IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 9TH AUGUST 2011 / 18TH SRAVANA 1933 ITA.No. 304 of 2002() --------------------- ITA.10/COCH/1998 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT/ RESPONDENT: ----------------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SMT.PRIYA MANJOORAN SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT/APPELLANT: --------------- KERALA STATE INDUSTRIAL ENTERPRISES LTD, THIRUVANANTHAPURAM. ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SMT.PRIYA MAHESH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09/08/2011, ALONG WITH ITA NO. 311 OF 2002, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A.No.304/2002 APPENDIX ANNEXURE-A: COPY OF THE ORDER OF THE ASSESSING OFFICER DT.13.1.1998. ANNEXURE-B: COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DT.26.3.1998. ANNEXURE-C: COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DT.21.2.2002. //TRUE COPY// PA TO JUDGE C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. ------------------------------------------ I.T.A.No.304 & 311 OF 2002 ------------------------------------------- Dated this the 9th day of August, 2011 J U D G M E N T ~~~~~~~~~~~ C.N.Ramachandran Nair, J. The question raised in the connected appeals filed by the Revenue is whether the respondent is liable for interest tax under the Interest Tax Act. 2. We have heard the learned senior counsel appearing for the Revenue and the counsel appearing for the respondent. 3. The transactions that lead to the assessment and demand of interest tax is the State Government's fund transacted by respondent Company which is by way of financing other Government owned Companies. The respondent is a holding company for several subsidiary companies also fully owned and managed by the Government. Government used respondent as an agency for funding the companies under it's control. It is seen from the findings of the Tribunal that the entire funds transferred from the Government to the respondent were in turn transmitted by them to the beneficiary companies and the amount collected with interest was credited to the I.T.A.Nos.304 & 311/2002 2 Government's account. In other words, the clear finding is that the respondent is not a beneficiary of the financial transaction and it was used by the State Government as a channelising agency for fund flow from Government to it's ailing public sector companies. Since the respondent is not the beneficiary of the transactions and was only used as a channellising agency by the Government, we do not think Section 5 or Section 6 of the Act is attracted and so much so, the interest received by the respondent on behalf of the Government and transferred to the Government cannot be treated as interest accrued or received by the respondent that is chargeable to tax under the Act. We, therefore, do not think there is any need to consider the other questions raised that is whether the respondent is a financial company and consequently a credit institution that could be assessed under the Act. 3. It is also seen from the Tribunal's order that in 1999 the Government discontinued the arrangements with the respondent by just declaring that the benefits or loss on account of all money transactions made by the respondent on behalf of I.T.A.Nos.304 & 311/2002 3 the Government will go to Government in the same form and style of the asset. In view of the findings of the Tribunal that respondent is only a channelising agency for transfer of funds and it is not a beneficiary of the interest earned on such funds transferred by the Government through it, the respondent cannot be assessed under the Act. We, therefore, dismiss both the appeals filed by the Revenue. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) ps/16/8 I.T.A.Nos.304 & 311/2002 4 C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. I.T.A.Nos.304 & 311/2002 J U D G M E N T DT.9.8.2011.