JUDGMENT M. Katju, J.
1. This is an appeal under Section 260A of the IT Act challenging the order dt. 15th Oct., 1999, of the Tribunal, Allahabad. This appeal and connected appeals ITA Nos. 72 of 2003, 36 of 2000, 38 of 2000, 40 of 2000, 154 of 2000 and 155 of 2000 are being disposed of by a common judgment.
2. Heard Shri Bharatji Agarwal, learned senior standing counsel for the Department, and Shri Percy Pardiwalla and Shri S.D. Singh for the respondents.
3. We have carefully perused the record. The respondent-company is a company registered under the Indian Companies Act. In the order of the CIT(A) in ITA No. 154 of 2000, it is mentioned that as per the memorandum of association the objects for which the company was established are :
"1. To establish, promote, conduct, manage, maintain, improve, regulate, run, work and control the different types of schemes for encouraging the habit of savings and wise economy amongst the public on scientific, practical lines and also help men, women and children for their economical, social and educational welfare through its schemes. The company shall carry on business as per the guide lines of RBI directives but shall not carry on business of chain letters, prize chit schemes, money circulating schemes, chit funds auction, nor the banking business as defined under the Banking Regulation Act, 1949, or any other scheme banned by any law.
2. To buy, sell, invest or otherwise deal in securities, bonds or fixed deposits issued by any institution, body corporate, corporation, established or constituted under any central or state enactments or in other securities in which the company may be required to invest under any law in force."
4. This appeal is being pressed on three grounds which are stated in the memorandum of appeal. The facts of the case are narrated in detail in the orders of the IT authorities and the Tribunal, and we shall refer to them when we deal with the submissions of learned counsel for the parties.
5. These appeals relate to the taxability of the assessee-company under the Interest-tax Act, 1974 (hereinafter referred to as the Act). Originally, as mentioned in the Statement of Objects and Reasons to the Act, the object of the AO was to impose a special tax on the total amount of interest received by scheduled banks on loans and advances made in India. However, major amendments were made to the Act by Finance No. 2 Act, of 1991 w.e.f. 1st Oct., 1991.
6. Originally Section 4, which is the charging section, imposed a tax only on scheduled banks. However, by Finance Act, 2 of 1991, Section 4 was renumbered as Sub-section (1), and Sub-section (2) was inserted which states :
"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."
Thus, Section 4(2) now imposes interest-tax on credit institutions in respect of the chargeable interest. Hence, to impose interest-tax under Section 4(2) two requirements must be fulfilled : (1) it can be imposed only on credit institutions, (2) it can be imposed only on the chargeable interest.
Credit institution has been defined in Section 2(5A) of the Act to mean :
(i) a banking company to which the Banking Regulation Act, 1949, applies;
(ii) a public financial institution as defined in Section 4A of the Companies Act, 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, and
(iv) any other financial company.
The word 'interest' in Section 2(7) of the Act, prior to its amendment w.e.f. 1st Oct., 1991, was defined as follows :
"'Interest' means interest in loans and advances made in India and includes :
(a) commitment charges on unutilized 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 IT 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;
(ii) discount on treasury bills."
After its amendment in 1991 the definition of 'interest' in Section 2(7) reads ;
"Interest means interest on loans and advances made in India and includes :
(a) commitment charges on unutilized 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."
7. Shri Bharatji Agarwal, learned counsel for the appellant contended that since the earlier definition of interest in Section 2(7) specifically excluded interest on securities from the definition of interest, while the new definition of the word 'interest' does not specifically exclude interest on securities, hence, the legislative intent was obviously that now interest on securities will also be treated as interest within the meaning of Section 2(7).
8. We do not agree. It is a well settled principle of interpretation of taxing statutes that while interpreting a taxing statute we have only to see the words used in the statute and not the intention or the spirit of the statutory provision. In a taxing statute the literal rule of interpretation applies, and it is well settled that if a transaction comes within the letter of the law it has to be taxed, however, great the hardship, but if it does not, it cannot be taxed, however, great the loss may be to the public exchequer. This view was best expressed by Lord Cairns in Partington v. Attorney General (1869) LR 4 HL 100 as follows:
"If the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind. On the other hand if the Court seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be."
The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt, J. in his classic statement:
"In a taxing statute one has to look merely at what is clearly said.
There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
In A.V. Fernandez v. State of Kerala the Supreme Court of India stated the principle as follows :
"If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter."
9. Where the language of a provision is plain, Courts cannot ordinarily concern themselves with the policy behind the provision, or the intention of the legislature. As Lord Watson said in Solomon v. Solomon & Co. 'intention of the legislature is a common but slippery phrase. In ITO v. Nadar AIR 1968 SC 623 the Supreme Court in India observed that the rule that 'we must look to be general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the legislature contemplated' was made while construing a non-taxing statute. The said rule had only a limited application in interpreting a taxing statute. It follows from this decision that the mischief rule laid down in Heydon's case has only a limited application to taxing statutes.
10. Hence, there is no question of looking into the legislative intent or spirit of the law in a taxing statute. We have only to see the actual words used. In other words, in a taxing statute we have to go by the letter of the law and not its spirit or intent.
11. The new definition of the word 'interest' in Section 2(7) is in two parts. Firstly it says that 'interest' means interest on loans and advances. Secondly it includes two other items in the definition of the word 'interest'.
In our opinion the only correct interpretation of this provision can be that firstly nothing is interest except interest on loans and advances. Secondly two other categories are also included in the definition of the word 'interest' as specified in Clauses (a) and (b) of Section 2(7). In our opinion the word 'means' can only have one meaning, that is, it is an exclusive definition vide P. Kasilingam v. P.S.G. College (1995) Supp. (2) SCC 348. When we say that a word has a certain meaning then by implication we mean that it has no other meaning vide Punjab Land Development and Reclamation Corporation v. Presiding Officer, Labour Court (1990) 3 SCC 682. However, when certain other categories are added then it means that only those additional categories will be included within the definition and none others, vide Mahalaxmi Oil Mills v. State of Andhra Pradesh (1989) I SCC 164.
12. Learned counsel for the appellant has relied on the decision of the Supreme Court in Krishi Utpadan Mandi Samiti v. Shankar Industries 1993 Supp. (3) SCC 361. In that decision the question came up for interpretation before the Supreme Court about the definition of 'agricultural produce' in Section 2(a) of the U.P. Krishi Utpadan Adhiniyam. Section 2(a) reads as follows :
"2(a) 'agricultural produce' means such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry or forest as are specified in the schedule, and includes admixture of two or more of such items, and also includes any such item in processed form, and further includes gur, rab, shakkar, khandsari, and jaggery."
The Supreme Court in para. 12 of its judgment has observed :
"It is a well settled rule of interpretation that where the legislature uses the words 'means' and 'includes' such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. Thus the meaning of 'agricultural produce' in the above definition is not restricted to any products of agriculture as specified in the schedule but also includes such items which come into being in processed form and further includes such items which are called as gur, rab, shakkar, khandsari and jaggery."
On the strength of the observation made in para. 12 of the above judgment, Shri Agarwal contended that the word 'interest' in Section 2(7) should be deemed to include its natural meaning and should not be limited to interest on loans and advances. We do not agree.
13. Firstly, all that has been held by the Supreme Court in the case of Krishi Utpadan Mandi Samiti (supra) is that agricultural produce in Section 2(a) of the U.P. Krishi Upadan Mandi Adhiniyam will not only include the items mentioned in that provision but also such items in processed form. This decision does not mean that the expression 'agricultural produce' can be given its natural meaning. It can only be given the meaning as defined in Section 2(a) namely, that agricultural produce will only mean the items mentioned in Section 2(a) of the Mandi Adhiniyam and also such items in processed forms, but it obviously does not mean that other items which are not mentioned in Section 2(a) will also be deemed to be included. This decision, therefore, does not help the appellant in any way. Sri Agarwal then relied on a decision of the Supreme Court in Regional Director, Employees' State Insurance Corporation v. High Land Coffee Works of P.F.X Saldanha & Sons and Anr. 1991 (3) SCC 617. In our opinion that decision too has no relevance to the present case as the Supreme Court there was considering the definition of the words 'seasonal factory' in Section 2(12) of the ESI Act. The expression 'seasonable factory' is defined in Section 2(12) to mean a factory which is exclusively engaged in one or more of certain manufacturing processes (cotton ginning, cotton or jute processing, etc.) or any manufacturing process which is incidental to or with any of the aforesaid process, and includes a factory which is engaged for a period of not exceeding seven months in a year--
(a) in any process of blending, packing or repacking of tea or coffee; or
(b) in such other manufacturing process as the Central Government may, by notification in the Official Gazette, specify.
The Supreme Court observed that the word 'includes' in the above definition is used to enlarge the meaning of the preceding words and it is by way of extension, and not for restriction. In fact this is precisely the meaning, which we are giving to the word 'interest' in Section 2(7) of the Interest-tax Act. The word 'includes' used there also enlarges the meaning of the preceding words, that is to say, the word 'interest1 means interest by way of loans and advances, and two other items also. However, the enlargement of the definition is only to the extent mentioned in the definition itself, and no further. Hence, we do not agree with the submission of learned counsel for the appellant that the natural meaning of the word 'interest' must be given to it. It may be mentioned that legal fictions are well known in law. A statute often defines something which is different from the meaning which it has, in common parlance. For example, Section 43(3) of the IT Act defines a plant to include books. Ordinarily a plant means a factory, and no one in common parlance regards a book as a factory. However, in the IT Act a book is treated as a factory for the purpose of depreciation under Section 32. A larger number of such other instances of legal fictions can be given. It is open to the legislature to define words and, if the legislature has defined it, we cannot go by the meaning in common parlance or what may be called as its 'natural meaning'. We have to strictly abide by the meaning given to it by the legislature, as in the present case. The new definition of Section 2(7) defines 'interest' only to mean interest on loans and advances. No doubt two other categories have also been included i.e., commitment charges on unutilized portion of any credit sanctioned for being availed of in India, and discount on promissory notes and bills of exchange drawn or made in India. We are not concerned with these two additional categories in the present case. Hence, in our opinion 'interest' in the new Section 2(7) only means interest on loans and advances, and we cannot give it an extended meaning as contended by the learned counsel for the appellant.
14. The next question, which arises in this appeal, is as to whether the respondent is a financial company under Section 2(5B) of the Interest-tax Act. Section 2(5B) of the IT Act as it stands today defines a financial company as follows :
"(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 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-clauses (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 statements 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;"
It may be mentioned that Clause (va) of Section 2(5B) was inserted by the Finance Act, 1992, from 1st April, 1993.
15. Learned counsel for the respondent, Sri Pardiwalla submits that the respondent will become financial company by virtue of Clause (va) from asst. yr. 1993-94 but before this the respondent was not a financial company as defined in Section 2(5B). On the other hand, the submission of learned counsel for the appellant is that with effect from the very beginning the respondent was a financial company and continues to be the same under Clause (vi) of Section 2(5B), which we have already quoted above.
16. In this connection the Tribunal in its order (in para 5) has observed :
"We have considered the rival submissions, facts and circumstances of the case, RBI's regulations, assessee's main objects and the other evidence placed on record carefully and are of the opinion that reliance of the CIT(A) on the object No. 2 contained in the assessee's memorandum and articles of association is absolutely misplaced because the CIT(A) has missed to take note of the words "in which the company may be required to invest under any law in force", appearing in the last sentence of object No. 2. The nature of investment to be made under this object was not at the option or choice of the assessee but was to be made as per the requirement of any law for carrying on the business listed in object No. 1.
From the Banking Regulation Act, the RBI's directions for Residuary Non-Banking Companies (RBI) Directions, 1987 copy placed at pp. 31 to 60 of the assessee's paper book and the RBI's letter dt. 16th Sept., 1987, written to the assessee (copy at p. 33 of the assessee's paper book), we have no doubt about the nature or status of the assessee-company which, in our view, was definitely that of a 'Residuary non-banking company' and since it was not carrying on any other business except as listed under object No. 1, the conditions for a company to be a miscellaneous company as defined under Section 2(5B)(vi) were not satisfied. Consequently, prior to insertion of Clause 2(5B)(va) w.e.f. 1st April, 1993, according to which residuary non-banking companies were also brought within the definition of 'financial company', the assessee-company was not liable to interest-tax. We hold accordingly."
17. We are in agreement with the above view of the Tribunal.
18. Sri Pardiwalla has invited our attention to the text of the Residuary Non-Banking Companies and Reserve Bank of India Directions, 1987 issued by the RBI. Para. 2 of the same states :
"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."
19. Sri Pardiwalla has submitted that a non-banking company cannot be an investment company in view of the above directions because an investment company is specifically excluded by Clause (v) of Direction 2 mentioned above.
20. On the other hand, Sri Bharatji Agarwal, learned counsel for the appellant has submitted that object No. 2 contained in the assessee's memorandum of association includes the power to buy, sale, invest or otherwise deal in securities, bonds or fixed deposits issued by any institution, corporation, etc. under any Central or State enactments or in other securities in which the company requires interest under any law. Hence, he submitted that this makes the respondent a miscellaneous finance company under Clause (vi) of Section 2(5B). We do not agree. To be a miscellaneous finance company under Clause (vi) of Section 2(5B), a company has to carry on exclusively, or almost exclusively, two or more classes of business referred in Clauses (i) to (va) of Section 2(5B). It may be noted that Clauses (i) to (v) of Section 2(5B) all use the words 'principal business'. For instance, a hire-purchase financial company is a company which carries on as its principal business, hire-purchase transactions or the financing of such transactions. Hence, if a company does hire-purchase business but that is not its principal business it will not be a hire-purchase finance company as defined in Clause (i) of Section 2(5B). The principal business of the respondent-company as is evident from the record is to accept deposits under various schemes, and it cannot be said that it carries on exclusively, or almost exclusively, two or more classes of business referred to in Clauses (i) to (va) of Section 2(5B). Hence, we agree with the submissions of Shri Pardiwalla.
21. The Tribunal has recorded a finding of fact that the respondent-company was not carrying on any other business except as mentioned in object No. 1 of the memorandum of association. Hence, it is not a miscellaneous finance company as defined in the Act. This finding being a finding of fact, cannot be interfered with in this second appeal under Section 260A of the IT Act, which is analogous to a second appeal under Section 100, CPC.
There is no force in these appeals and they are, therefore, dismissed.