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2014 (12) TMI 65 - HC - Income TaxAmount paid on rediscounting of bills part of interest or not – Interest tax Act - Activity of advancing and receiving money from various parties - Whether the Tribunal was justified in holding that amount paid by the assessee to the IDBI, RBI on rediscounting of bills are not part of interest income and as such not chargeable to interest tax – Held that:- The bank has paid amount to the RBI/IDBI under the Industrial Development Bank of India Bill Rediscounting Scheme and there is a direct nexus/corelation with the payment made to the RBI/IDBI and what was received from the borrower - the claim of the bank is justifiable - There is an overriding title of the RBI/IDBI and a direct co-relation/nexus of such bills re-discounted and the re-discount rates of RBI/IDBI collected by the bank which in our view, cannot be chargeable interest, in as much as even before the amount reached the hands of the assessee, it was impressed with the character of re-discount charges payable to the IDBI or RBI, as the case may be – the same has also been decided in CIT Vs. Canara Bank [2007 (7) TMI 11 - SUPREME COURT OF INDIA] – decided against revenue. Subsidy received from the RBI on export credit loans - Whether the Tribunal was justified in law in holding that the amount of subsidy received by the assessee from RBI under the Export Credit (Interest Subsidy), 1968 is not liable to interest tax – Held that:- Assessee rightly contended that as per the scheme of the RBI, the assesse bank used to advance money to various exporters to carry out export business - Such advances generally are termed as packing credit and as per the scheme of the RBI, banks are required to charge interest on such advances at the specific rates provided under the scheme -The RBI would grant subsidy to the bank for the shortfall in interest received from the customer - such subsidy is not received from the customers and is not relatable to what was lended & advanced by the bank, hence it cannot be treated as Interest as provided u/s 2(7) of the Act - Subsidy received from RBI is in the form of support to the bank and cannot be equated to interest - only interest on loans and advances made in India is covered - Since loan and advance has not been made to RBI, thus would not come under the purview of Interest, at all – Decided against Revenue. Overdue Interest on inland/foreign demand bills - Whether the Tribunal was right in law in holding that overdue interest charged by the bank was chargeable amount under the Interest Tax Act – Held that:- The scope and definition of the term “interest” cannot be interpreted to bring within its fold any income that is booked by an assessee under the head interest - The character of an overdue bill is not synonymous with the loans and advances and, therefore, it will not fall within the ambit and scope of interest u/s 2 (7) of the Interest Tax Act - on the due date/cutoff date whatever amount has been recovered by the assessee bank, will certainly fall in the nature of interest, but once the due date/cutoff date is over, any amount received after that date by the bank, would be in the nature of compensation/penalty/liquidated damages and will not be “interest” - the way in which entries are made by an assessee in its books of account or the nomenclature given to a transaction by the parties is not determinative of the due character/nature of that transaction - the amount received as “overdue interest” in inland/foreign demand bills is not liable to be taxed as interest under the Interest Tax Act – Decided against revenue. Guarantee Fees Paid to Deposit Insurance and Credit Guarantee Corporation - Whether the Tribunal was justified in holding that the guarantee fee/commission shown by the assessee itself under the head of interest is not liable to tax under the Interest Tax Act – Held that:- The Interest Tax Act, does not include the term “any service fee or other charges in respect of money charge or debt incurred” under its ambit and putting to test the principle of harmonious interpretation, it is evident that the parliament in its wisdom has chosen not to add the terminology under the Interest Tax Act, and what has not been mentioned neither be added nor is required to be read in between the lines – in Sutlej Cotton Mills Limited Versus Commissioner of Income-Tax, West Bengal [1978 (9) TMI 1 - SUPREME Court] it has been held that mere crediting the amount under a head is not determinative of the real nature and real intent and purpose of the transaction is required to be seen - the amount recovered by the assessee from the constituents (borrower) cannot be taxed as interest in the hands of the assessee - such charges recovered by the bank cannot be equated to the term interest under the Act - Though the receipt of Guarantee Fees received from constituents (borrowers) is not linked to what is paid to DICGC as insurance cover on behalf of depositors, the issue is not relevant – Decided against revenue.
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