Law:

Section:

Section 2(5B), read with section 2(5A), of the Interest Tax Act, 1974 - Finance company - Assessment years 1995-96 to 1999-2000 - Whether question as to whether assessee was a 'financial company' or not, is to be determined by applying positive test, namely, whether it is carrying on its principal business in either of sub-clauses (i) to (v) of section 2(5B) or a business understood in section 2(5A) or exclusively or almost exclusively any two or more business referred to in earlier sub-clauses as required by sub-clause (vi) of section 2(5B) - Held, yes - Whether to determine whether carrying lease business would be covered as loan company or not, distinction will have to be drawn between a financial lease and an operating lease and financial lease would be relevant for applicability of sub-clause (iv) of section 2(5B) as that would fall in category of a loan company - Held, yes FACTS The assessee-company was engaged in business of hire-purchase and leasing activities. It had not been filing return under the Act. On perusal of its income-tax return, the Assessing Officer observed that it was engaged in the financial activities and had shown income from net hire purchase charges, lease charges and bill discounting charges apart from other income. In that view of the matter, the Assessing Officer held that the assessee was taxable entity for purpose of the Act and issued notice under section 10 to the assessee-company to file the return of interest tax for the relevant assessment years. The assessee filed objections but the Assessing Officer rejected same and passed assessment order under section 8(3)/(10). On appeal, the assessee contended that it was neither a 'credit institution' nor a 'finance company' in terms of section 2(5A) read with section 2(5B) and, as such, was not taxable under the Act. The Commissioner (Appeals) disallowed the contention of the assessee. On further appeal, the Tribunal held that the assessee was neither a financial company nor a credit institution in terms of section 2(5B) and as such was not a taxable entity for purpose of the Act. The Tribunal held that for deciding principal business of a taxable entity under the Act, only…

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