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2015 (11) TMI 869 - SC - Income TaxPayment of compensation to the said banks - whether is “interest” liable to tax under the Interest Tax Act, 1974? - interest received by various banks after bills of exchange have been discounted and a party defaults and hence has to pay compensation by way of interest as payment is made after the date stipulated in the bill of exchange - Held that:- Section 2(7) itself makes a distinction between loans and advances made in India and discount on bills of exchange drawn or made in India. It is obvious that if discounted bills of exchange were also to be treated as loans and advances made in India there would be no need to extend the definition of “interest” to include discount on bills of exchange. Indeed, this matter is no longer res integra. The expression “payable in any manner in respect of any moneys borrowed” is an expression of considerable width. It will be noticed that the aforesaid language of the definition section contained in the Income Tax Act is broader than that contained in the Interest Tax Act in three respects. Firstly, interest can be payable in any manner whatsoever. Secondly, the expression “in respect of” includes interest arising even indirectly out of a money transaction, unlike the word “on” contained in Section 2(7) which, we have already seen, connotes a direct arising of payment of interest out of a loan or advance. And thirdly, “any moneys borrowed” must be contrasted with “loan or advances”. The former expression would certainly bring within its ken moneys borrowed by means other than by way of loans or advances. We therefore conclude that the Interest Tax Act, unlike the Income Tax Act, has focused only on a very narrow taxable event which does not include within its ken interest payable on default in payment of amounts due under a discounted bill of exchange. In fact, when we come to the second point agitated in some of the appeals by revenue namely as to whether guarantee fees paid to the Deposit Insurance and Credit Guarantee Corporation could be included in the definition of interest in Section 2(7) of the Interest Tax Act, 1974, it will be clear that such definition does not include any service fee or other charges in respect of monies borrowed or debt incurred, again unlike the definition of ‘interest’ under the Income Tax Act. - Decided in favour of assessee.
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