TMI Blog1987 (11) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the assessment years 1975-76 to 1979-80 and 1981-82. During these assessment years, the assessee had, in its ordinary course of business, purchased bills of exchange drawn by its constituents and in some cases, on account of delay in payment beyond the days of grace, the assessee received liquidated damages by way of compensation. This amount, it was claimed by the assessee in the assessment proceedings under the Interest-tax Act, was not interest on loans and advances and was not, therefore, exigible to tax under the Interest-tax Act. The assessee further contended that the assessee had to pay to the Industrial Development Bank of India rediscounting charges and after adjusting that amount against the discount charges recovered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from interest on bills purchased under the Interest-tax Act for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82 ? " At the time of hearing, the aforesaid question of law referred at the instance of the Revenue was reframed by us as follows with a view to bring out the real issue between the parties : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts paid by the assessee to the Industrial Development Bank of India as rediscounting charges were not exigible to tax under the Interest-tax Act for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82, while computing the assessee's income from interest on bills purchased by it during the assessment years in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al plant and machinery outside India; (v) interest on any loan in foreign currency sanctioned by any Corporation or bank referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (9) for the import of capital plant and machinery from a country outside India." The first question that arises for consideration is whether the amounts charged by the assessee for delayed payment of bills can be said to be interest on loans and advances. The Tribunal was of the view that as the assessee had treated the amount in question in its books of account as interest and as in the agreements entered into between the assessee and its constituents relating to discounting of the bills, the constituents were referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed damages by way of compensation, as stipulated in the agreement. The right to charge that amount by the assessee did not, therefore, arise on account of any delay in repayment of any loan or advance made by the assessee. That right accrued on account of default in the payment of the bills. It may be that the amount payable by way of compensation for detention of a sum of money due, can be said to be covered by the expression " interest " in its widest sense, including both interest proper and interest by way of damages. But the provisions of the Interest-tax Act are attracted only in the case of interest on loans and advances. The amount charged by the assessee for delayed payment of bills cannot be held to be " interest on loans and adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me when bills were discounted by the assessee, there was an overriding title of the Industrial Development Bank of India and the assessee had to part with a portion of the discount charges. In our opinion, therefore, on the facts and in the circumstances of the case, the amounts paid to the Industrial Development Bank of India as rediscounting charges could not be held exigible to tax under the Interest-tax Act. For all these reasons, our answer to the question referred at the instance of the assessee is in the negative and in favour of the assessee. Our answer to the question referred at the instance of the Revenue and reframed by us is in the affirmative and in favour of the assessee. In the circumstances of the case, parties shall bea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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