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2015 (10) TMI 1521 - HC - Income TaxInterest tax - accrual of income - whether Amount collected by the assessee bank from its borrowers as amount for interest tax, was not part of the interest on loans and advances within the meaning of section 2(7) read with section 2(5), 5 and 6 of the Interest Act, 1974 ? - Held that:- Even though the amount of interest tax is recovered by the assessee from its customers, the income in actual fact never reaches the assessee, who collects it, not as a part of its income but on behalf of the Government to whom it is payable. Therefore, payment of interest tax out of the amount collected from the customers towards payment of interest tax cannot be said to be application of the income of the assessee. The additional amount charged from the assessee payable towards interest tax cannot in any manner be said to be interest which has accrued or arisen to the assessee. Therefore, such amount collected from the borrowers/customers towards payment of interest tax as expressly provided therefor by the RBI guidelines cannot be taken into consideration for the purpose of computing chargeable interest. Therefore, when the nature of the amount collected by the assessee does not fall within the ambit of chargeable interest as contemplated in subsection (5) of section 2 of the Act, the same cannot be taken into consideration while computing the chargeable interest. Consequently, the explanation to section 6 on which strong reliance has been placed by the learned counsel for the revenue would have no applicability to the facts of the present case. RBI has issued guidelines permitting the financial institutions to recover the amount payable by way of interest tax from the customers. If the amount recovered from the customers towards interest tax is also considered as chargeable interest, further interest at the prescribed rate would have to be paid by the assessee on the total amount recovered by the assessee, namely, interest on loans and advances plus the amount collected from the customer towards interest tax, which would exceed the amount collected from the customer towards interest tax, thereby frustrating the very intention of the RBI guidelines, namely, to collect interest tax from the customer and not from the bank. - Decided in favour of the assessee
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