Interest Tax

Definitions

2. In this Act, unless the context otherwise requires,—

1. “assessee” means a person by whom interest-tax, or any other sum of money is payable under this Act
2. “assessment” includes reassessment;
3. “assessment year” means the period of twelve months commencing on the 1st day of April, every year;
4. “Board” means the Central Board of Direct Taxes consti­tuted under the Central Boards of Revenue Act, 1963 (54 of 1963);
5. “chargeable interest” means the total amount of interest referred to in section 5, computed in the manner laid down in section 6;
6. “Income-tax Act” means the Income-tax Act, 1961 (43 of 1961)

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Tax authorities.

3. (1) The income-tax authorities specified in section 116 of the Income-tax Act shall be the interest-tax authorities for the purposes of this Act.

1. Every such authority shall exercise the powers and perform the functions of an interest-tax authority under this Act in respect of any person within his jurisdiction.
2. The jurisdiction of an interest-tax authority under this Act shall be the same as he has under the Income-tax Act by virtue of orders or directions issued under section 120 of that Act (including orders or directions assigning the concurrent juris­diction) or under any other provision of that Act.
3. The interest-tax authority having jurisdiction in relation to a credit institution which has no income assessable to income-tax under the Income-tax Act shall be the interest-tax authority having jurisdiction in respect of the area in which that institution carries on its business or has its principal place of business.
4. Section 118 of the Income-tax Act and any notification issued thereunder shall apply in relation to the control of interest-tax authorities as they apply in relation to the control of the corresponding income-tax authorities, except to the extent to which the Board may, by notification in the Official Gazette, otherwise direct in respect of any interest-tax authority.

(2) All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and direc­tions of the Board :

Provided that no such orders, instructions or directions shall be issued—

1. so as to require any tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or
2. so as to interfere with the discretion of the [Com­missioner (Appeals)] in the exercise of his appellate functions.

(3) Every Income-tax Officer [or Assistant Commissioner] [or Deputy Commissioner] employed in the execution of this Act shall observe and follow the orders, instructions and directions issued for his guidance by the [Director] or by the Commissioner or by the [Additional Commissioner of Income-tax or the [Joint Commis­sioner]] within whose jurisdiction he performs his functions.

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Charge of tax.

4. (1) Subject to the provisions of this Act, there shall be charged on every scheduled bank for every assessment year commencing on or after the 1st day of April, 1975, a tax in this Act referred to as interest-tax in respect of its chargeable interest of the previous year at the rate of seven per cent of such chargeable interest :

[Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1983 shall be three and a half per cent of such chargeable interest.]

(2) 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 :

[Provided that the rate at which interest-tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 1997 shall be two per cent of such chargeable interest.]

The following sub-section (3) shall be inserted after subsection (2) in section 4 by the Finance Act, 2000, w.e.f. 1-4-2001.

(3) Notwithstanding anything contained in sub-sections (1) and (2), no interest tax shall be charged in respect of any chargeable interest accruing or arising after the 31st day of March, 2000.

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Scope of chargeable interest.

5. Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions 23[or to any co-operative society engaged in carrying on the business of banking], accruing or arising to the credit institution in that previous year :]
Provided that any interest in relation to categories of bad or doubtful debts referred to in section 43D of the Income-tax Act shall be deemed to accrue or arise to the credit institution in the previous year in which it is credited by the credit institu­tion to its profit and loss account for that year or, as the case may be, in which it is actually received by the credit institu­tion, whichever is earlier.]
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Computation of chargeable interest.

6. (1) Subject to the provisions of sub-section (2), in computing the chargeable interest of a previous year, there shall be al­lowed from the total amount of interest (other than interest on loans and advances made to [credit institutions]) accruing or arising to the assessee in the previous year, a deduction in respect of the amount of interest which is established to have become a bad debt during the previous year :

Provided that such interest has been taken into account in computing the chargeable interest of the assessee of an earlier previous year and the amount has been written off as irrecovera­ble in the accounts of the assessee for the previous year during which it is established to have become a bad debt.

Explanation.—For the removal of doubts, it is hereby declared that in computing the chargeable interest of a previous year, no deduction, other than the deduction specified in this sub-section shall be allowed from the total amount of interest accruing or arising to the assessee.

(2) In computing the chargeable interest of a previous year, the amount of interest which accrues or arises to the assessee [before the 1st day of August, 1974, or] [during the period commencing on the 1st day of March, 1978, and ending with the 30th day of June, 1980,] [or  [during the period commencing on the 1st day of April, 1985 and ending with the 30th day of Sep­tember, 1991]], shall not be taken into account.

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Return of chargeable interest.

7. (1) In the case of every credit institution, its principal officer, or where in the case of a non-resident credit institution any person has been treated as its agent under sec­tion 163 of the Income-tax Act, such person, shall furnish a return of the chargeable interest of the credit institution of the previous year in the prescribed form  and verified in the prescribed manner and setting forth such other particulars as may be prescribed, before the 31st day of December, of the assessment year.

(2) Without prejudice to the provisions of sub-section (1), the Assessing Officer may, before the end of the relevant assessment year, serve a notice upon the principal officer of any credit institution, or where in the case of a non-resident credit insti­tution any person has been treated as its agent under section 163 of the Income-tax Act, upon such person, requiring him to furnish within thirty days from the date of service of the notice a return of the chargeable interest of the credit institution of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

(3) Any assessee who has not furnished a return within the time allowed under sub-section (1) or sub-section (2), or having furnished a return under sub-section (1) or sub-section (2), discovers any omission or wrong statement therein, may furnish a return or a revised return, as the case may be, at any time [before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.]

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Assessment.

8. (1) For the purposes of making an assessment under this Act, the [Assessing] Officer may serve on any person who has fur­nished a return under section 7 or upon whom a notice has been served under sub-section (2) of section 7 (whether a return has been furnished or not) a notice requiring him on a date therein to be specified to produce or cause to be produced such accounts or documents or evidence as the [Assessing] Officer may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such further accounts or documents or other evidence as he may require.
(2) The [Assessing] Officer, after considering such accounts, documents or evidence, if any, as he has obtained under sub-section (1) and after taking into account any relevant material which he has gathered, shall, by an order in writing, assess the chargeable interest and the amount of the interest-tax payable on the basis of such assessment.
(3) If any person—

1. fails to make a return as required under sub-section (1) of section 7 and has not made a return or a revised return under sub-section (3) of that section, or
2. fails to comply with all the terms of notice under sub-section (2) of that section,

the Assessing Officer shall, after taking into account all the relevant material which he has gathered and after giving the assessee an opportunity of being heard, make the assessment of the total chargeable interest to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment :
Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment :
Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) has been issued prior to the making of an assessment under this section.

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Self-assessment.

9. (1) Where interest-tax is payable on the basis of any return required to be furnished under section 7 or section 10, after taking into account the amount of interest-tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such interest-tax, together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance interest-tax, before furnishing the return and the return shall be accom­panied by proof of payment of such interest-tax and interest.

Explanation.—Where the amount paid by the assessee under this sub-section falls short of the aggregate of the interest-tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the interest-tax payable.

(2) After the assessment under section 8 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such assessment.

(3) If any assessee fails to pay the whole or any part of inter­est-tax or interest or both in accordance with the provisions of sub-section (1), he shall, without prejudice to any other conse­quences which he may incur, be deemed to be an assessee in default in respect of the interest-tax or interest or both remaining unpaid, and all the provisions of this Act shall apply accordingly.

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Interest escaping assessment.

10. If—

1. the [Assessing] Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return under section 7 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for any assessment year, chargeable interest for that year has escaped assessment or has been under-assessed or has been made the subject of excessive relief under this Act, or
2. not with standing that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the [Assessing] Officer has, in consequence of information in his possession, reason to believe that chargeable interest as­sessable for any assessment year has escaped assessment or has been under-assessed or has been the subject of excessive relief under this Act,

he may, in cases falling under clause (a), at any time, and in cases falling under clause (b), at any time within four years of the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under section 7, and may proceed to assess or reassess the amount chargeable to interest-tax and the provisions of this Act shall, so far as may be, apply, as if the notice were a notice issued under that section.

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