TMI Blog2006 (2) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... of exchange is chargeable to interest-tax instead of net of discounting charges? (Il) Whether on the facts and in the circumstances of the case, CIT(A) was justified in treating the interests received by the assessee on delayed payments made by customers of lease rentals, hire-purchase instalments, etc. as chargeable to interest-tax."? 2.1 The facts concerning the ground No. (i) are as follows. In respect of income from bill discounting, the assessee had shown only net income after deducting the rediscounting charges as the bills had been rediscounted with some other institutions. The AO adopted the gross discounting charges for the purpose of Interest-tax Act after observing that no deduction other than the deductions provided under s. 6 of the Interest-tax Act could be allowed. In appeal, it was submitted before CIT(A) that the assessee had offered the actual income which was net of discounting and had not claimed any deduction. After discounting of bills, the assessee had rediscounted the sale with other institutions and the income received was only net of rediscounting. The assessee relied on several judgments of High Courts in support of the plea: CIT vs. Canara Bank (198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f discounting of the bills, the assessee received some discount and at the time of rediscounting the same to other institution, it had to part with a part of the discount received and, therefore, the effect of the rediscount was to lower the realisation. It is like trade discount which is not expenditure but which goes to reduce the sale price directly. The net effect is of lowering of income/realization. We, therefore, agree with the submission of learned Authorised Representative that the discounting charges net of rediscounting will only be chargeable to Interest-tax Act. This view is also supported by the judgment of Hon'ble High Court of Madhya Pradesh in case of State Bank ofIndore. We, therefore, reverse the order of CIT(A) and allow the claim of the assessee. 3. The facts regarding the second issue are that the assessee who is in the business of hire-purchase, lease, etc., had received interest on delayed payment of lease rent, hire-purchase instalments etc. The AO included this interest in the chargeable interest under the provisions of Interest-tax Act. In appeal, the assessee submitted that the interest received on delayed payment of dues is not the interest on loans a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Bank ofHyderabadhave also followed the same view i.e. compensation on delayed payment of bill beyond the grace period does not constitute interest. Respectfully following these decisions, we hold that CIT(A) was not justified in confirming the order of the AO charging interest-tax in respect of interest received on delayed payment of lease rent, hire-purchase instalment, etc. The order of CIT(A) is, therefore, set aside and the claim of the assessee is allowed. Interest-tax Appeal No. 56/Del/2001 G.E. Capital Services India Ltd. vs. Jt. CIT (asst. yr. 1997-98) : 4. The only dispute raised by the assessee in this appeal is that on the facts and in the circumstances of the case, CIT(A) was not justified in treating the interest received by the assessee on delayed payments made by customers on lease rental, hire-purchase instalment, etc. as chargeable to interest-tax. The same issue we have already considered and decided in connection with the ITA Nos. 36 and 37/Del/2001 and following our decision in the said appeals vide para 3.3 of this order, we hold that the interest receivable on delayed payment of lease rental, hire-purchase instalments will not be chargeable to interest- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. In view of this legal position, it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in s. 2(7) of the Act and as such, would not be liable to interest-tax. The answer to the question under reference in our humble opinion is. that investments made by way of short-term deposits and also in the form of securities and bonds cannot be considered as loans and advances and as such interest thereon shall be outside the scope of 'interest' defined under s. 2(7) of the Act." 5.4 Respectfully following the order of Special Bench, we confirm the order of CIT(A) and reject the ground taken by the Revenue. 5.5 The second ground relates to the order of the AO treating the income from hire-purchase transactions as interest chargeable to interest-tax, which has been reversed by CIT(A). The assessee submitted before CIT(A) that the AO had examined the hire-purchase agreement an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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