Unit Trust Of India & Others v. P.k. Unny & Others

S.H. KAPADIA, J.

The following questions of law arise for determination in the aforesaid two writ petitions.

A. Whether the interest tax under the Interest Tax Act, 1974 is a tax on income and, if so, whether interest accruing to U.T.I. from loans advanced by it stands exempted in view of section 32 of the U.T.I. Act, 1963

B. If the answer to question No. A is in the negative then whether communication dated 29-1-2001 withdrawing the letter circular dated 11th October, 1991 issued by CBDT was retrospective and whether Interest Tax Act, 1974 was applicable for the Accounting Years 1991-92 to 1998-99.

C. Whether, on the facts and circumstances of the case, the Department was right in invoking section 10(a) of the Interest Tax Act, 1974 for failure on the part of U.T.I. to file returns under the Interest Tax Act, 1974

FACTS:

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 at page 158 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.

ARGUMENTS :

4. At the outset, in a nutshell, it may be stated that the argument of U.T.I. is that interest tax is a tax on income just as income tax is a tax on income; that just as income tax is a tax on gross income, interest tax is a tax on gross receipt. Hence, we are taken through Income Tax Act to draw a parallel between Income Tax Act and Interest Tax Act, that if Interest Tax Act is a tax on income like in the case of Income Tax Act then section 32 of U.T.I. Act will also exempt U.T.I. from interest tax. In support of the above argument, Mr. Dastur, learned Senior Counsel for U.T.I., contends that the interest tax under the Interest Tax Act, 1974 is a tax on income and, therefore, it is covered by section 32 of the U.T.I. Act. He submitted that the words "in respect of" occurring in section 32(1) are the words of widest amplitude. He contended that the Interest Tax Act falls under the second part of section 32(1) of the U.T.I. Act which exempts U.T.I. from tax on income from any source under any other enactment. He contended that the income accruing to U.T.I. under the Income Tax Act is exempted from the Income Tax Act. Similarly, the U.T.I. is given exemption from payment of tax on its income under any other enactment [hereinafter referred to for the sake of brevity as "the second part" of section 32(1)] Mr. Dastur contends that Interest Tax Act falls within the second part. He further contends that interest accruing to U.T.I. is its income; that it is income from any source as mentioned in section 32(1)(a). He, therefore, contends that the Interest Tax Act falls within the expression "any other tax" in respect of any income, profits or gains derived by U.T.I. from any other source. He contends that the word "income" in section 32(1) refers to gross income/total income and not the computed income. Mr. Dastur contends that the word "income" under the U.T.I. Act must be read as income defined under the Income Tax Act. He, therefore, relied upon various sections of the Income Tax Act in support of his contention that the interest received by U.T.I. can only mean interest income and if interest received by U.T.I. is its income from loan advanced by U.T.I. then section 32(1)(a) of the U.T.I. Act (second part) squarely applies. Hence, he contended that the provisions of the Interest Tax Act will not apply to U.T.I. as the income of U.T.I. from any source including loans stands exempted in view of section 32 of the U.T.I. Act. He contended that the word "income" in section 32(1) of the U.T.I. Act represents the gross income. However, the said word "income" is placed along with the words "profits or gains". Mr. Dastur contends that the word "income" represents gross income and the word "income", therefore, is required to be read in the widest possible terms and the said word "income" should not be limited by the words "profits or gains". He contended that the Court will have to consider and interpret the meaning of the words "income", "computed income", "net income" and "taxable income". Mr. Dastur contended that the word "net income" is only an accounting concept. That, the word "profit" represented a difference. However, the word "profit" cannot limit the word "income". He contended that the word "income" under U.T.I. Act must be read as interpreted by the Supreme Court in numerous decisions under the Income Tax Act. He contended that the Interest Tax Act like the Income Tax Act is a tax on income and, therefore, they are connected to each other. He, therefore, contended that the word "income" in section 32 of the U.T.I. Act should be read as occurring in the Income Tax Act. He contended that under the Income Tax Act, the word "income" is defined in section 2(24) so as to include profits and gains which clearly show that the word "income" is defined in the widest possible terms; that the word "income" includes profits and gains and, therefore, it was urged that "profits and gains" are words which cannot limit the word "income" and, therefore, while interpreting section 32 of the U.T.I. Act, the word "income" should be read as gross income. Mr. Dastur, therefore, invited our attention to various sections of the Income Tax Act in support of his contention that the word "income" represents gross income but what is chargeable to tax under the Income Tax Act is the computed income. In other words Mr. Dastur contended that income as exigible under the Income Tax Act is the gross income but when the income tax seeks to levy tax, it does so on the total income as computed under the Income Tax Act. In this connection, he placed reliance on the definition of the word "income" in section 2(24) of the Income Tax Act read with sections 4 and 5 of the Income Tax Act. He submitted that section 4 of the Income Tax Act is a charging section. That, under section 4, the tax is levied on the total income as computed under the Income Tax Act. That the word "total income" is also defined under section 2(45) of the Income Tax Act which refers to computed income. Section 2(45), therefore, refers to gross income but it is the income computed under the Income Tax Act. So also, section 5 of the Income Tax Act, according to the learned Counsel, seeks to levy Income Tax on the gross income as computed. Therefore, the learned Counsel submitted that the word "income" includes profits and gains as defined under section 2(24). It also includes gross income as computed under the Income Tax Act. According to the learned Counsel, there is a difference between computed income and the word "income". That, the word "income" must be read in the widest possible terms and, if so read, whatever comes in, constitutes income. In support of his above contention, the learned Senior Counsel invited our attention to the various provisions of the Income Tax Act. Under section 14, which deals with heads of income, all incomes have been classified under different heads. It was submitted that the word "income" in section 14 has to be read as gross income. That, it will include all receipts. He further contended that salaries constitute one head of income. That, section 15 refers to gross salary whereas section 16 refers to deductions from salaries. He, therefore, contended that if section 15 is seen in the context of section 16, it is clear that the word "salary" in section 15 refers to gross salary and it is for this reason that section 16 inter alia provides that the income chargeable under the head "salary" shall be computed after making the stipulated deductions. It was, therefore, contended that the word "salary" in section 15 is the gross salary from which certain deductions are required to be made under section 16. That, if the word "salary" in section 15 represents net income then section 16 would be rendered nugatory. Similarly, it was submitted that section 22 seeks to tax income from house property. It was contended that section 22 seeks to charge the annual value of the property. That, annual value of the property is the rent received/receivable by the owner. That, the annual value represents the gross amount. However, such income under the Income Tax Act is required to be computed and, therefore, section 24 represents computed income. This analogy has been multiplied by way of illustrations by the learned Counsel in respect of various heads of income under the Income Tax Act. It is not necessary to further multiply the illustrations in this judgment. The only point which the learned Counsel seeks to make is that the word "income" under the Income Tax Act includes profits and gains. However, the word "income" under the U.T.I. Act is placed along with the words "profits and gains" and, therefore, the words "profits and gains" are equated with the word "income" under section 32 of the U.T.I. Act whereas the word "income" in section 2(24) of the Income Tax Act includes profits and gains. The learned Counsel, therefore, submitted that the word "income" in section 32(1) of the U.T.I. Act must be read as the word "income" under the Income Tax Act and the interpretation given by decisions of Supreme Court under the Income Tax Act would apply with equal force to the word "income" under the U.T.I. Act vide section 32 and, therefore, the words "profits and gains" should not limit the word "income" in section 32(1) and, on the contrary, the said words should be read in the widest possible terms and, if so read, it must refer to gross income and it cannot refer to income as computed under the Income Tax Act. It was submitted that under the Income Tax Act, the word "income" is different from word "computed income". That the word "income" under the Income Tax Act denotes gross income under section 2(24), section 15 and section 22 whereas the word "income" in section 16 which deals with deductions and section 24 which also deals with deductions, refer to computed income. Mr. Dastur, therefore, contends that the word "income" in section 32 represents gross income and not computed income. He contends that whatever is received constitutes income. He contends that purpose of section 32 is to give exemption to U.T.I. from income and looking to purpose of section 32, it is clear that all receipts accruing to U.T.I. from any source would constitute income and, therefore, the word "income" in section 32(1) represents gross income. He contended that it would be wrong to say that the Income Tax Act levies tax only on computed income and not on gross income. In this connection, he invited our attention to section 9(1)(v). He submitted that section 9 refers to income which is deemed to accrue in India. That section 9 inter alia lays down that incomes shall be deemed to accrue or arise in India in certain cases. That, section 9(1) refers to such cases. That, all cases falling under section 9(1) refers to gross income. Similarly, he invited our attention to section 44D(b) of the Income Tax Act. He submitted that section 44D deals with special provisions for computing income by way of royalty in the case of foreign companies. He contended that under section 44D(b), no deduction in respect of any expenditure is allowable in computing the income by way of royalty for technical services received from Government after 31-3-1976 which indicates that even under Income Tax Act, there are sections which do not provide for deductions for expenses as in the case of Interest Tax Act and, therefore, it was urged that section 44 refers to gross income and it is not correct to say that the Income Tax Act only deals with computed income. Similarly, our attention was invited to section 44AD which deals with special provisions for computing profits and gains of business in civil construction. It was submitted that under section 44AD, the tax levied is at the rate of 8% of the gross receipts. Therefore, it was urged that even under the Income Tax Act, there are, provisions which seek to levy the tax on gross income and that it is not right to say that the Income Tax Act seeks to tax only the computable income. Mr. Dastur further urged that under section 32 of the U.T.I. Act, the words used are "income, profits or gains derived form any source" and, therefore, the word "income" has to be read as gross income. He contended that the interest accruing to U.T.I. is nothing but income derived from loans given by U.T.I. in the course of its business and, therefore, it is income. Therefore, the word "income" in section 32 has to be read as gross income. Mr. Dastur further contended that section 32 of the U.T.I. Act is in two parts. That, the income tax computations are taken care of by the first part whereas the second part refers to tax on income from any other source and, therefore, in the present case, we are concerned with the second part. He contended that the words from any other source" come only in the second part of section 32(1) and, therefore, the word "income" in that second part can only mean the total income. He urged that the interest tax is a tax on income from any source and, therefore, the Interest Tax Act will not apply to the interest income derived by U.T.I. in the course of its business. Mr. Dastur made it very clear that, in this case, his arguments are restricted to U.T.I.s case. That he does not seek to argue on behalf of other Credit Institutions because section 32 of the U.T.I. Act is a unique provision which does not find place in other enactments. Mr. Dastur relied upon various judgments under the Income Tax Act. He contended that the object of the Income Tax Act as well as the Interest Tax Act is the same viz. to tax income. Therefore, he contended that the word "income" in section 32 must be interpreted as gross income. It was urged that the interest tax is a levy and a special tax on interest received but section 32 of the U.T.I. Act also gives exemption to all incomes accruing to U.T.I.. Hence, it was urged that the Interest Tax Act will not apply to U.T.I. in respect of the inteset income accuring to U.T.I. on loans given by it during the course of business. Mr. Dastur next contended that under the U.T.I. Act, there is a dichotomy between the initial scheme viz. US64 and the subsequent schemes. In this connection, he invited our attention to section 22 of the U.T.I. Act which refers to the Capital of the Trust. He contended that under section 22(1), the Capital of the Trust is the initial capital whereas under section 22(2), the Capital of the Trust is in relation to the subsequent Unit Scheme. Similarly, he contended that under section 23 of the U.T.I. Act, income of the Trust has been defined to consist of income in relation to the first unit scheme viz. US64 vis-a-vis the income of the Trust in relation to the subsequent Schemes. Mr. Dastur contended that the word "income" in section 23, therefore, indicates gross income. It cannot represent net income particularly when one reads section 23 along with section 24 and section 25 of the U.T.I. Act which inter alia lay down that the income of the Trust in any year arising out of the capital relating to the first Unit Scheme shall be allocated to the initial capital and also to the Unit capital; in the proportion indicated in section 24. Therefore, the learned Counsel contended that the income accruing to Trust in a given year is allocable between the capital of the first Unit Scheme and to the capital of the subsequent unit scheme. Therefore, it was submitted that the income accrues Schemewise. Learned Counsel further invited our attention to section 25 which allocates interest and other expenses also schemewise. He, therefore, contended that the word "income" in section 23 can only mean gross income because it is only from the gross income accruing to the trust that interest and other expenses could be allocated. In other words, it was submitted that the income of the Trust is dealt with under section 23 whereas expenses are dealt with under section 25. Therefore, he contended that word "income" in section 23 must be read as gross income. Mr. Dastur contended that under section 25A of the Unit Trust Act, distribution of income is contemplated. He contended that section 25A shows that unit holders have a right to participate in the gross income accuring to the Scheme to which they belong as reduced by expanses and, therefore, their participation is in the gross income so reduced as indicated by section 25A. It was, therefore, submitted that the word "income" in sections 23, 24 and 25 refers to gross income. Mr. Dastur also placed reliance on section 10 of the Income Tax Act in support of his contention that under the Income Tax Act, the word "income" represents gross income. He invited our attention to section 10 which refers to incomes not included in total income. He contended that section 10 could only refer to gross income. Hence, he contended that the word "income" should be read as gross income. He contended that it is for this reason that section 32 gives exemption to U.T.I. in respect of all its income from any source and, therefore, it must be read liberally. He contended that all accounts of U.T.I. are maintained Schemewise. That to workout the profits one has to keep separate portfolios and that the loans are given by U.T.I. also Schemewise. He contended on the basis of various Judgements of the Supreme Court that if ordinary meaning of the word "income" applies then one does not have to go to Entry 82 of List I to the VII Schedule of the Constitution. We invited Mr. Dasturs attention to section 2(28A) of the Income Tax Act which defines the word "interest" to mean interest payable in respect of any money borrowed or debt incurred and which includes any service fee or commitment charges in respect of the credit facility. In reply, Mr. Dastur submitted that section 2(28A) was introduced in the Act by Finance Act, 1988 because the Government wanted to levy tax on interest under section 9(1)(v) of the Income Tax Act which deals with interest income which accrues or arises in India. He contended that the legislature has expanded the meaning of the word "income" by virtue of section 2(28A). He contended that such an expansion of the word "income" does not defeat his argument that the word "interest", under the Income Tax Act, represents income. It was, therefore, contended that interest tax was tax on income. Mr. Dastur further contended that the provisions of the Interest Tax Act were similar to the provisions of the Hotel Receipts Tax Act, 1980. He relied upon the judgement of the Supreme Court reported in 178 I.T.R. page 140 at page 149 in support of his contention that even the Hotel Receipts Tax is a tax on income. He contended that in the aforestated judgement, the Supreme Court has laid down that the Hotel Receipts Tax is a tax on the gross receipts and further it is a tax on income. The Supreme Court has further held that the Hotel Receipts Tax Act falls under Entry 82 of List I of the VII Schedule to the Constitution because it is a tax on income. Therefore, the learned Counsel contended that the provisions of the Interest Tax Act must also be read as tax on income and, therefore, the word "income" must be read in the widest possible terms and the said word "income" must be read as gross income. He contended that it is not open to the Court to give different meanings to the word "income" under the same enactment like U.T.I. Act. He contended that merely because a special tax is levied by a separate enactment like the Interest Tax Act will not make any difference. He contended that as in the case of section 115J of the Income Tax Act, the legislature could have provided for interest tax on interest receivable by Credit Institutions even under the Income Tax Act but the legislature, in its wisdom, enacted a separate law instead of enacting a similar provision under the Income Tax Act itself. However, merely because the legislature enacted a separate Act, no difference could ensure as far as the interpretation is concerned. He contended that under section 18 of the Interest Tax Act, deduction is given to the credit Institution in respect of the interest tax payable. That, the interest tax payable is made deductible from the income of the Credit Institution under the Income Tax Act. He contended that but for section 18 of the Interest Tax Act, the credit Institution could not have availed of such deduction because of the embargo placed on such deductions under section 40(ii) of the Income Tax Act. He further contends that such deduction is given to the Credit Institution only because interest received on loans represents income. He contends that section 21 of the Hotel Receipts Tax Act is similar to section 18 of the Interest Tax Act . He contended that like Hotel Receipts Tax Act, the Interest Tax Act also levies tax on gross receipts and yet, the Supreme Court has held in the aforestated judgement that Hotel Receipts Tax Act is a tax on income. Therefore, interest does not cease to be income on the ground that no deduction is given under the Interest Tax Act which was also the case in the matter of the Hotel Receipts Tax Act. This concludes the first argument of Mr. Dastur for U.T.I.

5. Mr. Dastur next contended that, in the present matter, the impugned notices under section 10(a) of the Interest Tax Act were issued without any authority of law. He contended that the impugned notices dated 21-12-2000 could not have been issued by respondent No. 1 in view of the circular issued by CBDT on 11th October, 1991 which circular was in force when the impugned notices were received by the U.T.I. Mr. Dastur further pointed out that the circular of CBDT was withdrawn only on 29-1-2001. He contended that withdrawal was prospective in nature. He contended that there was nothing in the letter dated 29-1-2001 to indicate that the withdrawal of CBDT circular of 1991 was retrospective. He contended that for nine long years the circular of CBDT remained in force right from 11th October, 1991. He contended that if the withdrawal is held to be retrospective, it would have immense consequences. He contended that 32 schemes which were close ended schemes have been terminated during nine years. He contended that the loans have been repaid by the borrowers. He contended that large number of redemptions have taken place under the schemes which have been closed. He contended that reserves under the schemes have been distributed. He contended that if the circular is held to be retrospective, it would invite a levy of tax of more than Rs. 1,000 crores and the present unit holders under the remaining scheme may have to bear the brunt of the impugned levy. He contended that the Finance (No. 2) Bill of 1991 was introduced in the Parliament on 24th July, 1991. That, within two weeks, U.T.I. sought clarification from CBDT. That, the ruling was given on 11th October, 1991 after two months and now after nine years and two months the Circular has been withdrawn on 29-1-2001. He contended that even under the Income Tax Act, refunds have been granted during aforestated period in view of section 32 of U.T.I. Act. Mr. Dastur further contended that section 3(2) of the Interest Tax Act clearly lays down that all persons or Officers employed in the execution of the Act are required to follow orders, instructions and directions of the Board. He contended that section 3(2) is differently worded from section 119. He contended that section 21 of the Interest Tax Act separately provides for application of section 119 also to the Interest Tax Act. He contended that while section 119 of the Income Tax Act requires Circulars to be addressed to Officers, it is not the requirement under section 3(2) of the Interest Tax Act. He contended that section 3(2) is declaratory in nature. It lays down that all officers shall follow instructions, orders and directions of the Board. He contended that by reason of the circular of CBDT dated 11th October, 1991 U.T.I. was prevented from recovering tax from the borrowers on loans given by it. He contended that in view of the said circular dated 11th October, 1991 U.T.I. did not collect Interest Tax. He contended that U.T.I. did not charge interest tax on the ground that U.T.I. was exempted from payment of Interest Tax. He contended that those contracts have come to an end. That loans have been repaid. That, it is impossible now to charge, levy and recover Interest Tax from borrowers whose loans have been repaid. In the circumstances, he contended that circular should not be read retrospectively. He contended that this Court has specifically directed CBDT to consider the consequences of withdrawal of the circular. He contended that consequences have not been considered which position is admitted by CBDT in the affidavit now filed before this Court. He further contended that there is no indication in the withdrawal dated 29-1-2001 as to whether such withdrawal is retrospective or not. He, therefore, contended that withdrawal is prospective and not retrospective. He contended that the provisions of Interest Tax Act are similar to the provisions under Hotel Receipts Tax Act. He contended that both the legislations were held to be falling under Entry 82 of List I of the VII Schedule to the Constitution. He contended that like Interest Tax Act, the Hotel Receipts Tax Act also seeks to charge hotel receipts as income. That, it has been held by the Supreme Court that Hotel Receipts Tax Act levies tax on gross income and, therefore, it was contended that the tax levied under Interest Tax Act also is a tax on gross income and merely because a separate Act has been enacted will not make any difference. He further contended that under the Circular dated 11th October, 1991 CBDT placed an interpretation on the provisions of the Interest Tax Act as well as Income Tax Act and came to the conclusion that U.T.I. was not covered by the provisions of the Interest Tax Act. He contended that this interpretation was given after considering section 32 of the U.T.I. Act. He further contended that, that interpretation was in favour of U.T.I. He contended that the said interpretation operated for nine years. He contended that the Department accepted that interpretation. He contended that it is well settled that circulars, directions, institutions issued by CBDT were intended not only to give relief to the assessee from hardship arising during the course of the assessment but even if there is a deviation from statutory provisions of the Act the circulars have been held to be binding on the subordinate officers under CBDT. He contended that if the interpretation did not deviate from the statutory provisions then there was no purpose in issuing the circular. He, therefore, contended that the circular of CBDT was binding on the first respondent atleast till the same stood withdrawn. He further contended that there are numerous cases where circulars have been issued in cases involving individual assesses. He contended that U.T.I. may be an individual assessee but it is an institution which occupies a unique position in which the income accrues to the unit holders and there is no embargo under section 119 of the Income Tax Act to Circulars of CBDT issued only for individual assessee. He contended that , in the past, circulars have been issued by CBDT in and for giving benefit to individual assessees also, like Railways RSS, etc. In the circumstances, he contended that the Circular dated 11th October, 1991 was issued under section 119 of the Income Tax Act. He contended in the alternative that even if the Circular is held to be a mere opinion of CBDT, the first respondent was bound by the interpretation placed by the CBDT and respondent No. 1 was not authorised to sit in judgement over the opinion of CBDT. In fact, that was the reason why the above correspondence indicates that CBDT was required to withdraw its earlier circular on 29-1-2001. He contended that such circulars do not interfere in assessment proceedings. He further pointed out that under section 26C of the Interest Tax Act, the Credit Institution is entitled to vary the agreement in order to increase the rate of interest stipulated to the extent to which the Institution is liable to pay the Interest Tax under the Act. Mr. Dastur contended that by virtue of the Circular of CBDT dated 11th October, 1991 U.T.I. was prevented from varying the agreement so as to increase the rate of interest stipulated therein. He contended that if U.T.I. would have sought to recover the Interest Tax from the borrower, it could have been challenged on the ground that U.T.I. was exempted under section 32 of the U.T.I. Act as construed by CBDT and, in such an event, the borrower was entitled to challenge the authority of U.T.I. to charge, levy and recover the Interest Tax. He contended that during the aforestated period of nine years 36 Schemes of U.T.I. have matured. The statement of the Schemes have matured is annexed to this judgement as Statement-X. He contended that under the U.T.I. Act, the income and expenditure accruing stood bifurcated Scheme-wise. He contended that on the closure of 36 Schemes, the reserves have been distributed. He contended that loans given have been repaid and it would be impossible to U.T.I. to recover the Interest Tax from the borrowers from loans which have been repaid. That, such important consequences have not been taken into account by CBDT while issuing withdrawal on 29-1-2001. He contended that if the petition is dismissed then the liability would be of around Rs. 1100 crores. That, the corpus of the closed schemes was around 14,256 crores. He contended that having acted on the basis of the Circular dated 11th October, 1991 it is not open to Department to retrospectively levy, charge and recover Interest Tax. He contended that there is no explanation in any of the affidavits filed on behalf of the Department giving reasons why the said Circular was not withdrawn earlier. In the circumstances, it is contended that the withdrawal should not be given a retrospective effect. Mr. Dastur next contended that , in the present matter, respondent No. 1 has invoked section 10(a) of the Interest Tax Act. He contended that mere escapement of chargeable interest is not enough. He contended that the escapement should be by reason of omission or failure on the part of assessee to file its return. He contended that the language of section 10(a) is similar to section 148 of the Income Tax Act (as it then stood). He contended that, in the present matter, as stated above, section 10(a) has been invoked on the ground of failure to file the return. It is not filed on the ground of omission. He contended that the word "failure" in section 10(a) should be read willful failure. He contended that, in the present matter, on facts, there is no willful failure on the part of U.T.I. in not filing the returns. He, therefore, contended that section 10(a) was not applicable. He relied upon various decisions of Supreme Court under section 148 as it then stood in support of his above argument. He contended that issue of notice under section 10(a) is a jurisdictional fact. He contended that, in present matter, section 10(a) has been wrongly invoked and therefore section 10(a) has no application to the facts of this case. He further contended that U.T.I. has been filing its return of income under the Income Tax Act. That, it has been showing receipt of income as and by way of interest in its returns. That, the AO has been granting refund on the basis of section 32 of the U.T.I. Act under the Income Tax Act for the last nine years. He contended that the Interest Tax Act has a direct nexus with the Income Tax Act. He, therefore, contends that this is a case of change of opinion and therefore, section 10(a) of the Act has no application. He, therefore, contended that the writ petition should be allowed.

6. Mr. Aspi Chinoy, learned Senior Counsel appearing on behalf of the petitioner in the above PIL writ petition contended that there were three points involved in this case viz. whether U.T.I. was exigible to Interest Tax Act; whether notices under section 10(a) were bad in law and whether the Department was entitled to levy penalty and interest under the provision of Interest Tax Act for alleged failure to file returns. He contended that the short controversy in the present case which the Court has to consider is, as to why exemption was granted by CBDT on 11th October, 1991. In support of his above contentions, he contended that the word "income" in section 32 must be given full plenary content. He further contended that the word "income" in section 32 must be read as the word "income" under Entry 82 of List I as interpreted by the Supreme Court. He, therefore, contended that the word "income" should be read as total income and not computed income. He further contended that the word "income" occurs in U.T.I. Act at eight different places. He contended that the said word cannot be read differently. He contended that section 32 is a unique section. It treats U.T.I. as an unique Institution. He contended that the section 32 provides for exemption in order to enable U.T.I. to compete with other Mutual Funds. He contended that section 32 provides for equal playing field for all Mutual Funds. However, looking to large number of investments participating in the gross receipts, section 32 gives the benefit to U.T.I. by way of exemption from tax on income from any source. He contended that unit holders participate in gross receipts, via distributable income. He contended that the words "distribution of income" under section 25A of the U.T.I. Act, indicate gross income as reduced by expanses. He contended that at the stage where distribution comes in, the U.T.I. uses the words "income so reduced" and, therefore, the unit holders participate in the gross income and not in the net compute income. He contended that when one decides the issue of exigibility of tax the word "income" should be read as gross income and the said word should be read uniformly throughout the U.T.I. Act. He contended that U.T.I. is only a Manager under Mutual Fund. He contended that the Net Asset Value is fixed on the basis that Interest Tax was not payable by U.T.I. and redemptions under various Schemes have taken place over a period of nine years on the basis of the Net Asset Value. He contended that 36 Schemes of U.T.I. stand closed as indicated by the Statement marked-X to this judgement and reserves have been distributed amongst the unit holders and, therefore if Interest Tax is now levied the existing unit holders are being asked pay interest tax under the existing Schemes for and on behalf of the unit holders covered by the said 36 closed Schemes. He contended that huge liability will ensue on the U.T.I. which would result in shrinkage of the Net Asset Value. In the circumstances, he contended that the PIL writ petition should be allowed.

7. In reply to the afforested contentions advanced on behalf of U.T.I. and the petitioner in PIL writ petition, Mr. Dada, learned Senior Counsel, contended that the following points arise for determination by the Court in the present proceedings.

8. At the outset, learned Senior Counsel for Department contended that, in this matter, the first question which needs to be answered by the Court is that, is U.T.I. liable under Interest Tax Act because if there is no liability then no further point arises for determination. He contended that the Interest Tax Act was enacted as far back as 1974. However, the Act was not made applicable to U.T.I. and LIC till October 1, 1991. He contended that, originally, the Act was made applicable only to scheduled Banks in respect of loans given by them he contended that the Interest Tax Act was amended for the first time by Finance (No. 2) Act of 1980 when the Interest Tax was extended to cover IDBI and other financial Institutions. By the said amendment, financial institutions as defined under section 4A of the Companies Act were dropped within amendment of 1980 of the Interest Tax Act. However, the first amendment of 1980 of the Interest Tax Act did not cover LIC and U.T.I. He contended that, however, by Finance (No. 2) Act of 1991, the Interest Tax Act was extended to U.T.I. and LIC as Credit Institutions falling under the provisions of the Interest Tax Act. He contended that the Finance Act of 1991 has been enacted much after the enactment of the U.T.I. Act, 1963 and therefore, the Act of 1991 amending the Interest Tax Act was a subsequent law vis-a-vis U.T.I. Act, 1963. Mr. Dada invited our attention to the statement of objects and reasons on the Interest Tax Act, 1974. He pointed out that the object of the Act was to impose a special tax on the total amount of interest received on loans and advances made in India. He further pointed out from the statement of objects that the Act was enacted to have both monetary and fiscal impact inasmuch as to raise the cost of borrowed funds and to supplement the Government Revenues. He contended that, therefore, the Interest Tax Act contemplates two-fold objects. That, the Interest Tax Act was enacted also as an anti-inflationary measure. Mr. Dada next contended that if one keeps the objects in mind, it is clear that the Interest Tax was not a tax on income. It is a tax on chargeable interest. It is a tax on the gross receipt of interest irrespective of the loss that an assessee may face under that head. He further contended that since the Interest Tax Act, 1974 is subsequent to the U.T.I Act 1963, the Interest Tax Act is a subsequent legislation which must prevail over U.T.I. Act. He contended that if the argument of U.T.I. is accepted then the consequence would be that the exemption granted to U.T.I. Act would continue for all times and that the Parliament would not have the authority to enact a subsequent legislation repealing section 32 of the U.T.I. Act. This last argument was on the assumption that Interest Tax is a tax on income. He further invited our attention to section 3(1C) of the Interest Tax Act and pointed out that there was no linkage between Interest Tax Act and Income Tax Act as contended on behalf of U.T.I.. He pointed out that under section 3(1C), the Interest Tax Authority which is different from the ITO under Income Tax Act, has jurisdiction over a Credit Institution even if such Credit Institution has no income assessable to Income Tax Act. In other words, he pointed out, firstly that the Interest Tax Authority under the Interest Tax Act was separate and distinct from ITO/AD under the Income Tax Act. Secondly, he pointed out that the scope of section 3(1c) shows that interest tax is chargeable on total gross receipts and even if an assessee under the Interest Tax Act has no income assessable to income-tax still he would be covered by the provisions of the Interest Tax Act. Thirdly, he submitted that the said section clearly indicates that the words "income assessable to income tax" under the Income Tax Act shows that the word "income" in section 32 of the U.T.I. Act can only be read as income assessable to income tax and not gross income as contended on behalf of U.T.I.. Therefore, even if U.T.I. had no assessable income under the Income Tax Act, still it could be assessed under Interest Tax Act. He, therefore, pointed out that the Interest Tax would certainly supersede U.T.I. Act and, to the extent, section 32 of the U.T.I. Act stood implied repealed. Mr. Dada pointed out that the subject matter of the Interest Tax Act is the Credit Institutions and Loans given by them. He contended that in substance interest tax is a tax on loans and it is not a tax on income. He contended that interest tax imposes a levy on interest. However, the yardstick/measure is income. He gave, by way of illustration, the example of the Income Tax Act. In this regard, he contended that in the case of an assessee receiving income from house property income tax is leviable on the basis of the annual value. That, income tax is a tax on income. That, the rent received by the assessee is income. However, the yardstick/measure used by the Income Tax Act to levy income-tax is the annual value. Therefore, annual value is merely a measure of yardstick on the basis of which a tax under the Income Tax Act could be levied. Therefore, one has to see the pith and substance of the Interest Tax Act. He also gave illustration of professional tax in support of his contention that a measure or a yardstick cannot be equated with the nature of tax. That, measure is different from the nature of tax. That, in the case of professional tax the levy is on the profession irrespective of the income accruing to the professional. That, professional tax is not a tax on income. Similarly, under the Interest Tax Act, the levy is on lending of money irrespective of the income of the assessee. Therefore, income is only used as yardstick for effective levy of Interest Tax on lending by Credit Institutions. Similarly, he contended that under section 26-C of the Interest Tax Act, a borrower can be compelled to vary the contract with the Credit Institutions. This can never be done under the provisions of the Income Tax Act because if the Interest is a tax on income as contended by U.T.I. then such liability can never be transferred to the borrower as provided in section 26-C of the Interest Tax Act. The learned counsel relied upon several authorities in support of his above contentions. He further contended that even under section 18 of the Interest Tax Act, deduction is provided for to an assessee under the Income Tax Act in respect of the assessee making payment of interest Tax under the interest Tax Act. He contended that payment of Interest Tax Act under the Interest Tax Act is a charge against the profits (see section 18). The said amount is not charged as an expense. Hence, he contended that the provisions of Interest Tax Act are different and distinct from the provisions of Income Tax Act and that the Interest Tax is a levy on interest and not on income. Mr. Dada next contended that the words "income, profits or gains" in section 32 of the U.T.I. Act show that the word "income" must be read in the company of the words "profits or gains". He pointed out that the word "profits" can only mean computed profits. It cannot mean gross profits and if one reads the word "income" with the word "profits" under section 32, it is clear that the provisions of section 32 of the U.T.I. Act only refers to the net income and not the gross income. He contended that each word must be given due weightage. He contended that if the argument of U.T.I. is correct then the word "profits or gains" in section 32 would be rendered redundant. Mr. Dada pointed out that all the three words should be read in order to ascertain the true meaning of the word "income" in section 32. This argument of Mr. Dada is also proceeding on the alternate basis viz. that the Interest Tax is a tax on income. It is for this reason that he has made the aforestated submission. He further contends in this connection that U.T.I. Act is enacted with the object of encouraging savings and investments and to participate in the distribution of income accruing to U.T.I. from acquisition, holding, management and disposal of securities. He, therefore, contended that U.T.I. is a Mutual Fund. It operates on commercial principles and, in that context, one has to look at the long title to the U.T.I. Act and if one looks to the long title of the U.T.I. Act, it is clear that participation by unit holders is only in the distributable income accruing to U.T.I. and, if so read, it is clear that the words "profits or gains" in section 32 of the U.T.I. Act can only be read as computed profits. It can never refer to gross profits and, therefore, the words "profits or gains" must be read with the proceeding word "income" and, if so read, the word "income" can only refer to assessable income/computable income/taxable income. In this connection. Mr. Dada also placed reliance on section 9(2) of the U.T.I. Act which lays down that the Board of Trustees of U.T.I. shall discharge their functions under the U.T.I. Act on business principles having regard to the interest of the unit holder. He, therefore, contended that under the Unit Trust Act, the participation by the unit holders is only in the net income and not gross income. He similarly placed reliance on section 19(3) which deals with the business of the Trust under the U.T.I. Act so as to include grant of loans and advances upon the security of any property. So also, he places reliance on section 21 of the U.T.I. Act which deals with providing facilities for participation in the income, profits and gains arising out of acquisition, holding, management or disposal of securities by the Trust. Under section 23 of the U.T.I. Act, the word "income" of the Trust is defined. According to the learned Counsel, section 23(i)(a)(c) as also section 23(ii)(a)(c) shows that the word "income" can only mean section from holding and selling of securities. He contended that the word "income" in section 23 can only refer to net income. That, if U.T.I. is required to buy scrips and if U.T.I. incurs certain expenses for buying such scrips, those expenses will have to be taken into account in order to calculate income arising out of the capital referred to in section 23. In the alternative. Mr. Dada contended under the U.T.I. Act the word "income" has been used at different places depending on the context as gross income and net income. He contended that under Chapter v of the U.T.I. Act, allocation and distribution of income and reserve funds is contemplated. He further pointed out that section 22 to section 25B refer to allocation and distribution of income and reserve funds. He contended that U.T.I. is required to allocate the income and the expenses Schemewise . However, he pointed out that the income accruing for distribution under section 25A of the U.T.I. Act can only refer to distributable income in the hands of U.T.I.. This distributable income clearly indicates that the participation by the unit holders is in the distributable income and not gross income. He submitted that distributable income accrues to the corporation and it is the corporation which thereafter, distribute such income amongst various unit holders and, therefore, he contended that the words "participation in the income, profits and gains accruing to the corporation" in the long title as also in section 25A as also in section 32 of the U.T.I. Act can only mean net income. Mr. Dada pointed out that at various places under the U.T.I. Act, the legislature has used the word "income" alone in certain places under certain other sections the legislature has used the words "income, profits of gains". Therefore, he contended that section 32 refers to net income and not gross income. Mr. Dada further points out that if the argument of U.T.I. is accepted then the words "profits of gains" in section 32 would mean net profit and the proceeding word "income" in section 32 would mean gross income which would be an absurdity. He, therefore, contended that the words "income" profits and gains in the long title; in section 21 and section 32 of the U.T.I. Act can only mean net income and not in gross income. Mr. Dada next contended that there was no conflict between the provisions of section 32 and the provisions of the Interest Tax Act because the two Acts operate in different spheres. However, in the alternative, he contended that the Interest Tax Act was a later enactment. That, it is a special enactment and, therefore, the later Act should prevail over the earlier Act. He further contended that U.T.I. Act was a general Act whereas the Interest Tax Act was special Act and in the event of the conflict between the two, the later Act prevail. That, even if the two Acts are held to be special Acts, the later should prevail. He contended that section 32 of U.T.I. Act is a general provision. It covers a vast field of exemption whereas the Interest Tax Act is a tax only on chargeable interest. It is tax on the gross receipt of interest. It is a tax levied on the loans given by the U.T.I.. Therefore, he contended that the Interest Tax Act was a special provision and section 32 which was a general provision was required to yield to the special provision. In this connection, he further submitted that the U.T.I. Act is an Act based on commercial principles whereas the Interest Tax is enacted as a fiscal measure. That , even if section 32 gives exemption to the income of U.T.I. derived from its business based on commercial principles the Interest Tax Act is enacted as a fiscal measure levying special tax only on loans given by U.T.I. Hence, he contended that if one keeps in mind the aforesaid features of the two Acts, it is clear that the subject matter of U.T.I. Act is different from the subject matter of Interest Tax Act. Therefore, the Interest Tax Act would supersede section 32 of the U.T.I. Act. Mr. Dada contended with the enactment the Finance (No. 2) Act, 1991 with effect from 1st October, 1991 when U.T.I. stood covered by the Interest Tax Act, there was an implied repealing of section 32 of the U.T.I. Act to the extent mentioned hereinabove. This argument proceeds on the alternate basis and on the assumption that both the two Acts deal with the same subject matter which the learned Counsel for U.T.I. does not accept. Therefore, he contended that if both the Acts deal with same subject matter then on introduction of Finance (No. 2) Act, 1991 the Parliament impliedly repealed section 32 of the U.T.I. Act by withdrawing the tax on the Interest Income. He contended further that it is true that section 32 of the U.T.I. Act begins with non obstante clause. That, the Interest Tax Act has no such non obstante clause. However, Mr. Dada contended that in view of the judgments of the Supreme Court in large number of cases it is clear that provisions of Interest Tax Act particularly section 4 and section 5 are in the nature of the non obstante clause and if the two Acts are held to be dealing with the same subject matter then the later Act would prevail over section 32 of the U.T.I. Act to the extent of the interest income earned by U.T.I. Mr. Dada relied upon large number of authorities in support of his above contention.

9. Mr. Dada, learned Senior Counsel appearing on behalf of the Department next contended that the communication of CBDT dated 11th October, 1991 is not an order, instruction or direction under section 3(2) of the Interest Tax Act. He contended that, similarly, the said communication is not an instruction to the subordinate authorities under section 119 of the Interest Tax Act. In the alternative, he contended that the said communication covers only a particular assessee and, therefore, such a communication cannot come within section 119 of the Income Tax Act and nor can it come under section 3(2) of the Interest Tax Act. He further contended as an alternative argument that communication dated 11th October, 1991 amounted to interference with assessment proceedings and, therefore, proviso to section 3(2) of Interest Tax Act stood attracted. He further contended that the communication dated 11th October, 1991, in effect, seeks to give exemptions to U.T.I. from the provisions of Interest Tax Act although the Parliament enacted Finance Act of 1991 by which U.T.I. has been treated as a Credit Institution for the purposes of the Interest Tax Act and, therefore, the circular dated 11th October, 1991 was in violation of provisions of the Interest Tax Act. He further contended that section 28 of the Interest Tax Act gives power to the Central Government to give exemption in public interest to any Credit Institution or class of Credit Institutions. However, no such exemptions have been given under section 28 of the Interest Tax Act and, therefore, the Circular of CBDT violates the provisions of Interest Tax Act. He further contended that section 3(2) of the Interest Tax Act has a proviso which inter alia lays down that no order, instruction or direction could be issued by CBDT so as to interfere with the discretion of the tax authorities. He contended that this provision is also in existence in section 119 of the Income Tax Act. He contended that the withdrawal dated 29-1-2001 issued by CBDT acknowledges the fact that the communication dated 11th October, 1991 was contrary to the provisions of Interest Tax Act. Hence, he contended that the communication dated 11th October, 1991 was contrary to the Interest Tax Act and, therefore, such communication was not binding on the AO. Therefore, he contended that there was no legal valid and binding circular issued in accordance with law and, therefore, the AO was entitled to proceed and has rightly proceeded against U.T.I. under section 10(a) of the Interest Tax Act, 1974. He contended that the letter of CBDT dated 11th October, 1991 is merely an opinion. It is not a Circular. Hence, it has no binding effect vis-a-vis the AO. He contended that the Circular cannot violate the provisions of law and if it so violates, effect should not be given to such a Circular. He contended that the Circular under section 119 cannot be assessees specific. He contended that under section 28 of the Interest Tax Act an exemption can be granted only by the Central Government in consultation with the RBI. He contended that no such exemption has been given to U.T.I. under section 28 of the Interest Tax Act. He contended that under section 119 of the Income Tax Act, exemption cannot be granted to an individual assessee. Similarly, he contended that the effect of the Circular dated 11th October, 1991 would amount to giving exemption to U.T.I. from payment of interest tax under section 28 of the Interest Tax Act. He contended that none of the judgments cited on behalf of U.T.I. show that the Circular under section 119 of the Income Tax Act could be issued in violation of law. That, such Circulars could be issued only to reduce hardship to assessees. That, such Circulars cannot be issued in violation of the provisions of the Act. He contended that since the Circular, in the present case, dated 11th October, 1991 violates the provisions of the Act, the AO was not bound by the said Circular. This is apart from the fact that the Circular is not directed to the AO. He further urged that the opinion of CBDT in the communication dated 11th October, 1991 interfere as with assessment under the Interest Tax Act. Mr. Dada next contended that section 10(a) of the Interest Tax Act refers to omission or failure on the part of the assessee to make a return under section 7 of the Interest Tax Act. Mr. Dada contended that the word "omission" in section 10 is a colourless word. He contended that if an opinion is taken by an assessee of a Chartered Accountant who opines that the return should not be filed under the Act and if the assessee acts on such opinion, it would be no defence on the part of the assessee to the notice under section 10(a) of the Interest Tax Act if such omission results in escapement from assessment and, therefore, the word "omission" to file the return is a colourless word as held by the Bombay High Court in (Pannalal Nandlal Bhandari v. Commissioner of Income Tax, Bombay City, Bombay)1, 30 I.T.R. page 57. He accordingly contended that in the present case U.T.I. omitted to file its returns under section 7 of the Interest Tax Act based on the opinion and based on the interpretation given by CBDT which interpretation is subsequently admitted to be erroneous and, therefore, section 10(a) of the Interest Tax Act is applicable. At this stage, we may mention that respondent No. 1 has invoked section 10(a) of the Interest Tax Act on the basis of the failure on the part of the assessee to make a return under section 7 of the Interest Tax Act and not on the ground of omission as submitted on behalf of the Department. Mr. Dada contended that if the Department is right in its contention that the Circular of CBDT violates the Interest Tax Act then notice under section 10(a) has been validly given because the word "omission" in section 10(a) is colourless word. Mr. Dada contended that even if the Circular is validly issued but if the Circular contravenes an enactment or if it interference in the assessment proceedings then the AO is not bound to follow the Circular of CBDT. Mr. Dada next contended that in view of his above submission both on the interpretation of the Interest Tax Act and also on the interpretation of the provisions of section 119 of the Income Tax Act and section 3(2) of the Interest Tax Act vis-a-vis the Circular dated 11th October, 1991 the plea of hardship raised by U.T.I. is not valid. In any event, he contended that there are sufficient reserves with U.T.I. from which they can discharge the liability arising under the Interest Tax Act. He contended that the reserves can be used for payment of taxes. In the circumstance, Mr. Dada contended that the present petition has no merit and it deserves to be rejected.

10. In rejoinder, Mr. Dastur learned Senior Counsel for U.T.I. contended that the notice under section 10(a) of the Interest Tax Act was without jurisdiction. He contended that the rights of an assessee cannot depend on whether the CBDT has forwarded the Circular to the AO. If CBDT fails to forward the Circular to the Assessing Officer, that circumstance by itself cannot be held against the U.T.I. particularly when the interpretation given by CBDT favours the assessee and particularly when such an interpretation has been acted upon by the Department for more than nine years. He contended that the judgment of the Bombay High Court in 30 I.T.R. page 57 has no application to the facts of this case. He further contended that there is no merit in the contention advanced on behalf of the Department that the Circular of CBDT cannot be assessees specific. Mr. Dastur invited our attention to Circular No. 733 dated 3-1-1996 reported in (217 I.T.R. page 8)2, which indicates that the Circular was confined to an individual assessee viz. the Railways. Mr. Dastur points out, as an illustration, that the said Circular did not confer any benefit on Railways but it was given a wide publicity in order to inform members of the public that in their dealings with the Railways, they can arrange their transactions in a particular manner for the purposes of section 80 I.A. It refers to certain facility given to the assessee. Therefore, he contends that there are cases of Circulars being confined to individual assessees. He contended that U.T.I. is a Corporation under the Finance Ministry. He contended that CBDT comes under the Finance Ministry and, therefore, a particular procedure was followed when the CBDT Circular was addressed by CBDT to the Ministry of Finance. He contended that a particular procedure was followed by CBDT. That, it was not necessary to give wide publicity because U.T.I. was a Corporation under the Finance Ministry. That, the decision was taken at the highest level. That the AO has no role to play. He contended that under section 3(2) read with section 28 of the Interest Tax Act as also under section 119 of the Income Tax Act, the Circulars are forwarded to subordinate officers under CBDT in cases where execution/implementation of the provisions of the Act is required to be carried out. He contends that, in the present case, a decision as taken by CBDT on interpretation of section 32 of the U.T.I. Act read with Interest Tax Act under which CBDT agreed with the contention of U.T.I. that U.T.I. was exempted from provisions of Interest Tax Act. It was a classic case of exemption/non-applicability of the Interest Tax Act and, therefore, he contended that wide publicity was not required to be given. He contended that the said Circular was binding and whether such a Circular constituted an opinion or a ruling did not depend upon whether it was publicized or not publicized. He contended that a bare reading of the Circular dated 11th October, 1991 read with the withdrawal dated 29-1-2001 shows that even the Income Tax Department considered the said letter of CBDT dated 11th October, 1991 as a Circular. He contended that it is for this reason that after nine years CBDT was required to withdraw its Circular in 29-1-2001. Therefore, at page 101 of Writ Petition No. 506 of 2001, CBDT has expressly stated that they have re-examined the matter and that they recommended withdrawal of the letter dated 11th October, 1991. Mr. Dastur next contended that the Circular under section 119 of the Income Tax Act which is also applicable to the Interest Tax Act cannot alter the law. However, even if the said Circular deviates from law in the AO is bound by it. It may not be binding on the High Court or the tribunal but the AO who functions under CBDT would be bound by the Circular of CBDT. He contended that there are large number of cases where the Apex Court found such deviations between the Circular and the law. However, it is well settled that if the Circular provides a benefit to the assessee and if it relatives the assessee from certain hardship then notwithstanding such deviation, the Circulars were binding on the AO and the assessee has a right to seek enforcement of the Circulars. He contended that, essentially, the primary object of the Circular is to lessen the rigour of law particularly in the matter of implementation of the legal provisions. Mr. Dastur pointed out that Circulars could be issued by CBDT for various reasons including economic reasons. However, the AO cannot sit in judgment over the said Circular of CBDT by contending that the Circular violates the provisions of law. Mr. Dastur contended that similarly if a Circular is against the assessee, it cannot bind the assessee otherwise all adjudications under law will come to an end and it is for this reason that the Supreme Court has repeatedly held that in interpretation given by CBDT which gives relief to the assessees is binding on the department. Mr. Dastur contended that if the argument advanced by Mr. Dada for department were to be accepted, it would lead to serious consequences because in one zone the AO may say that the Circular of CBDT is in consonance with the Act and the AO in another zone may say that the Circular is contrary to the Act. Mr. Dastur further pointed out that deviations are the basis of the Circulars that if there were no such deviations, there was no purpose in issuing Circulars. In this connection, Mr. Dastur relied upon several decisions of the Supreme Court to indicate that all such Circulars mentioned in the judgment of the Supreme Court show that they were based on deviations and they were issued to provide certain guidelines to the assessment so that the assessees could arrange their affairs in their business and it is for this reason that Supreme Court has repeatedly held that such Circular can always be withdrawn prospectively. He further contended that idea of issuing the Circular is to maintain uniformity in the administration of the law. He contended that the judgments on which the department has placed relianced have to be examined in the light of the facts in each of those matters. However, broadly, the judgments cited on behalf of department shows that they were concerning Circulars which were against the assessee. Under those Circulars, the assessees had sought clarification from CBDT which were turned down and, therefore, those judgments have no relevancy with the facts of the present case. In the present case, he contended that CBDT gave an interpretation to the Act which interpretation directed U.T.I. not to recover interest tax from the borrowers to whom loans were advanced and pursuant to that interpretation U.T.I. acted for nine years. That, pursuant to the said interpretation the Department acted for nine years. He contended that, in the present case, the issue is not of hardship. That, in the present case but for the Circular, U.T.I. could have recovered interest tax from the borrower. That, but for the Circular, U.T.I. had a right to recover interest tax from its borrowers. However, in view of the said Circular dated 11th October, 1991 U.T.I. was disabled and not entitled to recover interest tax from the borrowers and, therefore, the issue is not of hardship. That, hardship is just a consequence now arising because of the impugned notice under section 10(a) of the Interest Tax Act. He contended that, if at that time, the Department would not have agreed with the CBDT, UIT could have recovered the interest tax on their loan transactions. However, large number of loans have now been repaid over last nine years and, therefore, he contended that in any event, the withdrawal dated 29-1-2001 cannot operate retrospectively from 1991. In the alternative, he contended that even assuming for the sake of argument that the letter dated 11th October, 1991 was not a Circular still section 10(a) of the Interest Tax Act cannot be invoked particularly when U.T.I. was disabled from recovering the interest tax under the Interest Tax Act for nine long years. He contended that during nine years, U.T.I. acted to its prejudice because it was disabled from recovering the interest tax. Therefore, the department is now estopped from recovering the interest tax retrospectively from 1991. In this connection, he also contended that under the U.T.I. Act, there were two types of reserves. He invited our attention to section 25-B(2) and submitted that the reserves under the U.T.I. Act can only be applied for the benefit of the unit holders under a particular scheme and, therefore, the reserves of another scheme cannot be utilised for discharging the tax liability of the former scheme. For example, reserves for Scheme A cannot be used to discharge the tax liability of Scheme B. He contended that 36 schemes have been redeemed during last nine years and the reserves under the closed schemes do not exist and, therefore, the tax liabilities of those closed schemes cannot be discharged from the reserves of the existing scheme. He contended that the reserves created for Unit Scheme US64 comes under section 25B(1) of the U.T.I. Act. That, the said fund is in the nature of a Development Reserve Fund which guarantees fixed returns under certain schemes. These returns also cannot be used to discharge tax liabilities. He, therefore, contended that in respect of 36 closed schemes, there are no reserves to discharge the impugned tax liability, if any. On the question of interpretation of section 32, Mr. Dastur reiterated his earlier arguments. He, however, pointed out that U.T.I. is not the only Institution which the Parliament sought to cover under Finance (No. 2) Act of 1991 with effect from 1st October, 1991. He pointed out that by the said Act all Financial Institutions as defined under section 4-A of the Companies Act came to be covered. He further pointed out that 12 Institutions apart from U.T.I. and LIC came to be notified under section 4-A of the Companies Act with effect from 1991 and further 18 corporations under State Financial Corporations Act also came to be notified with effect from 1st October, 1991 as Credit Institutions and, therefore, the repeated emphasis on the part of the Department that U.T.I. was sought to be covered with effect from 1-10-1991 has no relevancy because it was not a solitary Institution which was sought to be covered by the Act. He however, pointed out that the provision similar to section 32 of U.T.I. Act granting exemption does not find place in the case of other Institutions set up under law. He contended that U.T.I. in that respect was unique. That, the purpose of section 32 was to give special benefit to U.T.I. because large number of small investors were involved and particularly in view of the fact that U.T.I. Corporations was set up to encourage such savings and investments. Therefore, Mr. Dastur contended that the Interest Tax Act may be applicable to all other Institutions. However, in the case of U.T.I., the exemption under section 32 would hold the field notwithstanding the provisions of the Interest Tax Act. Mr. Dastur contended in his rejoinder that section 3(1-C) of the Interest Tax Act came to be incorporated by Finance (No. 2) Act, 1991 with effect from 1st October, 1991. That, prior to 1st October, 1991 the section provided that every Director of Inspection, CIT, CIT (Appeals), IAC, ITO and the Inspector of Income Tax shall have like powers and perform like functions under the Interest Tax Act as he performs under Income Tax Act. However, section 2(7-A) of the Income Tax Act came to be amended by Direct Tax Laws (Amendment) Act, 1987 by which the name of the various authorities under the Act came to be changed. For example, ITO was changed to AO. He, therefore, contended that the legislature has used the words "interest tax authority" in section 3(1-C) of the Interest Tax Act. Therefore, he contended that merely because the designation has changed for historical reasons one cannot say that the Interest Tax Act has no linkage with the Income Tax Act. He repeated his argument that the interest tax is a tax on income. He contended that the authorities cited on behalf of the department to show the difference between the nature of the tax and the measure of the tax do not apply to the facts of this case in view of the submission that interest tax is a tax on income. He contended that under the Interest Tax Act, the levy of tax is on income and the measure is also on income and, therefore, authorities cited on behalf of department have no application. He contended that under the Interest Tax Act, the subject of tax is the same as the measure of tax. That, they are not different. Therefore, the judgments cited on behalf of department have no application. He further contended that the provisions of Hotel Receipts Tax Act have been interpreted by Supreme Court in the above judgments. The Supreme Court has held that the hotel receipts tax was a tax on gross receipts. Mr. Dastur contended that the Interest Tax Act also seeks to levy tax on gross receipts. He, therefore, contended that the provisions of Hotel Receipts Tax Act are in pari materia with the provisions of the Interest Tax Act. He contended that in the aforestated judgment, the Supreme Court has laid down that the Hotel Receipts Tax Act seeks to levy tax on gross income. Therefore, Mr. Dastur contended that the Interest Tax Act should also be construed to have levied the tax on total income. That, there was no difference between the two enactments. That, under Hotel Receipts Tax Act the levy of tax is on the chargeable hotel receipts whereas under the Interest Tax Act the levy was on gross receipts of interest. He accordingly contended that the word "income" in section 32 must be read as gross income and not computed income. He further contended that the word "income" has also been repeatedly interpreted by Apex Court in the contest of Entry 82 of List I to the VII Schedule of the Constitution. He submitted that in all those cases the word "income" has been read in the widest possible terms. He contended that, therefore, the word "income" in section 32 should be read as gross income. He, therefore, contended that the above dichotomy between nature of tax and the measure of tax does not apply. He contended, once again, that section 32(1) is in two parts. He contended that the interest received by U.T.I. is income which is sought to be taxed under an enactment which is different from the enactments listed in the first part of section 32(1) and, therefore, the Interest Tax Act fell within the ambit of the second part of section 32(1). He contended that if interest tax does not fall within the ambit of the second part of section 32(1) then one fails to understand as to which enactment could fall under that part. That, if the Interest Tax Act does not fall in the second part then the question posed by the learned Counsel was what will fall in the second part of section 32(1) He contended that the only answer to the above question was that the Interest Tax Act would come within the ambit of any other tax on income, profits or gains. He further contended that the Interest Tax Act seeks to levy tax on interest income and, therefore, the Interest Tax Act, if applied, would mean that the interest income is being taxed twice under the Income Tax Act as also under the Interest Tax Act. He, therefore, contended that the second part of section 32(1) means something different from the first part. Accordingly, the learned Counsel contended that there is no merit in the contention advanced on behalf of the department that the word "income" in section 32 refers to computed income. He contended that if the Income Tax Act 1961 charges tax on the net income and if the word "income" in section 32(1) of the U.T.I. Act is also read as net income then there would be a case of double taxation and, therefore, such an interpretation should be avoided. He contended that the word "income" in section 32 of the U.T.I. Act has a close linkage with the word "income" under the Income Tax Act which word has come up before the Supreme Court for interpretation in numerous matters in which the said word is interpreted to mean gross income and since the Interest Tax Act is a later enactment, the expression "income" should be read as interpreted by the Supreme Court in the context of the Income Tax Act. He further contended that since Interest Tax Act is a later enactment, the Parliament knew the meaning of the word "income" and, therefore, the word "income" in section 32 must be read as gross income. He contended that section 23 of the U.T.I. Act defines income arising to U.T.I.. He contended that the word "income" in section 23 of the U.T.I. Act can only mean gross income and it is so clear that one need not go to the long title of the U.T.I. Act. He contended that, in any event, the word "participation" in the long title to the U.T.I. Act is not important and what needs to be emphasized are the words "accuring of income to the corporation" because the said words clearly describe the word "income" as gross income. He contended that it is true that the unit holders do participate in such income accuring to the corporation but that participation is to the extent of the distributional income and, therefore, the words "accruing of income to the corporation" in the long title need to be emphasized. He contended that the words, for the time being in force in section 32(1) of the U.T.I. Act, show that U.T.I. was not liable to pay tax on income accruing to it from any source and the whole purpose of section 32(1) is to give exemption to U.T.I. from payment of any tax on its income accruing from any source. Mr. Dastur contended that the unit holders participate in the income accuring to the corporation but only to the extent of the distributed income and, therefore, what accrues to the corporation is the gross income. He next contended that the Interest Tax Act was a general Act an a U.T.I. Act was a special Act inasmuch as the Interest Tax Act applies to all Credit Institutions whereas the U.T.I. Act applies only to U.T.I. He contended that one had to look to the subject matter of the U.T.I. Act and the Interest Tax Act in order to decide as to which Act constitutes the general enactment and the special enactment. In this connection, he further submitted that the entire liability of U.T.I. is covered by section 32 of the U.T.I. Act whereas the Interest Tax Act does not cover the entire liability of U.T.I. and, therefore section 32 of the U.T.I. Act is a special provision for the tax purposes. He contended that his argument deserves to be accepted because the said argument does not render the Interest Tax Act negative and the Interest Tax Act will continue to apply to all other Credit Institutions save and except U.T.I. On the other hand, if Interest Tax Act if held to be having an overriding effect over the U.T.I. Act then section 32 of the U.T.I. Act would stand completely breached. Mr. Dastur further contended that if the later enactment does not have a non obstante clause which exists in the earlier enactment then the earlier enactment will override the later enactment. He, therefore, contended that, in the present case, since there is no non obstante clause in the Interest Tax Act which is the later enactment and which provision exists only in the U.T.I. Act which is the earlier enactment the U.T.I. will override the Interest Tax Act. Mr. Dastur therefore, contended that, in this case, the Court should try to reconcile the two Acts and on the basis of his arguments stated hereinabove, he contended that the only method of reconciling the two Acts was to treat U.T.I. as a Credit Institution to which the Interest Tax Act will not apply. In any event, he contended that it is well settled that if there are two conflicting provisions, the assessee is free to choose that provision which imposes lesser tax. Therefore, in conclusion, he contended that section 32 of the U.T.I. Act is a special provision as it governs the entire tax liability of the U.T.I. Act whereas the Interest Tax Act is a general provision and, accordingly, he contended that U.T.I. Act will override the Interest Tax Act.

11. FINDINGS

QUESTIONS ANSWERS

A. Whether the interest tax In the negative i.e. in favour of

under the Interest Tax Act, the department and against the

1974, is a tax on income and, U.T.I.

if so, whether interest accruing

to U.T.I. from loans advanced by

it stands exempted in view of

section 32 of the U.T.I. Act, 1963

B. If the answer to question No. A In the negative i.e. in favour of the

is in the negative then whether U.T.I. and against the department.

communication dated 29-1-2001

withdrawing the letter/circular

dated 11th October, 1991 issued

by CBDT was retrospective and

whether Interest Tax Act, 1974

was applicable for the Accounting

Year 1991-92 to 1998-99.

C. Whether, on the facts and In the negative i.e. in favour of the

circumstances of the case, U.T.I. and against the department.

the department was right in

invoking section 10(a) of the

Interest Tax Act, 1974 for

failure on the part of U.T.I. to

file returns under the

Interest Tax Act, 1974

FINDINGS ON QUESTION NO. A ABOVE :---Whether Interest Tax Act is applicable to U.T.I.

Before dealing with the arguments, we are required to ascertain the scope of the Interest Tax Act, 1974 so also the scope of U.T.I. Act, 1963.

(i) PREFACE :

The Interest Tax Act, 1974 came into force with effect from 23-1-1974. The statement of Objects and Reasons show that interest tax has been levied for two-fold purposes. Firstly, to raise the cost of borrowed funds and, secondly, to supplement Government revenues. The said tax is expected to have monetary and fiscal impact. It was enacted as an anti-inflationary measure. The Act was enacted as a part of monetary and credit policy. As an anti-inflationary measure, the Act was introduced in 1974 in order to discourage borrowings. It may by mentioned that one of the reasons for inflation is excess money supply in the economy. In 1974, the Governments market borrowings was limited as compared to Governments market borrowings during the Accounting Year 1999-2000 and the Accounting Year 2000-2001. This aspect is important. After 1991-92, the Government depends on market borrowings to a large extent. Therefore, more and more Credit Institutions were brought within the ambit of the Interest Tax Act which is clear from the facts enumerated above. This included U.T.I.. However, as stated above, since 1991, the market borrowings of the Central Government have increased manifold times and, therefore, by Finance Act, 2000 the levy has been withdrawn after 31-3-2000. During the Accounting Year ending 31-3-2001, Government of India had to borrow from market Rs. 1,11,000 crores. Therefore, even in this Budget the levy stands withdrawn. The object of giving this preface is only to show that the Interest Tax Act is an economic legislation. The Interest Tax Act is, therefore, required to be construed in the light of the statement of Objects and Reasons. With this preface, we will now examine the Interest Tax Act, 1974.

(ii) (a) Scope of Interest Tax Act, 1974.---For the purposes of deciding this point sections 4, 5 and 6 of the Interest Tax Act, 1974 are quoted :---

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 accuring 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 form 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.)

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 [or to any co-operative society engaged in carrying on the business of banking], accuring 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 43-D 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.)

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]] not be taken into account.

Section 2(5) defines "chargeable interest" to mean the total amount of interest referred to in section 5 and computed in the manner laid down in section 6. Section 5-A defines "credit institution" inter alia to mean a public financial institution as defined in section 4-A of the Companies Act. By the Finance Act (No. 2) of 1991, U.T.I. is a Credit Institution. In section 2(7) the word "interest" is defined to mean interest on loans and such interest to include commitment charges and discount on promissory notes and bills of exchange. Under section 2(10), it is laid down that all other words used in the Act but not defined shall have the meaning assigned to them under the Income Tax Act. Section 3(1) inter alia states that all Income Tax Authorities specified in section 116 of the Income Tax Act shall also be the Interest Tax Authorities for the purposes of the Interest Tax Act. Section 3(1-C) states that the Interest Tax Authority having jurisdiction in relation to a Credit Institution which has no assessable income under the Income Tax Act, shall be under the jurisdiction of the Interest Tax Authority. This section is important. It shows that even if a Credit Institution has no assessable income under the Income Tax Act, would still be covered by the Interest Tax Act. This shows that the Interest Tax Act is a separate enactment from Income Tax Act. That, it seeks to impose a levy on the total receipt of interest accruing to the Credit Institution and it is not a tax on income. Section 3(1-C) further shows also that, the legislature, while enacting the Interest Tax Act, 1974 was aware of the meaning of the word "income" under the Income Tax Act, 1961 which is the earlier legislation and it has understood the word "income" under the Income Tax Act to mean income under the head "profits and gains" or from other source. Section 3(2) of the Interest Tax Act lays down that all officers employed in the execution of the Act shall follow orders, instructions and directions of Central Board of Direct Taxes (hereinafter referred to as "CBDT"). Section 3(2) is worded differently from section 119 of the Income Tax Act which states that the Board may issue orders, instructions and directions to the Income Tax Authorities for proper administration of the Act. Therefore, section 3(2) of the Interest Tax Act is declaratory which is not the case with section 119 of the Interest Tax Act. However, by virtue of section 21 of the Interest Tax Act, section 119 of the Income Tax Act is made applicable. This clearly shows the difference between section 3(2) of the Interest Tax Act and section 119 of the Income Tax Act which is also made applicable under the Interest Tax Act. The proviso to section 3(2) puts an embargo on CBDT. It states that CBDT shall not issue orders, instructions or directions so as to interfere with the discretion and functioning of the subordinate Interest Tax Authorities. Section 4 of the Interest Tax Act is a charging section. Section 4(2) lays down, inter alia, that on and from 1-4-1992, there shall be charged on every Credit Institution for every assessment year, interest tax in respect of its chargeable interest at the rate of 3% of such chargeable interest. The said section has a proviso. The proviso states that the rate at which interest tax shall be charged after 31-3-1997 shall be 2%. Section 5 of the Interest Tax Act deals with scope of chargeable interest. It lays down, inter alia, the meaning of the words "chargeable interest". It lays down the scope of chargeable interest. It provides that the chargeable interest shall be the total amount of interest accruing to the Credit Institution. Therefore, reading section 4 and section 5, it is clear that Interest Tax Act seeks to levy the interest tax on the gross receipt of interest arising to the Credit Institution on its loans and advances. Section 6 of the Interest Tax Act deals with computation of chargeable interest. It only provides for deduction from the total amount of interest in respect of the amount which is proved to have become a bad debt. Therefore, except for the statutory deduction expressly made, the assessee under the Interest Tax Act is not entitled to any other deduction while computing the chargeable interest which is the gross receipts of interest. Had it been an income, as contended on behalf of U.T.I. under the Income Tax Act then the computation under section 6 of the Interest Tax Act would have been quite different. It would have been in the manner prescribed by the Income Tax Act. Therefore, the entire concept of chargeable interest, the scope of chargeable interest and the computation of the chargeable interest shows that it is not a tax on income but it is a tax on gross receipt of interest. The assessment under Interest Tax Act cannot claim deductions as in the cases under Income Tax Act. For example, the assessee under Interest Tax Act cannot claim expenses or deduction on the ground that the expenses was incurred to earn such income. Section 7 provides for filing returns by the assessees under the Interest Tax Act. They are the returns only of chargeable interest. Therefore, a complete machinery is set up under the Interest Tax Act, separate and distinct from Income Tax Act. Therefore, the Interest Tax Act is a Code by itself. Section 10 deals with Interest escaping assessment. It inter alia lays down that if the Assessing Officer (substituted for Income Tax Officer by Finance No. 2 Act 1991) has reason to believe that by reason of omission or failure on the part of the assessee to make a return under section 7 or to disclose fully and truly all material facts for an assessment year, the chargeable interest has escaped as assessment then the AO may in cases falling under section 10(a) at any time issue notice and proceed to assess or reassess the amount chargeable to interest tax. This section has been invoked in the present case by the 1st respondent. However, as stated above, the section has been invoked only on the ground of failure on the part of the assessee - U.T.I. to file its return. The said section is not invoked on the ground of omission on the part of the assessee to file its return. Section 12 of the Interest Tax Act provides for levy of interest on the assessee for default in furnishing return of chargeable interest. Section 18 of the Interest Tax Act deals with deductibility of interest tax in computing the total income of the assessee under the Income Tax Act. Section 18 inter alia states that notwithstanding the provisions of the Income Tax Act, while computing the income of a Credit Institution chargeable to income tax under the head "Profits and gains of business or profession" or under the head "Income from other sources", the interest tax payable by the Credit Institution under the Interest Tax Act shall be deductible from the income under the said respective heads. Therefore, section 18 shows, firstly, that the Interest Tax Act is a separate enactment from the Income Tax Act. Secondly, it shows that the Interest Tax Act imposes a levy which is separate and distinct. It is a levy on chargeable interest. Thirdly, section 18 shows the meaning of the word "income" as understood by the legislature while enacting the Interest Tax Act. The said section shows that the legislature has referred to the income of a Credit Institution chargeable to income tax under the aforestated two heads. These words namely "chargeable to income tax" go with the word "income" of a Credit Institution. Therefore, one cannot read the word "income" in the said section is isolation from the words "chargeable to income tax". It shows that the word "income" in section 18 refers to computed income and not gross income. Lastly, section 18 provides for deduction to an assessee under the Income Tax Act by making payment of interest tax, a charge against the profits of the assessee. It is for this reason that the legislature has referred to the aforestated two heads of income viz. "Profits and gains of business of profession" or "income from other sources". This clearly shows that as distinguished from tax on income, the burden of interest tax may be passed on to the persons taking loans and advances. Therefore, the interest tax is very similar to an indirect levy. This aspect is also borne out by section 26-C of the Interest Tax Act which lays down that notwithstanding anything contained under the term loan agreement sanctioned by the Credit Institution, it shall be lawful for the Credit Institution to vary the agreement and to increase the rate of interest to the extent to which such Credit Institution is liable to pay the interest tax under this Act. Therefore, section 26-C also shows that the interest tax is not a tax on income as contended on behalf of U.T.I.. Therefore, on a bare reading of the Interest Tax Act, 1974 we are of the view that the interest tax is not a tax on income; that it is a tax on gross receipt of interest; that even if the net results of business of a Credit Institution is a loss, yet, such Credit Institution will have to pay interest tax on the gross interest; that no deductions are allowed while computing interest chargeable to interest tax except the bad debt. Had it been a tax on income then it would have been subject to process of computation of income as per the Income Tax Act. In fact, no exemption is allowed to U.T.I. under section 28 from the charge of interest tax. Section 28 gives power to the Central Government to exempt any Credit Institution from the provisions of the Act in public interest. We are, therefore, satisfied on a bare reading of the Interest Tax Act that it is an Act on gross receipt of interest. It is not a tax on income. That, the two Acts operate in different fields and, therefore, they cannot be equated.

(b) Scope of U.T.I. Act, 1963 :

The said Act, 1963 was enacted to provide for establishment of corporation in order to encourage savings and investments and participation in income, profits and gains accruing to the corporation from acquisition, holding, management and disposal of securities (see long title). Section 2(cb) defines "first unit scheme". It refers to US64. Section 2(b) defines "initial capital" to mean capital of the trust. Section 2(fa) defines "public financial institution" to mean every financial institution specified by or under section 4-A of the Companies Act. Section 2(jj) defines "subsequent unit scheme" to mean any scheme after the commencement of Unit Trust of India (Amendment) Act, 1966. Section 2(1) defines the word "Trust" to mean Unit Trust of India. Section 2(o) defines the expression "unit capital" to mean aggregate of the face value of the units sold under a particular unit scheme and the outstanding. Section 4 of the U.T.I. Act, inter alia, indicates the meaning of the words "Initial capital of the Trust". It lays down that the said capital of the Trust shall be Rs. 5 crores divided in the form of certificates of such face value as may be prescribed. The contributories to the initial capital of the Trust were RBI, LIC, State Bank and the subsidiary banks and the other Institutions specified. Section 2(q) defines "unit holder" to mean a person recognised by the Trust as the holder of a certificate under a unit scheme which is defined under section 2(r). Section 19(1)(3) of the U.T.I. Act, gives power to the Trust to grant loans and advances. It indicates the business of the Trust. Section 21 indicates what is Unit Scheme. It provides for facilities to the participants (unit holders) in the income, profits and gains arising out of the acquisition, holding management or disposal of securities by the Trust. This section shows that the participants are unit holders. That, they participate in the income, profits and gains. That, the word "income" is placed with the words "profits and gains" unlike what one finds in subsequent sections of the Act. Chapter V of the U.T.I. Act deals with allocation and distribution of income and reserve funds. The caption of Chapter V refers to Allocation and Distribution of Income. Here the word "income" is not placed in the company of "profits and gains". This is very important. The word "profit" represents the difference. It indicates computation whereas the word "income" in the general sense covers all receipts. Therefore, the discussion indicates that the legislature has carefully used the word "income" in Chapter V which deals with allocation and distribution in contradistinction to the word "income, profits and gains" in section 21 and also in section 32. Section 22 refers to Capital of the Trust. It contains a dichotomy. It is in two parts. The first part refers to the capital of the Trust in relation to the first unit scheme whereas the second part refers to the capital of the Trust in relation to the subsequent unit scheme. The composition of the capital of the Trust also varies between the initial capital of the first unit scheme and the unit capital in relation to the subsequent unit scheme. Therefore, section 22 indicates that U.T.I. is required to allocate and distributed its income and reserves schemewise. Section 23 refers to the income of the Trust. Here the word "income" is used without the words "profits and gains" in contradistinction to section 21 and section 32. The reason is obvious. The income of the Trust is allocated for the purposes of Chapter V schemewise. In this sense, the word "income" is required to be read as allocable income. Section 24 is a follow up of section 23. It provides for allocation of income to the initial capital and the unit capital in a stipulated proportion. Section 25 of the U.T.I. Act deals with allocation of interest and expenses schemewise and it further provide for charging of the interest/expenses to the initial capital and to the unit capital in the stipulated proportion schemewise. Section 25-A refers to distribution of income. It refers to the accrual of distributable income. It states, inter alia, that the income allocated, as stated above, to the initial capital and as reduced by interest and other expenses charged to the initial capital may be distributed among the contributing institutions in proportion to their respective contributions [see section 25-A(1)]. However, under section 25-A(2), it is provided, inter alia, that the income allocated to the unit capital relating to the unit scheme as reduced by the interest/expenses charged to such unit capital shall be distributed to the unit holders under that particular unit scheme. This is also provided for under section 25-A(3). Therefore, section 25-A of the U.T.I. Act refers to the distribution of income schemewise. The unit capital is also schemewise and the charge by way of interest/expenses is to the schemewise unit capital. In other words, allocation and distribution of income is schemewise. What is also important to be noted is that under section 25-A(3), the income allocated to the unit capital of a particular scheme as reduced by the interest/expenses charged to that capital is required to be distributed amongst the unit holders under that particular scheme. Therefore, Chapter V deals with allocation and distribution of income. Under section 25-B, the Trust may establish a reserve fund by transferring sums as it may deem fit out of the income of the Trust not distributed under section 25-A to Institutions or unit holders whereas section 25-B(2) lays down that the amount in the reserve fund created for the purpose of a specific unit scheme shall be used only for the benefit of the unit holders under that unit scheme. Therefore, it is clear that the Trust may not distribute the income in a given year amongst the unit holders and the Institutions by transferring the amounts out of the income to the reserve funds. Therefore, it is clear that section 25-B refers to the amounts retained by the Trust for the purposes of reserve funds. Therefore, it is clear that although the word "income" under section 23 of the U.T.I. Act refers to gross income, it is only for the purposes of allocation and distributions of income and reserve funds. Further, Chapter V refers to distributable income vide section 25-A. It also refers to reserve funds in section 25-B. Therefore, after allocation of income and expenses (including interest) schemewise, distributable income accrues to the Trust and the participants in the distributable income, inter alia, are the unit holders. Therefore, the unit holders are participating in the net income, profits and gains which is also indicated by the long title to the Act. Therefore, whenever the word "income, profits and gains" have been used in the U.T.I. Act viz., in the Preamble, in section 21, and in section 32, it is clear that the unit holders are the participants in the net income and not in the gross income. One has to read Chapter V of the U.T.I. Act in the context of allocation and distribution of income and reserve funds. Now coming to section 32 of the U.T.I. Act, for the purposes of this judgment, we hereby quote section 32(1) to the extent required.

"32. Income-tax and other taxes.---(1) Notwithstanding anything contained in the (Wealth Tax Act, 1957 (27 of 1957)), the Income Tax Act, 1961 (43 of 1961), the Super Profits Tax Act, 1963 (14 of 1963), (the Companies (Profit) Surtax Act, 1964 (7 of 1964) or in any other enactment for the time being in force relating to income tax, super-tax [super profits tax, surtax] or any other tax on income, profits or gains".

Section 32 gives exemption to U.T.I. from payment of tax, inter alia, under the Income Tax Act on its income, profits or gains. It lays down that U.T.I. shall not be liable to pay income tax or any other tax in respect of any income, profits or gains derived by it from any source. As stated above, the words used in section 32(1) are "income, profits and gains". Section 32 is not confined to the word "income" alone. As stated above, the word "profit" represents the difference. It refers to a net amount. Therefore, reading the said section as a whole, it is clear that the words "tax on income, profits or gains" refer to taxable income and not gross income. This is also in the light of the scheme of the U.T.I. Act which we have discussed hereinabove. Further the first part of section 32(1) clearly refers to the words "income, profits or gains" under the Income Tax Act whereas the second part of section 32(1) refers to any other tax in respect of any income, profits or gains derived by U.T.I. from any source. The second part of section 32(1) which refers to tax under any other enactment is separate and distinct from the first part. The first part specifically refers to income, profits or gains accruing to U.T.I. and chargeable to tax under the Income Tax Act. The second part however refers to any other enactment for the time being in force relating to any other tax or income, profits or gains of U.T.I. Therefore, the first part covers the Income Tax Act. The second part refers to taxs on income, profits and gains of U.T.I. under any other enactment apart from those specified in the first part. As stated above, while discussing the scope of Interest Tax Act, we have come to the conclusion that the Interest Tax Act is an economic legislation. That, the interest tax is not a tax on income. Hence, section 32(1) has no application. However, since an alternate argument on conflict of laws has been advanced on behalf of U.T.I., we have discussed the scheme of the U.T.I. Act in entirety on the assumption that Interest Tax Act is a tax on income. This alternative argument has been advanced on behalf of U.T.I. in support of their contention that the word "income" in section 32(1) of the U.T.I. Act denotes total income and not net income as computed under the Income Tax Act. We do not find any merit in this argument. Although section 32(1) is in two parts, the first part clearly refers to income assessamble under the Income Tax Act whereas the second part deals with levy of tax on the income of U.T.I. under any other enactment. However, both the parts indicate, if read together, that they refer to computable income. It would be anomalous to read the first part of section 32 to cover computable income and the second part to refer to the gross income. Moreover, as stated hereinabove, the legislature has used the word "income" along with the words "profits and gains" as in section 21 and in the long title to the Act in contradistinction to the word "income" alone under section 23 which we have discussed hereinabove. We may also point out at this stage, briefly, that the concept of income even under the Income Tax Act in the context exigibility of tax and in the context of chargeability is the computed income and not gross income. Therefore, even assuming for the sake of argument that interest tax falls under second part of section 32(1) of U.T.I. Act and even assuming for the sake of argument that interest tax is a tax on income still we are of the view that the words "tax on income, profits and gains" in the second part refer to taxable income. As stated above, we are of the view that section 32 has no application because the interest tax is not a tax on income but even if we proceed on the basis that it is a tax on income still section 32(1) refers to the computed income and not the gross income. Section 32 of the U.T.I. Act exempts only the U.T.I.s computed income. It does not exempt U.T.I. from levies on receipts which are not its income, profits or gains. As stated hereinabove, interest tax is in the nature of indirect levy. It allows the burden to be passed on to the borrowers. Such a levy cannot fall within section 32 of the U.T.I. Act. Similarly, because interest tax is not a tax on income, the Interest Tax Act empowered the Credit Institutions to modify the contracts which clearly indicate that the Interest Tax Act does not impose levy on income.

(iii). Meaning of the word "income" in section 32 of the U.T.I. Act, 1963.

On behalf of U.T.I. a parallel was sought to be drawn between the word "income" under the Income Tax Act and the word "income" in section 32 of the U.T.I. Act. We have already discussed the scope of the U.T.I. Act hereinabove. However, there is a fundamental difference between the word "income" and the words "tax on income". These are two different concepts. These are two different expressions. In section 32 of the U.T.I. Act, the words used are "tax on income, profits or gains". It is in this light that the words "tax on income" are required to be interpreted. The word "income" in the general sense and in commercial accountancy includes all receipts. However, when the legislature uses the expression "tax on income", it refers to computable income and not gross income as sought to be argued on behalf of U.T.I. Therefore, under section 32(1) of the U.T.I. Act, the words "tax on income, profits or gains" can only mean computable income. The Interest Tax Act is a tax on gross receipt of interest. It is not a tax on income. Under the Interest Tax Act, the burden passes on to the borrowers because it is not a tax on income. Under the Interest Tax Act, the loan contract can be changed by the Credit Institution. Had it been a tax on income, no such provision could have been made under the Interest Tax Act. Even if a Credit Institution incurs a loss in a given year, the levy would be maintained because it is on gross receipt. Under the Income Tax Act because it is a tax on income, an assessee who incurs expenditure to earn income is entitled to claim deduction in respect of such expenses. It is not so under the Interest Tax Act [see section 6 of the Interest Tax Act.] Similarly, under section 18 of the Interest Tax Act, interest tax is an allowable deduction is computing the income of a Credit Institution assessable under the Income Tax Act. Under section 18 of the Interest Tax Act, the income of a credit institution chargeable to income tax under the head "profits and gains of business or profession" is deductible from the income under that head. Therefore, it is clear that interest tax is not deductible as expenses. Therefore, Interest Tax Act cannot be compared with the Income Tax Act. If one keeps in mind the two concepts viz. "income" vis-a-vis "tax on income", the entire problem stands resolved. Whenever the legislature uses the words "tax on income" as in the case of section 32 of the U.T.I. Act, it refers to computable income. It cannot refer to gross income. This difference is also noticed by us when we discussed hereinabove, the scheme of the U.T.I. Act. There is one more way of looking at this problem. The word "income" in section 32(1) of the U.T.I. Act is in the company of the word "profits or gains". The word "profits" represents difference. It does not refer to gross profits. Numerous judgments on lack of legislative competence have been cited before us in which the word "income" has been interpreted by the Supreme Court. However, those judgments have no application to the facts of the present case. In this case, we are not reading the word "income" under any of the Entries under the Constitution. The Entries in the Constitution refer to the legislative field. Therefore, the numerous authorities cited on behalf of U.T.I. in the context of Entry 82 of List I have no application. On behalf of U.T.I., the following judgments were cited before us viz. (Maharajkumar Gopal Saran Narain Singh v. Commissioner of Income Tax, Bihar and Orissa)3, reported in 3 I.T.R. 237; (Senairam Doongarmali v. Commissioner of Income Tax, Assam)4, reported in 42 I.T.R. 392 and (Dooars Tea Co. Ltd. v. Commissioner of Agricultural Income Tax, West Bengal)5, reported in 44 I.T.R. 6. These judgments have been cited on behalf of the U.T.I. in support of their contention that the words "profits or gains" following the word "income" cannot limit the word "income". That, the word "income" should be given widest possible interpretation. These judgments have no application to the facts of the present case. In the above three cases, the argument was that the words "profits or gains" postulate a sale transaction made at a profit and that unless a receipt amounts to profits or gains, it cannot be treated as income. In all the three cases, it was argued that every receipt should constitute a profit and only if it constitutes profit then it was income, otherwise it was not income. This argument was rejected and it was in this context that the ratio laid down was that the word "income" cannot be confined to profit from business. These judgments have no application to the facts of the present case. One has to read the judgments in the context of what was argued before the Court.

We may also look at the above contentions of the U.T.I. from a different angle viz. that there is a difference between the nature of tax and the measure of tax. In the case of (Hingir Rampur Coal Co. Ltd. and others v. The State of Orissa and others)6, reported in 1961(2) S.C.R. 537, it has been laid down that the character of the levy does not stand altered by the rate allowed to be imposed. That the method in which a levy is recovered cannot decide the character of the levy. That, income from house property under the Income Tax Act is a tax on income. However, under the Income Tax Act, in cases of income from house property, the measure used is the annual value of the building. That, adoption of that yardstick by the Income Tax Act for getting at the income by any other enactment for levying the tax authorised by it would not convert the tax under that enactment into an income tax [see page 557]. This judgment applies on all fours to the facts of our cases. Under the Interest Tax Act, income offers a yardstick. Such a yardstick does not decide the character of the levy. The levy is on the gross receipt of interest. The yardstick is the income. Therefore, such a yardstick cannot convert the Interest Tax Act from a tax on gross receipt into a tax on income. In the case of (Elel Hotels and Investments Ltd. & another v. Union of India)7, reported in 178 I.T.R. 140, it has been held by the Supreme Court that the expression "income" in Entry 82, List I cannot be subjected to any restriction. That, while interpreting the word "income" in Entry 82 widest possible interpretation should be given. However at page 149 of that judgment, the Supreme Court has categorically observed that a particular statute enacted under Entry 82 as a matter of fiscal policy can restrict the word "income" to a particular specie of income and in which case the definition would be limited by consideration of the underlined fiscal policy of a particular statute. This note of caution clearly applies to the present case. In the present case, we are not concerned with the word "income" in Entry 82. In the present case, we are required to interpret the word "income" in the context of the Interest Tax Act which has been enacted as a matter of fiscal policy. Hence, no further multiplication of authorities is require on this point. It is correct to say that in the case of Elel Hotels (supra) as also in the case of (Federation of Hotel & Restaurant v. Union of India and others)8, reported in A.I.R. 1990 S.C. 1637, it has been held that Hotel Receipts Tax Act is a tax on income. But, there the controversy was in the context of lack of legislature competence. Therefore, the word "income" in Entry 82 came to be interpreted. In the present case, no such dispute arises for determination. However, in conclusion, we would like to refer to the judgment of the Supreme Court in (M/s. Sainik Motors, Jodhpur and others v. State of Rajasthan)9, reported in A.I.R. 1961 S.C. page 1480. In that case a Rajasthan Act levied a tax on passengers and goods measured by reference to the fares and freights charged by the operators. If, it was treated as a tax on fares and freights, it would be a tax on income, which the state legislature could not levy. If treated as a tax on passengers, it was valid under Entry 56 of List 2. The validity of the Act was upheld on the latter ground. The Court pointed out that the tax was on goods and passengers though measured by reference to fares and freights. The said judgments applied to the facts of this case. In the present case also the interest tax is a tax on gross receipt of interest measured by reference to the income. In the circumstances, we do not wish to go into the entire scheme of the Income Tax Act on which learned Counsel for U.T.I. placed, reliance. Suffice it to state that under section 4 of the Income Tax Act, 1961, the income tax is chargeable on the total income of every person and the words "total income" are defined under section 2(45) to mean total amount of income referred to in section 5, computed in the manner laid down in the Act. It is for this reason that, as stated hereinabove, we have highlighted the difference in the two concepts viz. "income" vis-a-vis the words "tax on income". Therefore, the words "tax on income" in section 32 of the U.T.I. Act must refer to computed income. Further, the word "income" in that section is followed by the word "profits". The word "profits" denotes the difference. Therefore, if one reads the entire sentence in section 32, it refers to "tax on income, profits or gains". Therefore, the word "income" in section 32 refers to computed income whereas the Interest Tax Act imposes the levy on gross receipt of interest. Therefore, the scope of the U.T.I. Act is different from the Interest Tax Act. They operate in different fields. There is no conflict between the two.

(iv) FINDINGS OF THE COURT ON THE QUESTION OF CONFLICT BETWEEN SECTION 32 OF THE U.T.I. ACT, 1963 AND THE INTEREST TAX ACT, 1974:

In view of our discussion hereinabove, there is no conflict between section 32 of the U.T.I. Act and the provisions of the Interest Tax Act 1974. As stated hereinabove, Interest Tax Act is a fiscal and economic legislation. It seeks to levy tax on loans irrespective of income. It seeks to levy tax on interest and not on income from interest. On the other hand, U.T.I. Act is based on commercial principles. It is enacted to encourage savings and investments. The objects of the two Acts are different. The nature and substance of the two Acts are different. Therefore, there is no conflict between the two enactments. Moreover, U.T.I. seeks to give exemption to income accuring to U.T.I. in the course of its business. The income contemplated by section 32 is the taxable income. On the other hand, the interest tax is a levy on gross receipts of interest by the Credit Institution. Under the Interest Tax Act, the burden passes on to the borrowers to pay interest tax. Therefore, the scheme of the two Acts is different. Therefore, there is no conflict. However, since detail arguments have been advanced on the question of conflict, we have examined the controversy from that angle also. In the case of (Ashoka Marketing Ltd. and another v. Punjab National Bank and others)10, reported in A.I.R. 1991 S.C. 855, one of the points which arose for consideration was, whether Public Premises Act would prevail over the provisions of the Rent Control Act in which there was a non obstante clause and which Act was the earlier enactments. It was held that the Public Premises Act was the later enactment. It was held that the Parliament was aware of the non obstante clause on the Rent Control Act which was the earlier enactment when Parliament enacted the Public Premises Act. It was held that the Rent Control Act was intended to deal with general relationship of landlord and tenant in respect of premises other than Government premises whereas Public Premises Act was intended to deal with speedy recovery of possession of the premises of public nature. It was held that by reason of the Public Premises Act, the Government properties were excluded from the ambit of the Rent Control Act. Accordingly, the Supreme Court construed the Public Premises Act as overriding the provisions contained in the Rent Control Act. It is important to note that, in the earlier enactment viz. the Rent Control Act, there was a non obstante clause. There was no such clause in the Public Premises Act. However, on construing the Public Premises Act in its entirety, the Supreme Court came to the conclusion that the Public Premises Act contained provisions which were in the nature of non obstante clauses. That, the Parliament while enacting the Public Premises Act was aware of the provisions of the Rent Control Act. Therefore, it was held that the Public Premises Act prevailed over the Rent Control Act. It was held that the Rent Control Act made a departure from the general law regulating the relationship of landlord and tenant as contained in the Transfer of Property Act. Therefore, the Rent Control Act was a special statute regulating the relationship of landlord and tenant. However, the Public Premises Act provides for speedy machinery to secure eviction of unauthorized occupants from public premises. Therefore, the Public Premises Act was held to be the special statute relating to eviction of unauthorized occupants from public premises. In that sense, the Supreme Court held both the enactment to be the special statutes in relation to matters dealt with therein. However, it was held that since the Public Premises Act was a special enactment and not a general statute, the exception contained in the principle that a subsequent general law cannot derogate from an earlier special law cannot be invoked and in accordance with the principle that the later law abrogates the earlier contrary law, the Public Premises Act must be read over the Rent Control Act. (see para 55). Applying the ratio of the aforestated judgment in the case of Ashoka Marketing (supra) to the facts of this case, we hold, firstly, that there is no conflict between the two laws. Secondly, in any event, the provisions of the Interest Tax Act and the provisions of the U.T.I. Act are special statutes in relation to matters dealt with therein. That, since the Interest Tax Act is a special enactment and not a general enactment and since the Interest Tax Act is a later enactment, the Interest Tax Act will override, in any event, the provisions of the U.T.I. Act in relation to the matters dealt with therein. In other words, even assuming for the sake of arguments that the two Acts conflict which with each other which we do not accept, the Interest Tax Act will override the provisions of the U.T.I. Act in respect of the interest which U.T.I. earns as a Credit Institution by giving loans in the course of business. Section 32 of the U.T.I. Act provides for exemptions in respect of income accruing to U.T.I. This provisions must yield to special Acts enacted as an economic measure like the Interest Tax Act. If the argument of U.T.I. is accepted then the Parliament cannot, in future, enact any economic legislation particularly for a temporary period in view of section 32 of the U.T.I. Act. In the present case, as stated above, after 31st March, 2000 the Interest Tax Act is withdrawn. However, in future if the Government seeks to revive the Interest Tax Act, it cannot be invoked against U.T.I. if the argument of U.T.I. is to be accepted. In other words, exemption to U.T.I. should continue for all times. This would be the result of the argument of U.T.I., if accepted. Hence, we are not inclined to accept such an argument. In the case of (Ratanlal Adukia and another v. Union of India)11, reported in A.I.R. 1990 S.C. 104, it was held that the doctrine of implied repeal is based on the postulate that the legislature is presumed to know the existing state of the law. In a conceivable case the very existence of two provisions may lead to an inference of mutual irreconcilability. In such a case actual comparison of the two provisions may not be necessary. That, it is a matter of legislative intent that the two sets of provisions were not expected to be applied simultaneously. The raio of the said judgment squarely applies to facts of this case. A bare reading of the objects of U.T.I. Act and Interest Tax Act show the legislative intent. In the case of Interest Tax Act, the legislature intended to enact an economic legislation by which loans given by Credit Institution become costlier. Under the Interest Tax Act the burden passes to the borrower. Under the Interest Tax Act, the Credit Institution can modify the contract with the borrowers. Under the Interest Tax Act, even if assessee suffers loss in a given year, still the assessee would be liable to pay tax on gross receipts. This clearly shows that even if U.T.I. was to incur a loss in a particular year, it was liable to pay interest tax on the basis of the gross receipts under the Interest Tax Act. The subject matter of U.T.I. Act is commercial whereas subject matter of Interest Tax Act is fiscal. When the Parliament enacted the Finance Act with effect from 1st October, 1991 U.T.I. and LIC were brought expressly within the purview of the Interest Tax Act thereby the Parliament impliedly repealed section 32 of the U.T.I. Act to the extent of the interest income which is made taxable under the Interest Tax Act. This discussion is only based on the alternate argument that, both the enactments refer to tax on income.

Accordingly, question No. A is answered in the negative i.e. in favour of department and against the U.T.I.

12. FINDINGS ON QUESTION NO. B ABOVE.---Whether the Withdrawal Communication dated 29-1-2001 issued by CBDT is retrospective

As can be seen from the arguments advanced on behalf of the department, it has been contended that the Circular dated 11th October, 1991 cannot constitute order, instruction or direction of the Board. That, the said communication dated 11th October, 1991 was not a Circular. That, it expressed only an opinion on the interpretation of the provisions of the Income Tax Act and the Interest Tax Act. That, no directions were given to the subordinate officers/authorities. That, such Circulars cannot be assessee specified. That, such a communication was not in accordance with section 3(2) of the Interest Tax Act. That, the communication was contrary to the provisions of Interest Tax Act. That, the communication dated 29-1-2001 acknowledges the mistake on the part of CBDT in interpreting the two Acts on 11th October, 1991. That, the said communication dated 11th October, 1991, in effect, gave exemption to U.T.I. from the provisions of the Interest Tax Act particularly when with effect from 1991, U.T.I. was treated by the Parliament as the Credit Institution by enacting the Finance Act (No. 2) of 1991. That, the said communication constitutes exemption under section 28 of the Interest Tax Act without the Central Government giving any such exemption under that Act. That, the Circular interferes with the discretion of the Tax Authorities. Hence, it was urged that the Circular dated 11th October, 1991 was violative of section 3(2) of the Interest Tax Act as also section 119 of the Income Tax Act. It was urged that all instructions to the subordinate authorities are required to be couched in the form of order, direction and instruction to the subordinate authorities. That, the above Circular dated 11th October, 1991 is not addressed to any subordinate authority under CBDT. Therefore, it was urged that the said Circular was not binding on the authorities below and that the said Circular was only an opinion expressed by CBDT on the interpretation of the provisions of the Interest Tax Act an the Income Tax Act which was also a wrong opinion which is subsequently acknowledge by CBDT in its communication dated 29-1-2001.

Before dealing with the authorities, it may be noted that the Central Board of Direct Taxes works in close association with Ministry of Finance, Central Government, U.T.I., as a Corporation, occupies a unique position. In the present matter, on facts, we find that after Finance Act of 1991, U.T.I. sought the opinion of the Central Board of Direct Taxes. The Board interpreted the provisions of the Interest Tax Act. The Board interpreted section 32 of the U.T.I. Act. The Board came to the conclusion that U.T.I. was not covered by the Interest Tax Act. This opinion was given way back in October, 1991. It was communicated to the Ministry of Finance. For nine years, the decision of CBDT was implemented. The AO comes under CBDT. CBDT comes under the Finance Ministry. During this period, U.T.I. filed its returns under the Income Tax Act. In view of section 32 of the U.T.I. Act, U.T.I. was given reliefs under the Income Tax Act. Today, it is being vehemently urged after nine years that the communication dated 11th October, 1991 is not binding on the Department on the ground that it does not constitute instruction to the subordinate authority and that it was based on mistaken interpretation of law. The burden is on the Department to show on what basis the said communication of CBDT dated 11th October, 1991 came to be implemented by the Department for nine years. Despite opportunity they have failed to discharge the burden. The Circular of CBDT dated 11th October, 1991 is not addressed to subordinate authorities. It is communicated to the Ministry of Finance. CBDT comes under the Ministry of Finance. The Department of Revenue is also under Ministry of Finance. The subordinate officers belong to the Department of Revenue. Moreover, the Circular dated 11th October, 1991 created a disability in U.T.I. In view of the said Circular, U.T.I. could not have levied and recovered the interest tax from its borrowers. U.T.I. could not have amended its contract with the borrowers, as provided for in section 26-C. Now, after nine years, when U.T.I. acted to its detriment on the basis of the representation contained in the Circular dated 11th October, 1991, U.T.I. is expected to recover interest tax from its borrowers, it is well settled by catena of decisions that benevolent Circulars are binding on the Department, even if they are based on deviations. It is equally well settled that interpretations given by CBDT in favour of the assessee are binding on the Department. That, the Department is estopped from raising any argument contrary to the interpretation placed by CBDT. In the circumstances, we hold that the Department is estopped from now raising an argument contrary to the Circular dated 11th October, 1991. However, the Department contends that the Circular dated 11th October, 1991 is based on a wrong interpretation of law. They have, therefore, withdrawn the said Circular vide communication dated 29-1-2001. The question still remains whether the withdrawal could operate retrospectively. As stated above, U.T.I. was disabled from receiving interest tax from its borrowers over the aforestated period of nine years. During the said period, 36 Schemes have been closed down. During this period, loans have been repaid. During this period, Rs 14000 crores have been distributed. During this period, the Schemes have been redeemed. It is well settled that the withdrawal of Circulars cannot operate retrospectively. In that sense, Circulars under section 119 do not constitute law. They are in the nature of instructions and/or guide lines. Therefore, the communication dated 29th January 2001 will operate prospectively and not retrospectively. At this stage, we may mention that according to the affidavit filed on behalf of the Department CBDT has not taken into account the aforestated consequences while issuing the withdrawal communication dated 29-1-2001. In the case of (Taiyabji Lukmanji v. Commissioner of Income Tax. Gujarat-V)12, reported in 131 I.T.R. 643, the facts were as follows. The assessee filed its return of income for the Assessment years 1968-69 and 1969-70 on 31st July, 1968 and 31st March, 1971 respectively. On 5th January, 1971 CBDT issued an advertisement in which it stated that if the original return filed by the assessee is false, the assessee may file a revised return to avoid the consequences of discovery. Pursuant to the said advertisement, the assessee filed its revised returns for the aforestated Assessment Years on 9th November, 1971 showing additional income for the said Assessment Years. The AO accepted the revised returns. However, since the assessee had failed to disclose the correct income in the original returns filed by it, the AO initiated penalty proceedings under section 271(1)(c) and levied a penalty thereunder. This order was confirmed by the First Appellate Authority and the Tribunal. The text of the advertisement given in the said Judgment. It is not addressed to any of the subordinate authorities. It was issued by CBDT as Department of Revenue . Ministry of Finance. It does not recite that instructions have been given to the subordinate officers. This advertisement was brought to the notice of the AO. However, the AO took the view that the advertisement was not a Circular under section 119. The AO took the view that the advertisement did not constitute instructions to him under section 119. He took the view that the advertisement was not binding on him. This view was confirmed by the First Appellate Authority and the Tribunal. It was argued before the High Court by the assessee that the advertisement constituted the Circular of the Board and, in the circumstances, penalty could not be imposed. On behalf of the Department, it was argued that the ITO authorities were not bound by the advertisement. That, they were only bound by the instruction. That, no such instructions were given. Hence, it was contended on behalf of the Department that the AO was right in not considering the advertisement. The argument of the assessee was accepted by the High Court. The High Court laid down that the question was required to be examined from the stand point of the credibility of the Department. The High Court opined that part from promissory estoppel, the Department cannot ignore such opinion given by CBDT , otherwise a greater harm would be caused to the Department in the long run. In the case of (Commissioner of Income Tax v. Rastriya Swayam Sevk Sangh)13, reported in 207 I.T.R. page 479 the facts were as follows. Assessments were made on RSS in the status of A.O.P. for the years 1967-68 up to 1975-76 . The assesss income was by way of receipt from members of Gurudakshina. It also consisted of receipt of Gurudakshina from devotees. The AO held that such Gurudakshina was taxable. The argument of the assessee was that Gurudakshina was not taxable on the ground of mutuality. The Appellate Authority held that Gurudakshina receipts from members was exemption the ground of mutuality. In coming to the said conclusion, the Appellate Authority placed reliance on the instructions of CBDT contained in the letter No . 290/26/M.O./I.M. dated 19-12-1978. The Revenue took up the matter in appeal before the Tribunal Patna Bench. The Tribunal disposed of the appeal on 8th October, 1980. The Tribunal held in favour of RSS. In this connection, the Tribunal, Patna Bench, relied upon the decision of the Tribunal, Bombay Bench, in I.T. Appeal Nos. 202, 422 and 421 of 1975-76 and ITA Nos. 315 and 355 of 1975-76 in which the same issue arose for decision. The patna Bench also placed reliance on the communication of the Central Board as evidenced by letter dated 19-12-1978. The Tribunal referred the matter under section 256(1) to the High Court. The Patna High Court held that the decision of the Bombay Bench was based on the material placed before it regarding the constitution of RSS, affidavit of parties and the Central Board of Direct Taxes letter dated 19-12-1978 and on that basis the Bombay Bench had concluded that Gurudakshina was not assessable to tax. That, the Bombay Bench had categorically come to the conclusion that in view of the letter of CBDT dated 19th December, 1978. It was not permissible for the Revenue to contend that Gurudakshina was liable to income tax. That, in the said communication of CBDT, it has been expressly stated that Gurudakshina received from members stood exempted. The Bombay Bench took the letter on record and came to the conclusion that the letter afforded administrative relief to RSS and the existence of such communication, its contents and the reliance placed thereon were never disputed before the Bombay Bench nor were they ever disputed before the Patna High Court. Therefore, the Patna High Court took the view that Gurudakshina received from members was exempt from tax; that the relief given by the letter dated 19-12-1978 should be given effect to. That, the said communication clinched the issue and both the Bombay Bench and the Patna Bench of the Appellate Tribunal had relied on the said communication of CBDT. Therefore, the High Court confirmed the view of the Tribunal and held that in view of communication dated 19-12-1978, the decision of the Appellate Tribunal was justified. This Judgment clearly lays down two things. Firstly, that the Circular under section 119 could be assessee-specific. Secondly, that the courts, depending on the facts of each case, have given relief to the assessees on the basis of the opinion/interpretation of law given by CBDT even if such interpretation are contained in the letters. However, we would like to confine this Judgment only to the facts of the present case. The Department has treated the interpretation of CBDT as binding for nine years. That interpretation created disability in U.T.I. to recover interest tax from the borrowers. Therefore, the Department is now estopped from arguing contrary to the Circular dated 11-10-1991. Further, when CBDT says that its earlier view was wrong and that it was based on a mistake it can certainly rectify the position prospectively with effect from 29-1-2001 but not retrospectively because even if it was based on mistake, U.T.I. has also acted to its detriment. Therefore, the communication dated 29-1-2001 can only operate prospectively and not retrospectively. There is one more way of looking at this problem. The Circular issued by CBDT on 11th October, 1991 is a benevolent Circular vis-a-vis the unit holders. It contains an interpretation which favour of large number of investors. It contains an interpretation infavours of large number of small investors on whom ultimate burden will fall. It is for this reason that the Department had to move CBDT for revocation/withdrawal of its earlier Circular dated 11th October, 1991 . Therefore, the Department is estopped from now contending that the interpretation of CBDT was wrong from 11th October, 1991. The Department can certainly cure the defect but such rectification can only operate prospectively particularly in the case of benevolent Circulars. We do not fine any merit in the contention of the Department that Circular dated 11th October, 1991 was illegal and, therefore, not binding on the AO. In the present case, the Circular of 11th October, 1991 has been implemented by the Department for more than nine years. We repeatedly inquired from the Counsel appearing on behalf of the Department as to the basis on which the above Circular came to the implemented by the Department. As stated above, U.T.I. filed its returns under the Income Tax Act. U.T.I. was given relief under the Income Tax Act on the basis of section 32 of the U.T.I. Act which has been interpreted by the Circular dated 11th October, 1991. The Interest Tax Act was made applicable to U.T.I. from 1st October, 1991 vide Finance Act (No. 2) of 1991. The Department was fully aware of the Finance Act of 1991. Therefore, it is not open for the Department now to contend that all this was under mistake particularly when U.T.I. has acted to its detriment. U.T.I. could have recovered the interest tax from its borrowers. They were disabled from doing so in view of CBDT Circular dated 11th October, 1991. They could not have recovered interest tax from borrowers in view of the said Circular. Even the Finance Ministry did not object to U.T.I. being given the benefit of the above interpretation. In the circumstances, the Department is now estopped from raising an argument contrary to the interpretation placed by CBDT. Hence, in this case, we are not going into the question as to whether Circulars could be issued by CBDT contrary to law and the effect of such Circulars. We do not wish to delve into Judgements cited on the said point. We are confining our judgement to the facts of this case. We are confining this judgement to the rights created in favour of U.T.I. and the unit holders by virtue of the interpretation placed by CBDT and on the basis of the implementation of the Circular of CBDT for nine years by the Department. However, the Department is estopped from arguing contrary to the Circular till it is revoked. Hence, we do no wish to examine numerous Judgement cited on both sides before us by rival parties on the above question.

Accordingly question No. B is answered in the negative i.e. in favour of the U.T.I. and against the Department.

13. Findings on question No. C Above.---Whether section 10(a) of the Interest Tax Act has been validly invoked vide notices dated 21-12-2000.

The substance of the argument on behalf of the U.T.I. on this point is in short that section 10A of the Interest Tax Act refers to escapement of interest from assessment on account of U.T.I.s failure to file its returns under section 7 of the Interest Tax Act. In this connection, section 10(a) of the Interest Tax Act reads as follows :---

"10. If (a) (Assessing) 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 or excessive relief under this Act."

It is contended on behalf of U.T.I., that mere escapement is not enough. That, under section 10(a) escapement should be by reason of omission or failure on the part of the assessee to file returns. That section 10(a) is similar to section 148 of the Income Tax Act as it then stood. That, the old provision of section 14 has been constructed by the Supreme Court in numerous judgments. That, in this case, on facts, the Department has invoked section 10(a) on the ground of failure to file returns. That the validity of the notice was a jurisdictional issue. That, in the present case, on facts, there was no willful failure on the part of U.T.I. to file the returns. On the other hand, the Department contended that the notices have been given for omitting to file returns under section 7 of the Interest Tax Act which has resulted in escapement. That, word "omission" in section 10(a) is a colourless word as interpreted by the Division Bench judgement of this Court in the case of Pannalal Nandlal Bhandari v. Commissioner of Income Tax, Bombay City, Bombay, reported in 30 I.T.R. page 57. We do not find any merit in the contention advanced on behalf of the Department. In view of the clear language of section 10(a) of the Interest Tax Act, mere escapement is not enough. Such escapement should be by reason of omission or failure on the part of the assessee to file its return under section 7 of the Interest Tax Act. In this case, the Department has invoked section 10(a) of the Interest Tax Act not on the ground of omission but specifically on the ground of failure to file the returns under section 7. In the case of (N.D. Bhatt, Inspecting Assistant Commissioner of Income-Tax and another v. World Trade Corporation)14, reported in 216 I.T.R. 811, the Bombay High Court has held that in order to confine jurisdiction under section 147(a) of the Income Tax Act to reopen an assessment, two conditions are required to be fulfilled. Firstly, that the AO must have reason to believe that income, profits or gains has under---assessed or has escaped assessment. Secondly, he must have reason to believe that such escapement was occasioned by assessees failure to disclose fully and truly all material facts. That, ommission or failure to disclose postulated knowledge of the fact at the relevant time. Now, in the present case, U.T.I. was informed way back in 1991 that it was exempt from payment of interest tax. For nine years, the Department acted never called upon U.T.I. to file returns. The Department acted on that decision. Therefore, on the facts of this case, there was no willful failure on the part of the U.T.I. in not filing returns for Assessment years 1991-92 upto 1998-1999. Learned Counsel for the Department, however, emphasised the word "omission". He relied upon the Judgement of Division Bench of this Court reported in 30 I.T.R. 57. The word "omission" in section 10(a) is an expression different from the expression "failure". In this case, Department has invoked the expression "failure" and not omission". Therefore, the Judgement has no application to the facts of this case. On facts of our case, we hold that there was no willful failure on the part of U.T.I. to file its returns. Secondly, in the said Judgement, the Bombay High Court has laid down that the word "omission" is a colourless word. However, the said judgment helps U.T.I. In the 30 I.T.R. 57, the Bombay High Court has observed that the expression failure connoted that there is an obligation on the part of the assessee which has not been carried out and if there was no obligation on the assessee to make a return then the expression "failure" would get attracted. That , the word "omission" is a colourless word which merely refers to not doing of something and if the assessee does not make a return it is an omission on his part, whether the law casts any obligation upon him to make a return or not. In this case, the department has not invoked the word "omission". In this case the department has invoked the word "failure". On facts, in this case, there is no willful failure. In view of the Circular of CBDT dated 11th October, 1991 U.T.I. could not have recovered interest tax from its borrowers and, therefore, it was not obliged to make a return under section 7 of the Interest Tax Act. Therefore, the judgment of the Bombay High Court reported in 30 I.T.R. 57 supports the case of U.T.I.

Accordingly, we answer question No. C in the negative i.e. in favour of U.T.I. and against the Department.

14. Summary Of Findings.

(I) The Interest Tax Act, 1974 is applicable to U.T.I. However in view of the Circular of CBDT dated 11th October, 1991 the Interest Tax Act, 1974 will not apply upto 29-1-2001 when the earlier Circular has been withdrawn.

(II) That the withdrawal of Communication of CBDT dated 29-1-2001 will operate prospectively and retrospectively.

(III) That the impugned notices dated 21-12-2000 issued under section 10(a) of the Interest Tax Act, 1974 in respect of the Accounting years 1991-92 upto 1998-1999 are invalid in law and hereby set aside.

15. Accordingly, both the above writ petitions are partly allowed with no order as to costs.

C.C. expedited.

Petition allowed.