means the total amount of interest referred to in section 5, computed in the manner laid down in section 6;

 

1(5A) “credit institution” means,—

 

(i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) 2[* * *];

 

(ii) a public financial institution as defined in section 4A3 of the Companies Act, 1956 (1 of 1956);

 

(iii) a State Financial Corporation established under section 3 or section 3A or an institution notified under section 464 of the State Financial Corporations Act, 1951 (63 of 1951); and

 

(iv) any other financial company;

 

(5B) “financial company” means a company, other than a company referred to in sub-clause (i), (ii) or (iii) of clause (5A), being—

 

(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions;

 

(ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature;

 

(iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of the financing of acquisition or construction of houses including acquisition or development of land in connection therewith;

 

(iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise;

 

(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A5 of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; 6[* * *]

 

7[(va) a residuary non-banking company [other than a financial com-pany referred to in sub-clause (i), (ii), (iii), (iv) or (v)], that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lump sum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or]

 

(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses;]

 

(6) “Income-tax Act” means the Income-tax Act, 1961 (43 of 1961);

 

8[9(7) “interest” means interest on loans and advances made in India and includes—

 

(a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and

 

(b) discount on promissory notes and bills of exchange drawn or made in India,

 

but does not include—

 

(i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);

 

(ii) discount on treasury bills;]

 

(8) “prescribed” means prescribed by rules made under this Act;

 

(9) 10[* * *]

 

(10) all other words and expressions used herein but not defined and defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act.

 

——————–

 

1. Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991.

 

2. Words “or a co-operative society engaged in carrying on the business of banking not being a co-operative society providing credit facilities to farmers or village artisans” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 

3. Section 4A of the Companies Act, 1956, lays down as under :

 

“4A. Public financial institutions.—(1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution, namely :—

 

(i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913);

 

(ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);

 

(iii) the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);

 

(iv) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

 

(v) the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963).

 

(2) Subject to the provisions of sub-section (1), the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a public financial institution :

 

Provided that no institution shall be so specified unless—

 

(i) it has been established or constituted by or under any Central Act, or

 

(ii) not less than fifty-one per cent of the paid-up share capital of such institution is held or controlled by the Central Government.”

 

4. Section 46 of the State Financial Corporations Act, 1951, lays down as under :

 

“46. Power to apply Act to certain financial institutions in existence at commencement of Act.—(1) The Central Government may, by notification in the Official Gazette, direct that all or any of the provisions of this Act shall, subject to such exceptions and restrictions as may be specified, apply to any institution in existence at the commencement of this Act which has for its object the financing of industrial concerns, and on the issue of such notification, the institution shall be deemed to be a financial corporation established by the State Government for the State within the meaning of this Act, and the provisions of this Act shall become applicable thereto according to the tenor of the notification.

 

(2) Any notification issued under sub-section (1) may suspend the operation of any enactment applicable to any such institution immediately before the issue of the notification.”

 

5. Section 620A of the Companies Act, 1956, lays down as under :

 

‘620A. Power to modify Act in its application to Nidhis, etc.—(1) In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.

 

(2) The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification—

 

(a) shall not apply to any Nidhi or Mutual Benefit Society, or

 

(b) shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.

 

(3) A copy of every notification issued under sub-section (1) shall be laid as soon as may be after it is issued, before each House of Parliament.’

 

6. Word “or” omitted by the Finance Act, 1992, w.e.f. 1-4-1993.

 

7. Inserted by the Finance Act, 1992, w.e.f. 1-4-1993.

 

8. Substituted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Prior to substitution, clause (7), as amended by the Finance Act, 1976, w.e.f. 1-4-1977, Finance (No. 2) Act, 1980, w.e.f. 1-9-1980 and Finance Act, 1982, w.e.f. 1-4-1983, read as under :

 

‘(7) “interest” means interest on loans and advances made in India and includes—

 

(a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and

 

(b) discount on promissory notes and bills of exchange drawn or made in India, but does not include—

 

(i) any amount chargeable to income-tax, under the Income-tax Act, under the head “Interest on securities”;

 

(ia) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);

 

(ii) discount on treasury bills; and

 

(iii) interest on any term loan sanctioned before the 18th day of June, 1980 where the agreement under which such loan has been sanctioned provides for the repayment thereof during a period of not less than three years.

 

Explanation

 

For the purposes of this sub-clause, “term loan” means a loan which is not repayable on demand;

 

(iv) interest on any deferred credit (that is to say, credit on the terms that the payment is to be deferred) sanctioned by a scheduled bank in connection with the export of capital plant and machinery outside India;

 

(v) interest on any loan in foreign currency sanctioned by any corporation or bank referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (9) for the import of capital plant and machinery from a country outside India.’

 

See also CIT v. Federal Bank Ltd. [1991] 189 ITR 117 (Ker.), State Bank of Mysore v. CIT [1988] 41 Taxman 275 (Kar.), CIT v. Karnataka Bank Ltd. [1986] 157 ITR 512 (Kar.), CIT v. State Bank of Indore [1988] 172 ITR 24 (MP), CIT v. Vijaya Bank [1988] 41 Taxman 34 (Kar.) and CIT v. Canara Bank [1989] 44 Taxman 254 (Kar.).

 

9. See also Circular No. 738, dated 25-3-1996 and Circular No. 760, dated 13-1-1998.

 

10. Omitted by the Finance (No. 2) Act, 1991, w.e.f. 1-10-1991. Prior to its omission it read as under :

 

‘(9) “scheduled bank” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or any other bank, being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), and includes—

 

(a) the Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948 (15 of 1948);

 

(b) the Industrial Development Bank of India, established under the Industrial Development Bank of India Act, 1964 (18 of 1964);

 

(c) the Industrial Reconstruction Corporation of India Limited; and

 

(d) the Industrial Credit and Investment Corporation of India Limited.

 

 

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