The division bench of the Himachal Pradesh High Court held that interest on securities and interest on head office investment account earned prior to 1995 are not subject to tax under the Interest Act, 1974.
H.P. State Co-operative Bank Ltd, is a credit institution and an assessee under the Interest Act failed furnish its return of chargeable interest within the due date. The Assessing Officer initiated assessment proceedings and demanded tax from the assessee. Later, the Commissioner quashed the proceedings by invoking his revisional jurisdiction stating that it was prejudicial to the interest of the Revenue. Consequently, he ordered to initiate fresh proceedings. Thereafter, a revised assessment order was passed against the assessee, which was not disputed by them. A parallel penalty proceeding imposing three times of demanded tax as penalty was also initiated by the Department. The penalty was modified by the first appellate authority by confining it to equal amount of tax evaded.
Assessee carried the matter to the Appellate Tribunal challenging the penalty proceedings. Quashing the penalty order, the Tribunal relied on the Board’s instructions No. 1923 dated 14.3.1995. Aggrieved by the order of the ITAT, the Revenue approached the High Court for relief.
The division bench comprising of Chief Justice Mansoor Ahmad Mir and Justice Sandeep Sharma held that the order of the Tribunal was based upon record of the appellant that assessee had furnished return of chargeable interest for the relevant financial year. The bench further held that penalty under Section 13 of the Interest- Tax Act, 1974 could be imposed against assessee in case Assessing Officer comes to definite conclusion that assessee concealed particulars of chargeable interest or furnished inaccurate particulars of such interest.
The bench also held that furnishing of return was delayed on account of non-availability of return form. Notably, the contention was not rebutted by the Department.
“Thus, this Court sees no illegality or infirmity in the order passed by learned Tribunal below, whereby it has deleted penalty on the ground that interest became chargeable to tax only after Board’s instructions No. 1923 dated 14.3.1995, because, admittedly, interest on securities and interest on head office investment account was made chargeable pursuant to Board’s instructions, which could certainly be not made applicable to the assessment made for the period October, 1991 to 31.3.1992”, the division bench added.
Read the full text of the Judgment below.
