Law:

Section:

Section 2(7) of the Interest-tax Act, 1974 - Interest - Definition of - Assessment year 1992-93 - Whether 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 an investment - Held, yes - Whether where assessee, a residuary non-banking company, bought bonds and debentures of approved nature as required under Residuary Non-Banking Companies (Reserve Bank) Directions, 1987, same would constitute investment and could not be treated as loans and advances - Held, yes - Whether, therefore, interest on such investment could not be taxed under Act - Held, yes Section 2(5B) of the Interest-tax Act, 1974 - Financial company - Assessment year 1992-93 - Whether in order to constitute 'miscellaneous finance company' as defined in section 2(5B)(vi), it has to be a company which carries on exclusively two or more classes of businesses referred to in preceding sub-clauses (i) to (v) - Held, yes - Whether a residuary non-banking company, which only receives deposits from public, can be said to be a miscellaneous financial company as defined in section 2(5B)(vi) - Held, no FACTS The assessee was a residuary non-banking company. One of the objects for which the company was incorporated was to buy, sell, invest or otherwise deal in securities, bonds or fixed deposits issued by any institution, body corporate, corporation or 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. The issue that arose for determination in the instant case was as to 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). The case of the department was that interest earned by the assessee would fall within the purview of the word 'interest' under section 2(7); and that during the assessment year 1992-93, the assessee stood covered under 'miscellaneous finance company' in terms of section 2(5B)(vi). HELD The scope of 'chargeable interest' is defined under section 5, whereas 'computation of chargeable interest' is defined under…

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