"Since substantial earnings is made from such (lease financing) activity after employing substantial funds...The assessee would be outside the scope of charging provisions contained in the Act (Interest Tax Act)," the Mumbai bench of ITAT said, while giving a ruling in favour of Shardul Securities.
The bench has set aside the orders of the Assessing Officer and Commissioner of Income tax Appeals in the case, which held that the company should pay interest tax as it is also engaged in loan advancing and investment activities along with lease financing.
The tribunal also ordered the tax authorities to refund the interest tax paid by the assessee.
The company in its submission before the tribunal had contented that it could not be treated as a finance company as its primary income was from leasing business at around 40 to 45 per cent of the total income.
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The company, according to the order, will not be termed as a credit institution and "consequently, the interest earned by the assessee would not form part of the chargeable interest".
The Assessing Officer initially had held that the finance company had earned about Rs 10.07 crore out of which Rs 4.08 crore was interest income on which it was required to pay interest tax.