TMI Blog1988 (7) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion by the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, and they are as under : "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 3,73,494 is not liable to be included in the computation of chargeable interest ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows In the course of its banking activities, the assessee advances money on export at the shipment stage. The Reserve Bank of India subsidises interest if the lending bank charges interest at a specified rate lower than the normal rate of interest under the scheme known as The Export Credit (Interest Subsidy) Scheme, 1968 (hereinafter referred to as "the Scheme"). To make up the loss of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subsidy is paid not by the borrower but by a different agency and hence is not interest paid on loan or advance. In view of the definition of the term "interest" under section 2(7) of the Interest-tax Act, 1974 (hereinafter referred to as "the Act"), interest will only mean and include the amount paid on loans and advances. Clause 2(i) of the Scheme reads as follows : "2. The rate of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of the advance or of the grant of the credit, whichever is the earliest." This clause clearly discloses that the subsidy is paid by the Reserve Bank of India to offset a part of the loss incurred by the assessee as result of charging interest at a rate lower than the normal rate of interest. If only the borrower had been allowed to pay at normal rate of interest to the bank and if he had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the subsidy is made towards interest and, therefore, the payment made by the Reserve Bank of India to the assessee is nothing but interest. As to the question whether the payment made by the person other than the borrower could be treated as interest, it is obvious that consideration can flow from a person other than the borrower (in the present case, the Reserve Bank of India) and thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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