TMI Blog1988 (6) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... e said order. On further appeal, the Tribunal held that in respect of tie rediscount, the assessee was entitled to a deduction, but, on the other question, agreed with the Appellate Assistant Commissioner that the interest is charged for the user of the funds beyond the stipulated time and the transaction results in earning of interest within the meaning of section 2(7) of the Interest-tax Act, 1974, and upheld the assessment on this item. Three questions have been referred by the Tribunal for our opinion and they are : "1. Whether, on the facts and circumstances of the case, the overdue interest on the demand bills is 'interest' within the meaning of section 2(7) of the Interest-tax Act, 1974 ? 2. Whether, on the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the second question relating to the rediscounting of bills is concerned, the same is covered by our order in ITRC No. 33 of 1981 disposed of on June 10, 1988 (CIT v. Canara Bank [1989] 175 ITR 601 ). Now, the only question that remains for consideration is whether the overdue interest on the demand bills is "interest" within the purview of section 2(7) of the Interest-tax Act. Sri Sarangan, learned counsel for assessee, relying on a decision of the Madhya Pradesh High Court in CIT v. State Bank of Indore [1988 172 ITR 24 contended that though this sum of money may be interest in its wider sense including both interest proper and interest by way of damages, still the provisions of the Interest-tax Act are not attracted since what can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank itself, at the time of discounting is as disclosed in the letter used to be sent along with the intimation of discount which showed that in case of delayed payment, overdue interest at particular rate had to be collected, if not paid on presentation. These facts are sufficient to hold that the amount in question is interest under section 2(7) of the Interest-tax Act. It is settled law that interest is damages or compensation for delayed payment of money due. Therefore, the expression "compensation" in section 32 of the Negotiable Instruments Act will include interest paid by way of damages or compensation for delayed payments. We have already held that discounting of bills is a form of advance or loan and hence compensation paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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