JUDGMENT judgment of court was delivered by R. Sudhakar J.-The above tax case (appeals) filed by Revenue as against order of Income-tax Appellate Tribunal for assessment years 1993-94 and 1994-95 were admitted by this court on following substantial questions of law: "1. Whether, on facts and in circumstances of case, Income- tax Appellate Tribunal is right in law in holding that interest on debentures will not form part of chargeable interest under Interest-tax Act? 2. Whether, on facts and in circumstances of case, Income- tax Appellate Tribunal is right in law in holding that addition of notional interest are to be reckoned with for purpose of calculating chargeable interest under Interest-tax Act? 3. Whether, on facts and in circumstances of case, Income- tax Appellate Tribunal is right in law in following judgment rendered in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad) which was clearly case dealing with pre-amended provisions of Interest-tax Act which was applicable up to assessment year 1991-92 and not subsequently?" assessee-respondent in both appeals is engaged in business of investment and share broking. They held shares in company called M/s. Sona Distillers, which got amalgamated with M/s. Herbertson Ltd. On such amalgamation, debentures were issued by new company in respect of interest earned on these debentures. assessee was allotted convertible debentures in above company in respect of shares held by assessee in M/s. Sona Distilleries. Therefore, assessee claimed exemption on ground that nature of investment is not chargeable under Interest-tax Act. Assessing Officer declined to accept such claim and included interest on debentures in chargeable interest. second issue relates to addition of notional interest. While arriving at chargeable interest, Assessing Officer added certain items of interest receivable from Devi Investments, Until Communication, Vinayaka Castings and UB Electronics to whom advances have been made and held that interest on advance for shares should also be included for purpose of Interest-tax Act. Aggrieved by order of Assessing Officer, appeals were filed before Commissioner of Income-tax (Appeals), who dealt with issue relating to interest-tax on debentures in paragraph 2.2 of order and held in favour of assessee. Placing reliance on decision of High Court in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad), Commissioner of Income-tax (Appeals) in paragraph 2.2 held as follows: "2.2 I have carefully considered arguments of learned counsel and reasons adduced by Assessing Officer for effecting addition. Debentures are essentially in nature of bonds issued by companies and in instant case, it is essentially investment. Because, firstly, these debentures came to be allotted to appellant on amalgamation of company where shares of appellant held. Secondly, these debentures were fully converted into shares of M/s. Herbertson Ltd. on later date. Such debentures clearly falls outside purview of loans and advances mentioned in Interest-tax Act. I have also gone through decision of hon'ble High Court of Madras in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad); 138 CTR 230 (Mad) wherein hon'ble High Court has clearly held that debentures are distinctly different from loans and advances. Respectfully following decision of hon'ble High Court, issue is decided in favour of appellant. addition made on this count is deleted." In so far as addition of notional interest is concerned, assessee contended that notional interest was item which was never received or was receivable by assessee and that such notional interest falls outside purview of chargeable interest under Interest-tax Act. This contention was accepted by Commissioner of Income-tax (Appeals) and held as follows: "I have carefully considered issue in light of arguments put forth by learned counsel. scheme of Interest-tax Act and intention behind introducing of Income-tax Act makes it very clear that notional interest can never be considered as part of chargeable interest. Apart from objects of introduction of Interest-tax Act as reflected in Finance Minister's speech referred to by learned counsel proviso to section 5 also throws considerable light on this issue. As per this proviso, even interest on bad and doubtful debts are not be considered as part of chargeable interest unless it is credited to profit and loss account of credit institution. Though proviso is specifically with reference to public financial institution, etc., covered under section 43D of Income-tax Act, principle laid down therein throws considerable light on whether notional interest can be part of chargeable profit. In instant case, notional interest brought to tax under Income-tax Act has never been considered as part of interest accrued or arisen to appellant in books of appellant. I, therefore, hold that it is not right to add notional interest for purpose of arriving at chargeable interest." As against orders of Commissioner of Income-tax (Appeals), Revenue went on appeal before Income-tax Appellate Tribunal. Tribunal, by brief order, placing reliance on decision in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad), held as follows: "These are two appeals by Department against order of Commissioner of Income-tax (Appeals) dated December 31, 1997, under Interest-tax Act. common issue in both these appeals is with regard to interest on debentures and interest on assessed tax. Madras High Court in CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad) had held that interest on debentures and interest received from income-tax are not interest within meaning of Interest-tax Act and that Interest-tax Act is not applicable to both these items. Respectfully following said decision, we upheld orders of Commissioner of Income-tax (Appeals). appeals are, accordingly, dismissed." Aggrieved by order of Income-tax Appellate Tribunal, Revenue has filed present tax case (appeals) raising substantial questions of law referred to supra. Though respondent was not served since appeal is of year 2004 and issue was considered at length by Supreme Court, we are proceeded to dispose of appeal. Heard learned standing counsel appearing for Revenue and perused materials placed before this court. first issue relates to applicability of Interest-tax Act in respect of interest earned on debentures. Commissioner of Income-tax (Appeals) as well as Tribunal relied upon decision of this court in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad). At time of hearing, we find that subsequent decision rendered by Supreme Court reported in CIT v. Sahara India Savings and Investment Corporation Ltd. [2010] 321 ITR 371 (SC) dealt with issue, wherein issue under consideration is as follows (page 372): "Whether'interest' which assessee earned on bonds and debentures was chargeable to tax in view of definition of term 'interest' in section 2(7) of Interest-tax Act, 1974?" Thus, law formulated in above decision of Supreme Court is identical to facts of present case. respondent-assessee in this case is credit institution falling under section 2(5B)(ii) of Interest-tax Act, namely, investment company. Section 4(2) of Interest-tax Act provides for interest-tax under provisions of Interest-tax Act on credit institutions in respect of its chargeable interest of previous year and scope of chargeable interest is defined under section 5 of Interest-tax Act. Section 2(7) of Interest-tax Act, defines word "interest" which is key word for purpose of determination reads as follows: "2. In this Act, unless contest otherwise requires,-... (7)'interest' means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) interest referred to in sub-section (1B) of section 42 of Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills;" In light of abovesaid provisions, Supreme Court considered scope of interest-tax on interest receivable in respect of investment in debentures and held as follows (page 376): "The Interest-tax Act, 1974, has been enacted with two-fold purposes, namely, as anti-inflationary measure and for revenue collection. It is Act which has been periodically passed for economic reasons, particularly when inflation takes over economy. With this introduction, one needs to examine provisions quoted hereinabove. Section 2(5) defines'chargeable interest' to mean total amount of interest referred to in section 5, computed in manner laid down in section 6. In other words, the'scope of chargeable interest' is defined under section 5 whereas'computation of chargeable interest' is under section 6. Section 2(7) is heart of matter as far as present case is concerned. In accounting sense, there is conceptual difference between loans and advances on one hand and investments on other hand. Section 2(7) defines word'interest' to mean interest on'loans and advances including commitment charges, discount on promissory notes and bills of exchange but not to include interest referred to under section 42(1B) of Reserve Bank of India Act, 1934, as well as discount on treasury bills'. Section 2(7), therefore, defines what is interest in first part and that first part confines interest only to loans and advances, including commitment charges, discount on promissory notes and bills of exchange. Pausing here, it is clear that interest-tax is meant to be levied only on interest accruing on loans and advances but Legislature, in its wisdom, has extended meaning of word'interest' to two other items, namely, commitment charges and discount on promissory notes and bills of exchange. In normal accounting sense,'loans and advances', as concept, are different from commitment charges and discounts and, keeping in mind difference between three, Legislature, in its wisdom, has specifically included in definition under section 2(7) commitment charges as well as discounts. fact remains that interest on loans and advances will not cover under section 2(7) interest on bonds and debentures bought by assessee as and by way of 'investment'. Even exclusionary part of section 2(7) excludes only discount on treasury bills as well as interest under section 42(1B) of Reserve Bank of India Act, 1934. Reading section 2(7) as whole, it is clear that'interest on investments' is not taxable as interest under section 2(7) of said 1974 Act." reading of above decision, it is clear that contention of Department that interest earned on debentures is liable to interest does not hold good any more. faint plea was made by Revenue that postOctober 1, 1991, consequent to amendment, interest under section 2(7) of Interest-tax Act would include interest from debentures as well. We find that such argument has also been considered by Supreme Court against Revenue and held as follows (page 376): "It is case of Department, however, which needs to be addressed at this stage, that prior to October 1, 1991, word'interest' in section 2(7) was defined so as to include any amount chargeable to income-tax under head "Interest on securities". It is case of Department that by amendment, with effect from October 1, 1991, said item, namely,'amount chargeable to income-tax under head "Interest on securities" stood deleted and, consequently, "interest on securities" would fall within definition of word "interest" under section 2(7)'. According to Department, section 2(7) was not exhaustive and with amendment with effect from October 1, 1991, when'interest on securities' stood excluded, it (interest on securities) would automatically fall within purview of word'interest' under section 2(7) of 1974 Act. We find no merit in this argument for two reasons. Firstly, as stated above, section 2(7), read as whole, focuses only on interest accruing on loans and advances, commitment charges and discount on promissory notes and bills of exchange. It also specifically excludes interest under section 42(1B) of Reserve Bank of India Act as well as discount on treasury bills. It was very easy for Parliament to expressly provide for'interest on investments' to fall under section 2(7), but that has not been done. reason is obvious. As stated above, one of objects of enacting 1974 Act is by way of anti- inflationary measure. In inflationary situation, cost of borrowing for Government also increases. One of ways by which cost of borrowing can be reduced is to see that companies like respondent herein are made to invest in bonds and securities so that Government is able to borrow monies at cheaper rate as compared to its borrowings in market. It is precisely for this reason that Reserve Bank of India, which is regulator and which is responsible for credit management of economy and which is empowered to issue directions from time to time not only with object of regulating credit but also to control businesses like nonbanking financial companies and residuary non-banking companies by issuing directions under Chapter III-B of Reserve Bank of India Act, issues directions and one of such directions which has been issued in present case is called the'Residuary Non-Banking Companies (Reserve Bank) Directions, 1987'. These Directions have been issued under sections 45J and 45K of Reserve Bank of India Act, 1934." Therefore, decision in case of CIT v. Lakshmi Vilas Bank Ltd. reported in [1997] 228 ITR 697 (Mad) in effect, has been affirmed by Supreme Court. Hence, following abovesaid decision of Supreme Court, substantial questions of law Nos. 1 and 3 are answered against Revenue and in favour of assessee. On issue of addition of notional interest, we find that Commissioner of Income-tax (Appeals) has given clear finding that notional interest can never be considered as part of chargeable interest. He relied on object of introduction of Interest-tax Act and draws analogy that interest on bad and doubtful debts ought not to be considered as part of chargeable interest unless it is credited to profit and loss of credit institution. He comes to clear conclusion that notional interest brought to tax under Interest-tax Act has never been considered as part of interest accrued or arisen in books of account, namely, profit and loss account and, therefore, question of adding notional interest was declined. Tribunal, however, has not gone into this issue at all. We are at loss whether such issue was raised before Tribunal by Department, as we find that no grounds of appeal is attached to typed set of papers annexed to present appeals. If no issue has been raised before Tribunal, on this score, we do not find any justification to answer second question of law on notional interest. Nevertheless, we find from objects and reasons of Interest-tax Act, 1974, and from definition of "interest" under section 2(7) of Interest-tax Act, that word "notional interest" does not figure any where. Therefore, Commissioner of Income-tax (Appeals) was correct in deleting addition of notional interest. Unless statute provides for adding notional interest for purpose of tax, it cannot be made applicable by implication. Revenue has not shown any provision whereby notional interest can be included for purpose of tax. We, therefore, answer second question of law against Revenue and in favour of assessee. For foregoing discussion we pass following order: (i) on substantial questions of law admitted by this court, we answer same against Revenue and in favour of assessee; (ii) consequently, order of Tribunal stands confirmed. In result, both tax case (appeals) are dismissed. No costs. Consequently, Tax C. M. P. No. 1 of 2014 is closed. We place on record our appreciation for assistance rendered by Mr. J. Balachander in above matter. *** Commissioner of Income-tax v. Golden Investments Ltd