The Interest-Tax Act, 1974
THE INTEREST-TAX ACT, 1974 ACT NO. 45 OF 1974
[23rd September. 1974]
An Act to impose a special tax on interest in certain cases.
BE it enacted by Parliament in the Twenty-fifth Year of the Republic of India as follows:-
Short title and extent.
Short title and extent. (1) This Act may be called the Interest-tax Act, 1974.
(2) It extends to the whole of India.
Definitions. 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 and includes-
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his chargeable interest or of the amount of refund due to him or of the chargeable interest of any other person in respect of which he is assessable or of the amount of refund due to such other person;
(b) every person who is deemed to be an assessee in default under any provision of this Act;
(2) "assessment" includes reassessment;
(3) "assessment year" means the period of twelve months commencing on the 1st day of April, every year;
598 (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 [(5A) "credit institution" means,-
(i) a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of at Act 8***)
(ii) a public financial institution as defined in section of the Companies Act, 1956;
(iii) a State financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951; and (iv) any other financial company;
(5B) "financial company" means a company, other than a company referred to in sub-clause (i), (ii) or (iii) of clause (5A), being-
(i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-
purchase transactions or the financing of such transactions;
(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;
(iii), a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith;
(iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise;
(v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956, to be a Nidhi or Mutual Benefit Society; (8****
(vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses;]
(6) "Income-tax Act" means the Income-tax Act, 1961; (43 of 1961.)
6[(7) "interest" means interest on loans and advances made in India and includes-
(a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in, India, but does not include-
(i) interest referred to in sub-section (1B) of the Reserve Bank of India Act, 1934;
(ii) discount on treasury bills;]
8[(va) a residuary non-banking company [other than a financial company referred to in sub-clause (i), (ii), (iii), (iv), or (v)]
that is to say, a company which receives any deposit under any scheme or arrangement, by whatever name called, in one lumpsum or in instalments by way of contributions or subscriptions or by sale of units or certificates or other instruments or in any other manner; or]
---Subject to the provisions of this Act, the chargeable interest 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 8[or to any cooperative society engaged in carrying on the business of banking]
Provided that any interest in relation to categories of had 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.]
6xxx (8) "Prescribed" means prescribed by rules made under this Act;
(10) all other words and expressions used herein but not defined and defined in the Income-tax Act shall have the meanings respec-
tively assigned to them in that Act.
Tax authorities. 7 [(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.
(1A) 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.
(1B) 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.
(1C) 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.
(1D) 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 cor-
responding 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:
[See footnote 1 for this section]
Provided that no such orders, instructions or directions shall be issued-
(a) so as to require any tax authority to make a Particular assessment or to dispose of a particular case in a particular manner; or (b) 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]9 employed in the execution of this Act shall observe and follow the orders, instructions and directions issued for his guidance by the
[Director]9 or by the Commissioner or by the [Additional Commissioner of Income-tax or the Deputy Commissioner]9 within whose jurisdiction he performs his functions.
Charge of tax.
Charge of tax. [(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:
5[(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 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.]
3["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.]
Computation of chargeable interest.
Computation of chargeable interest. (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 7[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 assesses.
(2) In computing the chargeable interest of a previous year, the amount of interest which accrues or arises to the assessee 7['during the period commencing on the 1st day of April, 1985 and ending with the 30th day of September, 1991"]. 7[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.] shall not be taken into account.
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