UNIT TRUST OF INDIA Vs. P K UNNY

JUDGEMENT

(1.) THE following questions of law arise for determination in the aforesaid two writ petitions.

(2.) ON 23rd September, 1974, the Parliament enacted Interest Tax Act, 1974. At that time, it applied to Scheduled Banks, IDBI, IFCI, ICICI and Industrial Reconstruction. Upto 1st October, 1991 the Interest Tax Act, 1974 did not cover U. T. I. and LIC. On 24-7-1991, Finance (No. 2) Bill was introduced in the Parliament. Under the said Bill, section 2 of the Interest Tax Act, 1974 came to be amended. Clause 5a was inserted. It defined Credit Institution to mean a banking company; a public Financial Institution as defined under section 4a of the Companies Act, 1956. Under section 4a of the Companies Act, U. T. I. is a public Financial Institution. Under the said section, the Central Government is empowered to specify any other Institution, as it may think fit, to be a public Financial Institution. The Finance Act (No. 2) of 1991 came into force on and from 1st October, 1991. Therefore, upto 1st October, 1991 U. T. I. was not a credit institution. On and from 1st October, 1991 the Interest Tax Act covered U. T. I. , LIC and 12 other notified institutions under section 4a of the Companies Act. Further, 18 State Financial Corporations also came under the Interest Tax Act as they were notified under State Financial Corporations Act. On 8th August, 1991 U. T. I. addressed a letter to the Central Board of Direct Taxes seeking a clarification from CBDT whether U. T. I. was liable to interest tax under the said Act, 1974 in view of section 32 of the U. T. I. Act. On 11th October, 1991 CBDT addressed a letter dated 11th October, 1991 to the Ministry of Finance stating that the interest tax levied under the Interest Tax Act is a tax on income and in view of section 32 of the U. T. I. Act, it was not liable to pay tax under the Interest Tax Act. This decision was taken almost after two months from the letter dated 8th August, 1991 addressed by U. T. I. In view of the circular of CBDT dated 11th October, 1991 U. T. I. did not file its returns under the Interest Tax Act from the Accounting Year 1991-92 upto to the Accounting Year ending 31st March, 1999. On 21st December, 2000 the ITO (Respondent No. 1 herein) issued notices to U. T. I. under section 10 (a) of the Interest Tax Act, 1974 in respect of the aforestated period. Pursuant to the said notices U. T. I. was called upon to furnish its returns of chargeable interest under the Interest Tax Act within 30 days. By letter dated 13-1-2001, U. T. I. informed the 1st respondent that it was not liable to pay the interest tax in view of section 32 of U. T. I. Act, 1963 which exempted all income, profits or gains of U. T. I. from the charge of tax. By the said letter, attention of respondent No. 1 was also invited to the Circular of CBDT dated 11th October, 1991. Accordingly, respondent No. 1 was requested to drop the proposed proceedings under section 10 (a) of the Interest Tax Act. Without prejudice, U. T. I. filed nil returns under the Interest Tax Act in order to comply with the impugned notices issued by respondent No. 1. The said returns were also filed by U. T. I. in order to know the reasons for invoking section 10 (a) of the Interest Tax Act by respondent No. 1. The said reasons are given of the paper-book. The reasons indicate that section 10 (a) of the Interest Tax Act has been invoked by respondent No. 1 for failure on the part of U. T. I. to file its returns under section 7 of the Interest Tax Act for the aforesaid period because he had reason to believe and that thereby chargeable interest had escaped assessment. The said reasons do not refer to the Circular of CBDT dated 11th October, 1991. The nil returns were filed on 17-1-2001. U. T. I. , thereafter, received a letter from respondent No. 1 dated 30-1-2001. By the said letter U. T. I. was called upon to give details of total interest accruing and received by it during the aforestated period. By the said letter U. T. I. was informed that the Circular dated 11th October, 1991 has been withdrawn by CBDT on 29-1-2001. A copy of the letter of CBDT withdrawing its earlier circular was enclosed. In the said letter dated 29-1-2001, CBDT has stated that it has re-examined the position in law and was now of the opinion that Interest Tax under the Interest Tax Act was not a tax in respect of income, profit or gains of U. T. I. and, therefore, its earlier circular dated 11th October, 1991 stood withdrawn. Accordingly, by letter dated 29-1-2001 the earlier circular stood withdrawn. On 8th February, 2001 the present Writ Petition No. 506 of 2001 was filed. Writ Petition No. 505 of 2001 has been filed by an individual unit holder as a PIL. Pursuant to the orders passed by the learned Chief Justice, the PIL writ petition has been tagged with main Writ Petition No. 506 of 2001. Accordingly, both the above writ petitions are heard together.

(3.) LOOKING to the importance of the matter, the Court decided to hear the entire matter finally in its entirety. Learned Advocates on both sides agreed. Accordingly, the pleadings were completed. The matter was finally heard and is being disposed of by this judgment.