2007 (2) TMI 155 - HC - Income Tax

Interest tax AO added the additional discount charges as chargeable interest u/s 2(7) of the Interest-tax Act, 1974 of the assessee(non-banking finance company) but rejected by the CIT(A) HC and tribunal also affirmed the order of the CIT(A)

Summary

Issues:
Whether additional discount charges are to be included in chargeable interest under the Interest Tax Act.

Analysis:
The judgment of the court, delivered by P.D. Dinakaran J., pertains to tax case appeals against the Income-tax Appellate Tribunal's order. The common substantial question of law raised was whether the Tribunal was correct in excluding additional discount charges from the chargeable interest under the Interest Tax Act. The assessee, a non-banking finance company, had excluded these charges, but the assessing officer added them as chargeable interest. The Commissioner of Income-tax (Appeals) held that these charges are not chargeable under the Act, a decision upheld by the Appellate Tribunal.

To resolve the issue, the court referred to the decision in C.I.T. v. State Bank of Travancore (1997) where the Kerala High Court distinguished between overdue bills and loans/advances for tax purposes. The court held that interest on loans and advances alone is taxable under the Interest Tax Act, excluding interest on overdue bills. Applying this precedent, the court concluded that the Act applies only to interest on loans and advances, not to additional discount charges, which are considered premiums. Therefore, the Tribunal was correct in excluding these charges from chargeable interest under the Act.

Ultimately, the court found no substantial question of law for consideration and dismissed the appeals at the admission stage itself.