M/s. Canbank Financial Services Ltd. v. The Commissioner of income-Tax & Ors.

Judgment

2. The Commissioner of income-Tax. Central Circle, C.RBuflding, Queens Road. Bangalore. The Deputy Commissioner of Income-Tax Special Range-6. C.R Building, Queens Road, Bangalore. .. APPEUANTh (By Sri.G.Kamaladhar. Adv.) AND: M/s. Canbank Financial Services Ltd.. No.19/b, Kareem Towers Cunningham Road .irr 1 I(kt)4. I /[çin,-•f(“lit:V.TL’Litt.t1SU—H 1 flLlflj p;a’ £1’UtH: tit’ii ‘IIJLU’\’tIfT--‘ en-)p I‘iTTIL fl,LM””-1ci“ii‘•j ‘i a jOQILLPh,UIb(ViIU ((-i3T I. T1.)L 1 she‘1)ja)ut’n1s’•1e4;SIj rj;osriup%MrnrrIP1sqn%atit3flj11(ILI(I1(‘I1LIUt’1 .IL .i’aI?4)Aq[h)aPdI U1ppjjI:U1q’J 900tTOOtP’)WlIOut/ttUt’fl/h\?jjTIJtlf.kaOhi!flLOflLj)U$J 1(4 ““cjUJt J114 ‘ 1’ 1 t ijiata))14111) .1 \UCh’t3tQ•tlLt;H1rnadqx,jatu’,ju1 flh1I)?pur...iisnf ‘T’ I%-IT.flTT!biji IC. •lOOt’tOOTT’N¼J.I I .)Iflr.ø.I1U?U(s).M.TJ I fltTPTTflFj’fl3 I a’_aI-’.k-aJ(’ I ‘-TI ‘3at — I 7iTtTP!itltJ•Ii:i•) .fA).St )fl. )IUI )TT%%‘Lit .13T” -1.1.. S]‘ I’ p.fl - C CI P’ ‘ I , ) ,r I I •j tUe. ‘ L r -I’1 .I3IJUflP’)lTI .) PVo9rUJIIJ.’c, (1’ IL!)ii%%)‘%)L(l 17’ ir)‘a Iieqsit K1Sfl ‘19ig)z’rofllc;ç-i’j ) I EN‘CNiJ,TWtii:ii:\\I JI)J IL!,Upassvcl fl,U0J9’lTiIC-ic.&t [‘Lii’La.•i.njajML’a.Ur;‘ h1.fl.’TUflflTJ_1•.rs.4g.%%ln.TI.IJ’” ‘30? IJL’ IV’l IU’NItUTU•) 1ji IIU) )iI’j’i’V.jj’ C0 1fl ) 1 ) I .1.1TaT NUU jut; UTaiu1t’t’airiJ$J.JkiPfl1’P•)LI%‘Gj.flhIL’ ‘lii )Jt%t))..[IT!t’ J •u(SS J 14 cj7gç?fc fl’]AI”(I t I‘iaIll., tulfltnqflj TrnuaJ ‘1“01Ut)fltj urTrnaIaq i[JL)1)‘LIKU)U)f) 9StLPflI’i1s t4ND r”-i‘-ttnb’; (OjT’;ircj L\flT—IV Vi41.T’tJV(,i.c.(j -P. ((‘i_V I’ tI Ii!h1T._T,!1•‘r-Y!.T”LP’,tA ‘1‘C’) .% -k ) j “•i’—J.‘. •t—.C,‘:1).1. ;. r;•‘1’rt•‘.‘ ‘‘::—•: ;i.I. .-N _I a I • ( ‘ C I • “ I. % I itS. 4) •%; • I iir )t1 ape l ‘L In orn 1a Ap cli ile Iiihu. 13—nc . •r1 liii r Ni, 1(4, Biuuj/200() c! ate’tl 2:Lfl”. !tflhi ,d (‘‘flhIflJjiTfl! it’ ‘rn h 1’ 1. \ r cUr i Tii. (‘.11. i i4c C nm 111% -in ‘.1 1w he 1> ,n ‘. ‘U II c ii TL.g€. ku I Sn’ “i:il j.t,qnc .. • •.i’ &ar ‘It flic \ppenl’ cii’ni YJYLFNDRAKL$IAR!c ‘111

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Sri Suryuiaravana. Inn ned “)uilst’l appe irirg tot respnnc1tiit C\nnpain. h Mr Karnal ic.U ar le ni I tat! lit S )urscI for tlit’ zcvenue jhjc tfljj(’fl U% ili;’ugi’ ‘he jr’kr’- cd the tin sir T’rn’I ‘ii r ‘ n lit r )i J( in %‘,‘fl o t øø( tclIVit’t% iii. iliti’— it asiii_ iiafl%cttIi fl’, •1 (1 CUb S a 1% Ta ‘a ti t 1’ it .1 I’• ) ) 1 •.

4. IC I I. • ci Cu In.. ‘——‘ ‘t r’ i- I!- ‘I.’ •1 ‘-C !1. 1.1’ 111 flt a’ . 1 -I EL’ Iii ; I I .I•,. t I .. . . . . I t 4 1’ I LI Ir.nn j Intlil ii ;tiiSctnn1’ Ii ibtiii;il iiiS i k s 1 t iI Hell I P.t’’t’tI i-n Lbs ‘ tib 11111 i i1)t “ I%11!Tial)It’. n jjv ii o si. u a U i14 mg %I it’d it%rlf O fl ‘liii tnt i,.tl senig’ec. nde 1 1 s a-’,ncIiticni hdvn g show ii It, ii am object t ‘ 1 e one I equipflieia. J’—a”ing atid even me se’ mtl niaiii nbjert bC 1 3 11) 1. 1 F 1 ii’] a!I ii ac1 ities being • uher in ihe nit ire ‘t It-.ts11it ic wit C rn di tnt ar kim, c nit aid sm rtia mr ii% tilt1 lii ), •J’lthv s ‘i)’ ir ctS%C’4 S - trd ean’i’l&, 1i1%jdt i’d ti.nn’i’ I’ wa’ C S I ‘ 0 I ‘ P’ Yi’ • ._i’ tI %“ t • ‘:.e ..j,:’I ,Ii’ —. r ‘•L •.• ‘1 I ( I I. , 1,, 1 s 1 • • r • •‘ I 10 It is al”o snbrmtt d that horn ‘lit material aria 1’ ‘.. u1ibie i”i •he i’st • I cc uk’ be iii! r td tiu I S c ‘(a) it lit ) flhtf. I ‘.‘.J Scum n 2(’13) U iii.’ Act and the opunun \pres%t’d i tin lilbunal to die ethet that lit as ‘flt- - C )fl lots it ‘mitt an 4 th.’ clauses (I) to (.J of Se ioi 213[3) of thc & i is an ‘rroi Iii law • onirnltttd by rribtnal ‘tic’ ;T)1i1 1) stlt. Ii )roiisiosis of Sedi )n 2(5k) ai1d 2(hB) Ui tiac’ Art and I1erefore. tiic’ nrdqar ci tl’e tribunal de.nves a, In ‘Ci I 1 %It •kfl t I clii ii It tilt d stipdu t. ‘ ii i U I i iic iSIIcr C 1111 ii ur’pr ‘flu tOn %%j it )p•s ‘fl •tti. • siCt 1flfl •iI r’’ ‘hilt ‘ii 1 i t’ COMMISSIONER OP INC.OML lAX VS. MOTOR AND GENERAL FINANCE LIMITED ‘:).P .11 ,1, i”rnl:. t) — •, sin a •‘ •t• r ‘S It leaimg with vqLupxnnn It’tl%im a(’tIVilie% is to be uncle %lflocI t i loan C (flfll’clifl ri liii e - ( nmj.aii -Ml’ in’ iiit b,aii j:,.l • hirghv ii’’ ‘ 1 ‘ud ‘V fl the subnn’,siuii lit-it the ii a’n ‘it fl ir- l tte t,sc ‘‘t e. ( s 1) irg ‘eisiis I’ ‘c If! K U tb ‘z c i In tIc 1 it t — i ai bit 1!... hr tunal claar us al ‘ plac er. reliant a dvi’ion B ‘b h Je ciIozi c,f this fl.t’rr in hit ca%e of C mmlssioner of Iiwc;me 1 .‘x MausLalure Vs. Mi Bhan” Ii Mills Pt ft atti’ L1?i’ C .1 .“rrfr’eretl on 2:’ (‘ete,Ixr 2010 in ‘.“i.. Nn ‘11 i/”0e o’tn - ird wait I T N,%hl29u(t7w)t; i13’i’i0 1- tt ‘i ii ltTr 1 i 1 1 ‘t ‘‘ rpuy 1 ii %t.i)IV1_(Lt t Si ( 1’ 1 ‘ ‘13’TV •. ‘ - .‘ a! il-I,.-- 41’ 1 1 ‘4”J — •‘‘t ‘‘;.‘ . j I I i’ • I it;) 1 . • • ‘ ‘dI . ‘‘:‘‘- 1 -. ‘ - ‘ • I 12-

13. Mr. Kasnaladhar has also brought to our attention the definition of the word merchant bank as indicated in wikipedia. the free encyclopedia. a financial capital “A Merchant Bank is provides institution which companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to.” and on the basis of such definition, urges that a merchant bank could also be taken to be a financial institution within the scope of the provisions of Section 2(5A) read with Section 2(58) of the Act.

14. Mr. Kamaladhar has also drawn our attention in specific to Section 2(5A)(i) of the Act and Section 51 of the Banking Regulation Act, 1949. submit that assessee —Company being a subsidiary of Canara Bank. a scheduled Bank. that it fits into the definition of a credit institution within the meaning of fr - Stctioii 2( s\jt) d ‘he \% iii h tint h .i k n t’ II ‘h bunal in .“sehz It as,’ stt (C inpa: y ft ri tlit ) ) i it i ) hitch irr (1 1 1 At’ f ctlur I 4’(.I lit fther v411d jiisflftiblt If. On tht ntlwi ham. •Pc submission f Sri junsci Stinaiiarr’ana Ic i ned tin responclenr - -l’esce Is hat the Sc opc (S chars and 11u (TSOi) on iiiorn tha thaige is I’ b b’,terc 1 s d 1 r c ‘. r fl rnbIons U SectAnls 1 :1 d 5 tad with S action 5A ml 2(313) jIll r Au li t ‘1’ •isess e - C.’mpan is no at Iiict. Its into eitlit ti d.flmtinr 1 a L tcd1t I is’itiu • i ‘vi F ii di’ r i r 1n t I t ) i i-j 3A I I (t ‘1 T’ , ifl( I I ( ‘ri’) i Wall’ 1 1’ ut t ii ‘1 S Ctit’Ia “I)’)) 1 i i i i rcf . - itunni ;h - ( un ; I,tj It’i tip •‘— ‘ (m”€1’ •1 ‘a I..• - ‘ii.’ -‘ ii. p ; i • U’ ‘ %i I I). Ij 1 V i V (It ‘‘. 4 •14- “2(5A) “credit institution” means,— (1) a banking company to which the Banking Regulation Act, 1949 (10 of applies (Including any bank or banking institution referred to In section 51 of that Act) 21 * 9: 1949). (ii) a public financial Institution as defined in section 4-A of the Companies Act, 1956 (1 of 1956): (iii) a State Financial Corporation established under section 3 or section 3-A or an institution notified under Section 46 of the State Financial Corporations Act, 1951 (63 of 1951); and (lv) any other financial company; 2(5B) “financial company” means a company, other than a company referred to In sub-clauses (i), (ii) or (Ill) of clause (5-A), being— (i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, financing of such transactions; transactions or hire-purchase (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; 4—- I i) Ii compar whsl. lflI%iik-%% ‘an es on. the I’U’4iifl%% i tin ) )r c ii if)) t. t s 1 its principal fInau ing of icli’r b(jt11sitiotI ‘U (It%I’l(JI)fl1t I’! ft Ian’) IP ‘ (‘fliw(ik.n tht rr i’Ii: (i’) a I’an un1pati1 that N to lint. a ccnu. Ii ifl wi cli cai-i s cn. the l)LNIIIC’S’ of pros idin flna’we. whether 1w a ci’nipan% (not in n r ‘d to n iii ci us , i) a (% it% prim TM bust ws iii as d tli w r a hi ito (vj a in’n u-ti bn”-tit fInance compn ih ii htisinesr. the hucine%s ul a eeptance of deposlt% from a it n bets iti wi act ( at d k ‘rut ii a It Coinpaiiies Act. 195b (1 of 1956j fvut a Be ‘1 9 1 is ck ‘hared b if o ti tu be a idbi 0? s ct )fl 62) * I (3 isda oh than a financial nnilpanv 1au ‘s ‘iJ jig ‘,r e njn (hem. or ;irrJilflt’iflCfll i, ( LII lith ((1’ L I. 1 1’’ refrrrr (1 (‘ rI fi’) ‘:‘ nhat.a en 6 hr r

11. 1 I • !fl s’ib I 10 S t .i e at na’re r’tlecl • i N nil dii 1 to_i • ijt’ ,i’--’ 11 a ceiL’ 1 -t.O’1. ‘.i h ,.‘le •‘

1. nib •h I i • I T •I It a i; i r. t,. ) 111% ii 1 tT 1 ?jip.1s’ S \ tU L 1 I ,- i ii I°fl Ii i.’ .1 1 •, C. Jr I ‘I 41si ‘1 -1’ 1.t% ‘‘ .1 I ( I •1 -16- It submission of Sri Suryanarayana is that the assessee — Company is not a banking Company within the meaning of Section 2(5A)(i) of the Act; that though a subsidiary Company of MIs. Canara Bank. by itself, it is not a banking company. Section 2(5Afli) of the Act does not apply as this provision of law applies only to a subsidiary bank and not to all subsidiaries of a banking institution. is consequently urged that even assuming for argument sake that a leasing transaction can be taken within the scope of loan transaction, but not conceding the point, as the view taken by the Delhi High Court has been reversed by the Supreme Court In the case of MOTOR AND GENERAL FINANCE LTD. VS. COMMISSIONER OF INCOME TAX reported In 334 ITR 33 and the Supreme Court having set aside the judgement rendered by Delhi High Court and the matter having gone back to the High Court and in turn, to the lower forum, the matter is not conclusive one way or the other to hold that a Company carrying on leasing activity is also iii the nature of a loan Company and in “V a titii, till% Ic t I Its ; Pt’I the ItIif11i114 til lTie .\%‘,t’SiflL :‘tITIiOrIt\ . It IslflL €h lI 11% iii IIL’ a%’•s’ c’ C ..Ml%tllLttt t’fl!’ .ib;tit 2t” )( ic cii tin ( i dc %s (na’ nctiisxV- ii L’ee 1 oc caifi w”tlvitit s n en IlL wrnl of Set lion 2(513) rlausr (vu c’I the Ad. the .as%e%%re ( nmptuw “ors nut quauI5 for tI:t of iii I nitn t r ( ( tat U -t’Ius hhIgrtn Fs ( t (1 rto 1 31%C’ d 11(11 t’cjn’titiiii the ieiiit uhilch i’ ext”L;isjyciv r .jlfl ,sf (‘V’i1i’,iri (alike ! Gil L’v lit- .-ss’es,ce )t)c.’ ritini I ittit leic ieF, shi ‘thu f1 u a at nd r, ,I ‘ui•’1 Ii )% ! t—tl tIlt t 11 fl. 4 l “L$fufleq ,;s i,r .apq V)t) 1T.1( !i’ r”. t 4i tInt J_ ‘$\ f4 ‘I• ‘i——.I 1 ‘, — -I J ;,e • I. • • t.. .. . I I ii ti . . ;. -; • ——I . — 1R ) ‘itt 1 SC’TT fticltit ‘%tIX(t II c cii ii &ctL le id ‘ix st 1% iii lit t t( q S t’)’i 3 1 in ‘Sc iiiil liii’ %(i)IW ot iii.’ t ‘‘cIiQt’ 1% •iitlic1i’..i ifl St—ciieii 3 ..t tht .‘Ll aiiti it b 111 rc SIWL’t L’ cllarge€tbit iTItrrSt (it âI13 I cr ci inn ut lii I i’ x .fl%t fi hi 1 1 Cl % fO r i iii I icftuflca s lflW rnor in t rnd I is 1 b touncj tither in SerLfrmu 2(3i) pti r nr it i’. a irsiCkian flnaw lad £ nmpam not ‘ ereil under Jati%n Ii) to (in) n St ncn A ½) ii Ti :t Cdlfl an 0th ila.chtflfl. ( i r ( ) i. i v tsc1J1 (‘lilt Vit’fstiii. ‘SI ‘ &cj .1)111 ‘ft —s ii).11(1 • 1 1 _, ,_ I. ‘ ‘•—• - I’ Ii I •— I 1- %S I II ‘ %I •‘• V J , ‘ ft,’ •i.i • i I, 0 nellc ‘‘ri I ‘‘, iii t 1 Cc nj ny ‘s,Vtl i S U -i 5 )( yin d a L \1 S r iii 1- ‘,e ( i t ss’( Conl’Ir3 1’ “, nlti 1 %i1 % 1(t. I I c\, ‘ iI’L it’, wldinc (nrp Ii 41 ci I k s lu Ii. lcdl3’i k 20 Th ‘uircr1 I it a I Wn .011 ‘1 V also r lx takcn a’, i lo ii C oirp’ii Ii )U p 11w is an aigument vi it’h ma’s C irs n i i to ii defmilon % a 1 “& i C )f ip n s’ ‘r flt ii hi’,Ui’ui )i 1i )‘L prizic ii 1 bu’ir s t 14 t l)rovIdlii c tin an ‘c wtu hc r bs v ot ‘car ‘i ‘ i’ ‘ • -ti enva c ‘Vi—ik i U pitt. iblc ‘s ( a Ia s idlStttI)i ‘. it €ds I 1)1 P1 it ‘ftii 1( O)t 0 I ai’ V na 1(11 IL tjç I I t’ 1311 14 . 1L 1 I . 1 )11L4’a 1 1’

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1.1 a ‘11)3 I : I J? iii “it I I ‘•i’ II ( I — I 4 RE. I.T.A. No.1002/2006 CJW ITA No.1391/2006 These two appeals by the revenue arc also relating to the very assessee as was Involved In the above appeal. The question also being the same. arising In respect of a different assessment years. namely. In I.T.A. No.1002/2006 relating to the assessment year 1993-1994 and l.T.A. No.1391/2006 relating to the assessment year 1997-1998, the question which Is common in these appeals Is answered as in the above appeal. In ETA. No.1002/2006, though the other question relating to the validity of reopening of the assessment Is also involved as the main matter Itself has been decided against the revenue, the question relating to reopening of assessments becomes academic and does not survive for an Independent answer. In view of our disposal of I.T.A. No.1003/2006 above and answering the question in favour of the .1 )9%SI’ )T(ldtt,’.%1111t!I1PTII’ •%tt.dt1V•U-‘“(iP.)t1(1t (I.)%%bTILt%4()U%(. •tYJLLJItt1%L I;’’fl%..:Ll)It’!iT’t’l’i(Itt”t I” lU! I31(1T’IDtuUI J%%•..%t )qI‘%LlIe?jl’ — - ‘ii L 41