TMI Blog1989 (5) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The assessee appealed and contended that interest paid by the assessee to Agricultural Refinance Development Corporation and Industrial Development Bank of India amounting to Rs. 8,65,362 should be taken into account in determining the chargeable interest. 3. For the assessment year 1982-83, corresponding to the previous year ended 31-12-1981, the amount in dispute is Rs. 17,75,019. The CIT (Appeals) agreed with the IAC (Assessment) that there is no provision for deducting the interest paid by the assessee in computing the chargeable interest and that it could not be said that the interest paid by the assessee amounted to diversion of income by overriding title. Therefore, he confirmed the assessment on this point. 4. In the furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be utilised for execution of certain projects. The manner of utilisation was to re-lend the amount to the agricultural Refinance Development Corporation which will under a subsidiary loan agreement give it to participating banks which will process the loan applications of the ultimate beneficiaries. The agreement stipulates various conditions for carrying out the project and has as its annexure a project agreement which states that the terms and conditions under which the ARDC will enter into subsidiary loan agreements. The agreement shows that the ARDC shall at all times manage and maintain its financial position by complete information and control over the participating banks which are required to maintain separate accounts for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be on 7 years for pump-sets and 15 years for all other minor irrigation and land development loans and for other 7 years for pump-sets and 9 years for minor irrigation projects and for other beneficiaries it will be 15 years for the minor irrigation investments. An important stipulation is that the loans shall not be re-payable on demand. 6. The agreement between the assessee and the IDBI is dated 23-8-1978 and contains stipulations which are almost the same as that with the ARDC Here again refinancing is given in the form of loans at the stipulated rate of interest and the IDBI maintains complete control and requires the assessee to keep a separate account and furnish full information as well as assign security taken for the loans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re satisfied that only the net amount of interest accrued to the assessee. 8. It was contended on behalf of the revenue relying on the decision in the case of CIT v. Canara Bank [1989] 175 ITR 601/24 Taxman 254 (Kar.) that unless diversion by overriding title is established as in that case the amount paid to the re-financing institutions could not be excluded from the chargeable interest. But we find that that decision which has followed the decision of the Madhya Pradesh High Court in CIT v. State Bank of Indore [1988] 172 ITR 24 actually supports our conclusion. Those cases related to the bills re-discounting scheme of the IDBI where it was found that when the bills were re-discounted there was an overriding title to the IDBI. It was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that only the net interest accrued to the bank and, therefore, in computing the chargeable interest the amounts paid to the IDBI and the ARDC should be taken into account. We direct accordingly. 9. The assessee had received interest from Co-operative Land Development Bank amounting to Rs. 3,842, Rs. 12,751 and Rs. 42,375 in the previous years relevant to the assessment years 1979-80, 1981-82 and 1982-83 respectively. The contention of the assessee is that this interest is received on debentures issued by the said bank and was to be assessed as income from security in the income-tax assessment and therefore to be excluded from the interest under the Interest Tax Act. The CIT (Appeals) accepted this contention. The revenue is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n should be denied. But we find that the CIT (Appeals) has taken note of the fact that while under the Income-tax Act the ITO had a discretion to allow the bad debt in the year of write off or in another year there is no such discretion under the Interest Tax Act. We also find from the facts narrated above that the debt had actually been established or become bad in the previous year and has also been written off in the accounts before presentation to the annual general body meeting. Hence we see no reason to differ from the finding of the CIT (Appeals) and we accordingly confirm his order on this point. 11. In the result, the appeals of the assessee are allowed and the appeals of the revenue are dismissed. - - TaxTMI - TMITax - Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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