IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5283 OF 2004

Commissioner of Income Tax, Kanpur ...Appellant(s)

Versus

M/s. Sahara India Savings & Investment  Corporation Ltd.

                 ...Respondent(s)

W I T H

Civil Appeals Nos.5284/2004, 5285/2004, 5286/2004 and  Civil Appeal No.4294/2006

O R D E R

In this batch of Civil Appeals, the main issue which  

arises  for  determination  is:  Whether  "interest”  which  the  

assessee earned on bonds and debentures was chargeable to tax  

in view of the definition of the term "interest” in Section  

2(7) of the Interest Tax Act, 1974.

Respondent Company is a company registered under the  

Indian Companies Act, 1956.  One of the objects for which the  

company was incorporated is to buy, sell, invest or otherwise  

deal in securities, bonds or fixed deposits issued by any  

institution,  body  corporate,  corporation,  establishment  

constituted under any Central or State laws or  any other  

securities in which the company may be required to invest  

under any law in force.

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For  deciding  the  afore-stated  issue,  one  needs  to  

examine  the  provisions  of  the  Interest  Tax  Act,  1974  as  

under:

"2.In this  Act, unless  the context  otherwise  requires,-

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

"(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);

(ii) a public financial institution as defined  in section 4A 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  46  of  the  State  Financial  Corporation 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  

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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 620A of the Companies Act,  1956 (1 of 1956), to be a Nidhi or Mutual Benefit  Society;

(va) a residuary non-banking company other than  a  financial  company  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;”

"(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;”

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"Charge of tax

4.(1) Subject to the provisions of this Act, there  shall be charged on every scheduled bank for every  assessment year, commencing on or after the 1st day of  April,  1975,  a  tax  (in  this  Act,  referred  to  as  interest-tax) in respect of its chargeable interest of  the previous year at the rate of seven per cent of  such chargeable interest:

Provided that the rate at which interest-tax  shall be charged in respect of any chargeable interest  accruing or arising after the 31st day of March, 1983  shall be three and a half per cent, of such chargeable  interest.

(2) Notwithstanding anything contained in sub- section (1) but subject to the other provisions of  this  Act,  there  shall  be  charged  on  every  credit  institution for every assessment year commencing on  and from the 1st day of April, 1992, interest-tax in  respect  of  its  chargeable  interest  of  the  previous  year at the rate of three per cent of such chargeable  interest:

Provided that the rate at which interest-tax  shall be charged in respect of any chargeable interest  accruing or arising after the 31st day of March, 1997  shall be two per cent of such chargeable interest.

(3) Notwithstanding anything contained in sub- sections (1) and (2), no interest-tax shall be charged  in  respect  of  any  chargeable  interest  accruing  or  arising after the 31st day of March, 2000.”

"Scope of chargeable interest

5. Subject to the provisions of this Act, the  chargeable interest of any previous year of a credit  institution  shall  be  the  total  amount  of  interest  (other than interest on loans and advances made to  other  credit  institutions  or  to  any  co-operative  society  engaged  in  carrying  on  the  business  of  banking) accruing or arising to the credit institution  in that previous year:

Provided  that  any  interest  in  relation  to  categories of bad or doubtful debts referred to in  section 43D of the Income-tax Act shall be deemed to  accrue  or  arise  to  the  credit  institution  in  the  previous year in which it is credited by the credit  

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institution to its profit and loss account for that  year or, as the case may be, in which it is actually  received  by  the  credit  institution,  whichever  is  earlier.”

"Computation of chargeable interest.

6. (1) Subject to the provisions of sub-section  (2),  in  computing  the  chargeable  interest  of  a  previous year, there shall be allowed from the total  amount of interest (other than interest on loans and  advances  made  to  credit  institutions)  accruing  or  arising  to  the  assessee  in  the  previous  year,  a  deduction in respect of the amount of interest which  is established to have become a bad debt during the  previous year :

Provided  that  such  interest  has  been  taken  into  account in computing the chargeable interest of the  assessee of an earlier previous year and the amount  has been written off as irrecoverable in the accounts  of the assessee for the previous year during which it  is established to have become a bad debt.

Explanation.- For the removal of doubts, it is hereby  declared that in computing the chargeable interest of  a  previous  year,  no  deduction,  other  than  the  deduction  specified  in  this  sub-section  shall  be  allowed from the total amount of interest accruing or  arising to the assessee.

(2) In computing the chargeable interest of a previous  year, the amount of interest which accrues or arises  to the assessee before the 1st day of August, 1974, or  during the period commencing on the 1st day of March,  1978, and ending with the 30th day of June, 1980, or  during the period commencing on the 1st day of April,  1985 and ending with the 30th day of September, 1991  shall not be taken into account”

The Interest Tax Act, 1974 has been enacted with two-

fold purposes, namely, as an anti-inflationary measure and  

for  revenue  collection.   It  is  an  Act  which  has  been  

periodically passed for economic reasons, particularly when  

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inflation takes over the economy.  With this introduction,  

one needs to examine the provisions quoted herein-above.

Section  2(5)  defines  "chargeable  interest”  to  mean  

total amount of interest referred to in section 5, computed  

in the manner laid down in section 6.  In other words, the  

"scope of chargeable interest” is defined under section 5  

whereas "computation of chargeable interest” is under section  

6.  Section 2(7) is the heart of the matter as far as the  

present case is concerned.   

In accounting sense, there is a conceptual difference  

between loans and advances on one hand and investments on the  

other hand.  Section 2(7) defines the word "interest” to mean  

interest on “loans and advances including commitment charges,  

discount on promissory notes and bills of exchange but not to  

include  interest  referred  to  under  section  42(1B)  of  the  

Reserve  Bank  of  India  Act,  1934  as  well  as  discount  on  

treasury bills”.  Section 2(7), therefore, defines what is  

interest  in  the  first  part  and  that  first  part  confines  

interest only to loans and advances, including commitment  

charges, discount on promissory notes and bills of exchange.  

Pausing here, it is clear that the interest tax is meant to  

be levied only on interest accruing on loans and advances but  

the Legislature, in its wisdom, has extended the meaning of  

the word  "interest” to two other items, namely, commitment  

charges  and  discount  on  promissory  notes  and  bills  of  

exchange.  In normal accounting sense, “loans and advances”,  

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as  a  concept,  is  different  from  commitment  charges  and  

discounts and, keeping in mind the difference between the  

three,  the  Legislature,  in  its  wisdom,  has  specifically  

included  in  the  definition  under  section  2(7)  commitment  

charges as well as discounts.  The fact remains that interest  

on  loans  and  advances  will  not  cover  under  section  2(7)  

interest on bonds and debentures bought by an assessee as and  

by  way  of  “investment”.   Even  the  exclusionary  part  of  

section 2(7) excludes only discount on treasury bills as well  

as interest under section 42(1B) of the Reserve Bank of India  

Act, 1934.   

Reading section 2(7) as a whole, it is clear that  

“interest on investments” is not taxable as interest under  

section 2(7) of the said 1974 Act.   

It is the case of the Department, however, which needs  

to be addressed at this stage, that prior to 1.10.1991, the  

word "interest” in section 2(7) was defined so as to include  

any amount chargeable to income tax under the head "Interest  

on securities”.  It is the case of the Department that by an  

amendment w.e.f. 1.10.1991, the said item, namely,  "amount  

chargeable  to  income  tax  under  the  head  Interest  on  

securities”  stood  deleted  and,  consequently,  “interest  on  

securities”  would  fall  within  the  definition  of  the  word  

"interest” under section 2(7).  According to the Department,  

section 2(7) was not exhaustive and with the amendment w.e.f.  

1.10.1991 when 'Interest on securities' stood excluded, it  

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(interest on securities) would automatically fall within the  

purview of the word 'interest' under section 2(7) of the 1974  

Act.  We find no merit in this argument for two reasons.  

Firstly, as stated above, section 2(7), read as a whole,  

focuses only on interests accruing on loans and advances,  

commitment charges and discount on promissory notes and bills  

of exchange.  It also specifically excludes interest under  

section 42(1B) of the Reserve Bank of India Act as well as  

discount  on  treasury  bills.   It  was  very  easy  for  the  

Parliament to expressly provide for “interest on investments”  

to fall under section 2(7), but that has not been done.  The  

reason is obvious.  As stated above, one of the objects of  

enacting  the  1974  Act  is  by  way  of  an  anti-inflationary  

measure.  In an inflationary situation, the cost of borrowing  

for the Government also increases.  One of the ways by which  

the cost of borrowing can be reduced is to see that companies  

like the respondent herein are made to invest in bonds and  

securities so that the Government is able to borrow monies at  

a cheaper rate as compared to its borrowings in the market.  

It is precisely for this reason that the Reserve Bank of  

India, which is a Regulator and which is responsible for the  

credit management of the economy and which is empowered to  

issue Directions from time to time not only with the object  

of regulating the credit but also to control businesses like  

non-banking  financial  companies  and  residuary  non-banking  

companies by issuing directions under Chapter IIIB of the  

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Reserve Bank of India Act, issues directions and one of such  

directions  which  has  been  issued  in  the  present  case  is  

called  as  "Residuary  Non-Banking  Companies  (Reserve  Bank)  

Directions, 1987.  These Directions have been issued under  

sections 45J and 45K of the Reserve Bank of India Act, 1934.

We quote herein-below relevant provisions of Chapter  

IIIB of the Reserve Bank of India Act, 1934 which refers to  

provisions  relating  to  non-banking  institutions  receiving  

deposits and financial institutions.  The relevant provisions  

are 45J, 45JA, 45K and 45Q which are as under:

"45J. Bank to regulate or prohibit issue of  prospectus or advertisement soliciting deposits of  money.-The Bank may, if it consider necessary in  the  public  interest  so  to  do,  by  general  or  special order,-

(a) regulate or prohibit the issue by any  non-banking  institution  of  any  prospectus  or  advertisement  soliciting  deposits  of  money  from  the public, and

(b) specify the conditions subject to which  any  such  prospectus  or  advertisement,  if  not  prohibited, may be issued.”

"45JA.  Power of Bank to determine policy  and  issue  directions.-  (1)  If  the  Bank  is  satisfied  that,  in  the  public  interest  or  to  regulate the financial system of the country to  its advantage or to prevent the affairs of any  non-banking financial company being conducted in  manner  detrimental  to  the  interest  of  the  depositors  or  in  a  manner  prejudicial  to  the  interest of the non-banking financial company, it  is  necessary  or  expedient  so  to  do,  it  may  determine the policy and give directions to all or  any  of  the  non-banking  financial  companies  relating  to  income  recognition,  accounting  standards, making of proper provision for bad and  doubtful  debts,  capital  adequacy  based  on  risk  

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weights for assets and credit conversion factors  for off balance-sheet items and also relating to  deployment  of  funds  by  a  non-banking  financial  company  or  a  class  of  non-banking  financial  companies  or  non-banking  financial  companies  generally,  as  the  case  may  be,  and  such  non- banking  financial  companies  shall  be  bound  to  follow the policy so determined and the directions  so issued.

(2)  Without  prejudice  to  the  generality  of  the  powers vested under sub-section (1), the Bank may  give directions to non-banking financial companies  generally or to a class of non banking financial  companies or to any non-banking financial company  in particular as to-

(a) the purpose for which advances or other  fund based or non-fund based accommodation may  not be made; and

(b) the maximum amount of advances of other  financial  accommodation  or  investment  in  shares  and  other  securities  which,  having  regard  to  the  paid-up  capital,  reserves  and  deposits of the non-banking financial company  and other relevant considerations, may be made  by that non-banking financial company to any  person  or  a  company  or  to  a  group  of  companies.”

"45K. Power of Bank to collect information from  non-banking  institutions  as  to  deposits  and  to  give  directions.-(1)  The  Bank  may  at  any  time  direct  that  every  non-banking  institution  shall  furnish  to  the  Bank,  in  such  form,  at  such  intervals and within such time, such statements  information  or  particulars  relating  to  or  connected  with  deposits  received  by  the  non- banking institution, as may be specified by the  Bank by general or special order.

(2)  Without  prejudice  to  the  generality  of  the  power vested in the Bank under sub-section (1),  the statements, information or particulars to be  furnished under sub-section (1), may relate to all  or  any  of  the  following  matters,  namely,  the  amount of the deposits, the purposes and periods  for which, and the rates of interest and other  terms and conditions on which, they are received.

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(3) The Bank may, if it considers necessary in the  public interest so to do, give directions to non- banking institutions either generally or to any  non-banking  institution  or  group  of  non-banking  institutions  in  particular,  in  respect  of  any  matters relating to or connected with the receipt  of  deposits,  including  the  rates  of  interest  payable  on  such  deposits,  and  the  periods  for  which deposits may be received.

(4) If any non-banking institution fails to  comply with any direction given by the Bank under  sub-section  (3),  the  Bank  may  prohibit  the  acceptance  of  deposits  by  that  non-banking  institution.

[(5) omitted by Act 51 of 1974]

(6)  Every  non-banking  institution  receiving  deposits shall, if so required by the Bank and  within such time as the Bank may specify, cause to  be sent at the cost of the non-banking institution  a copy of its annual balance-sheet and profit and  loss  account  or  other  annual  accounts  to  every  person  from  whom  the  non-banking  institution  holds, as on the last day of the year to which the  accounts relate, deposits higher than such sum as  may be specified by the Bank.”

`"45Q.  Chapter  IIIB  to  override  other  laws.- The provisions of this Chapter shall have  effect  notwithstanding  anything  inconsistent  therewith contained in any other law for the time  being in force or any instrument having effect by  virtue of any such law.”

On  analysing  section  45J,  as  it  applies  to  the  

relevant period, read with section 45K, it is clear that the  

Reserve Bank of India insists on non-banking institutions,  

which  collect  deposits,  to  provide  for  information  in  

specified forms in relation to receipt of deposits including  

rates of interest payable by non-banking institutions on such  

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deposits as well as the period for which the deposits may be  

received.   Under  section  45K(4),  if  any  non-banking  

institution fails to comply with any of the directions given  

by  the  Bank,  the  Reserve  Bank   may  even  prohibit  the  

acceptance  of  deposits  by  that  non-banking  institution.  

These stringent provisions are made in the Reserve Bank of  

India Act for a reason that companies like respondent herein  

receives  deposits  from  the  public.   To  safeguard  their  

interests, the Reserve Bank, as a Regulator, insists that  

every company, including respondent herein which is a non-

banking  institution,  has  to  submit  its  returns  in  the  

prescribed form every year and it is in that light that the  

Reserve Bank of India has specifically issued what is called  

as  Residuary   Non-Banking  Companies  (Reserve  Bank)  

Directions, 1987.   

Under para 6 of the 1987 Directions, every residuary  

non-banking  company  has  to  deposit  and  keep  deposited  in  

fixed deposits with public sector banks or invest and keep  

invested  in  unencumbered  approved  securities  or  in  other  

investments, a sum which shall not be less than the aggregate  

amounts  of  the  liabilities  to  the  depositors.   We  quote  

herein-below para 6 of the said Directions, 1987.

"6. Security for depositors.- On and from 15th May,  1987-

(a) Every residuary non-banking company shall  deposit  and  keep  deposited  in  fixed  deposits  with  public sector banks or invest and keep invested in  unencumbered  approved  securities  (such  securities  being  valued  at  their  market  value  for  the  time  

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being), or in other investments, which in the opinion  of the company are safe, a sum which shall not, at the  close  of  business  on  31st  December,  1987,  and,  thereafter, at the end of each half year, that is,  30th  June  and  31st  December,  be  less  than  the  aggregate amounts of the liabilities to the depositors  whether or not such amounts have become payable:

Provided  that  the  sum  so  deposited  or  invested-

(a) not less than 10 per cent shall be in  fixed  deposits  with  any  of  the  public  sector  banks;

(b) not less than 70 per cent shall be in  approved securities; and

(c) not more than 20 per cent or ten times  the net owned funds of the company, whichever  amount is less, shall be in other investments.  Provided that such investments shall be with the  approval  of  the  board  of  directors  of  the  company.

Explanation.--"Net  owned  funds”  shall  mean  the  aggregate of the paid-up capital and free reserves as  appearing in the latest audited balance-sheet of the  company  as  reduced  by  the  amount  of  accumulated  balance  of  loss,  deferred  revenue  expenditure  and  other intangible assets, if any, as disclosed in the  said balance-sheet.

(2) Every residuary non-banking company shall  entrust to one of the public sector banks designated  in that behalf, deposits and securities referred to in  clauses (a) and (b) of the proviso to sub-paragraph  (1) to be held by such designated bank for the benefit  of the depositors.  Such securities and deposits shall  not be withdrawn by the residuary non-banking company,  or otherwise dealt with, except for repayment to the  depositors.

(3) Every residuary non-banking company shall  furnish to the Reserve Bank within thirty days from  the  close  of  business  on  31st  December,  1987,  and  thereafter, at the end of each half year, that is, as  on 30th June and 31st December, a certificate from its  auditors, being members of the Institute of Chartered  Accountants, to the effect that the amounts deposited  in fixed deposits and the investments made are not  less than the aggregate amounts of liabilities to the  

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depositors as on 30th June and 31st December of that  year.

Explanation.-For the purpose of this paragraph-

(a)  "aggregate  amounts  of  liabilities”  shall  mean  total  amount  of  deposits  received  together  with  interest,  premium,  bonus  or  toher  advantage  by  whatever  name  called,  accrued on the amount of deposits according to  the terms of contract;

(b) "approved securities” means, the securities  in which the trustee is authorised to invest  trust money by any law for the time being in  force  in  India  and  bonds  or  fixed  deposits  issued  by  any  corporation  established  or  constituted  under  any  Central  or  State  enactments;

(c) "public sector banks” means, the State Bank  of  India,  the  subsidiary  banks  and  the  corresponding new banks referred to in section  45(1) of the Reserve Bank of India Act, 1934  (2 of 1934);

(d)  "unencumbered  approved  securities”  shall  include the approved securities lodged by the  company with another institution for advance  or any other credit arrangements to the extent  to which such securities have not been drawn  against or availed of.”

The object behind issuance of para 6 is to protect the  

interests of the public who are investing in fixed deposits  

with the respondent herein.  The object is to provide for  

sufficient  capital  so  that  there  is  no  run  on  such  

institutions  in  future  if  they  collapse.   Under  these  

Directions, the form of Return is prescribed.  It has several  

parts.  We are concerned with Part 5.  On reading this Part,  

it is clear that investments are required to be made by the  

respondent herein and they are required to be shown in the  

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returns which the respondent herein has to file before the  

Reserve Bank of India periodically.  In this case, there is  

no dispute as to filing of the returns by the said respondent  

before the Reserve Bank of India.  The point to be noted is  

that the Directions make it very clear that when respondent  

herein buys bonds and debentures of approved nature, they  

constitute investment and they cannot be treated as loans and  

advances.  Therefore, interest on such investment cannot be  

taxed under the Interest Tax Act, 1974.   

Before concluding, one aspect needs to be mentioned.  

One  of  the  question  raised  by  the  Department  before  the  

Tribunal,  though  not  specifically  raised  before  us,  was  

whether  respondent  herein  was  a  "credit  institution”  as  

defined  in  section  2(5A)  of  the  Interest  Tax  Act  and,  

therefore, liable to be taxed under that Act in respect of  

the Assessment Year 1992-93?  To answer the said question, we  

need to revisit section 2(5A) of the 1974 Act which defined  

"credit  institution”  to  mean  a  banking  company  to  which  

Banking Regulation Act, 1949 applies or a public financial  

institution as defined in section 4A of the Companies Act,  

1956  or  a  State  Financial  Corporation  established  under  

section 3 or section 3A or an institution notified under  

section 46 of the State Financial Corporations Act, 1951 or  

any other financial company.  The words " any other financial  

company”  have  also  been  defined  under  the  1974  Act  vide  

section 2(5B) to mean a company being a hire-purchase finance  

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company or an investment company or a housing finance company  

or a loan company, or a mutual benefit finance company or a  

miscellaneous  non-banking  company.   On  a  bare  reading  of  

sections 2(5A) and 2(5B), it is clear that a residuary non-

banking company did not figure in section 2(5A) and 2(5B) of  

1974 Act.  Secondly, para 2 of the 1987 Directions indicates  

as to what is a residuary non-banking company.  We quote  

herein-below para 2:

"These  directions  shall  apply  to  every  residuary non-banking company, that is to say, a  non-banking  institution,  being  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 and  which,  according  to  the  definitions  contained  in  the Non-Banking Financial Companies (Reserve Bank)  Directions,  1977,  or,  as  the  case  may  be,  the  Miscellaneous Non-Banking Companies (Reserve Bank)  Directions, 1977, is not-

(i) an equipment leasing company; (ii) a hire purchase finance company; (iii) a housing finance company; (iv) an insurance company; (v) an investment company; (vi) a loan company; (vii) a mutual benefit financial company; and (viii) miscellaneous non-banking company”

On reading para 2 of the 1987 Directions, it becomes clear  

that  a  residuary  non-banking  company  is  a  company  which  

receives deposits under any scheme or arrangement by way of  

contributions  or  subscriptions  or  by  sale  of  units,  

certificates or other instruments or in any other manner and  

which, according to the definitions contained in the Non-

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Banking Financial Companies (Reserve Bank) Directions, 1977,  

or  Miscellaneous  Non-Banking  Companies  (Reserve  Bank)  

Directions, 1977, is not an equipment leasing company, a hire  

purchase  finance  company,  a  house  finance  company,  an  

insurance company, an investment company, a loan company and  

a  mutual  benefit  financial  company.   According  to  the  

Department,  respondent  herein  fell  under  'miscellaneous  

finance company' in terms of section 2(5B)(vi) of the 1974  

Act.  According to the Department, this Finance Act, 1992  

operated  prospectively  and  that  too  w.e.f.  1.4.1993.  

According to the Department, during the Assessment Year 1992-

93, respondent herein stood covered under sub-clause (vi) of  

section 2(5B).  We find no merit in this argument of the  

Department.  Under section 2(5B)(vi), in order to constitute  

a miscellaneous finance company, it has to be a company which  

carries  on  exclusively  two  or  more  classes  of  business  

referred to in the preceding sub-clauses (i) to (v).  In  

other  words,  if  there  is  a  company  which  is  investment  

company and also finance company, it can fall under section  

2(5B)(vi).  Therefore, a residuary non-banking company cannot  

fall within sub-clause (vi) as contended by the Department as  

the said sub-clause specifically says that a miscellaneous  

financial  company  should  carry  two  or  more  classes  of  

business referred to in the preceding sub-clauses.  Moreover,  

unlike residuary non-banking companies, none of the companies  

mentioned in sub-clauses (i) to (v) are empowered to accept  

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deposits.   In  the  circumstances,  sub-clause  (vi)  did  not  

cover residuary non-banking companies prior to 1.4.1993.   

In the present case, it is not in dispute that after  

1.4.1993, respondent herein has been filing its returns under  

the Interest Tax Act, 1974.

For the afore-stated reasons, we find no merit in the  

Civil Appeals.  The same are, accordingly, dismissed with no  

order as to costs.

                                      ..................J.                      (S.H. KAPADIA)

                                      ..................J.                      (H.L. DATTU) New Delhi, November 24, 2009.

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