TMI Blog2005 (9) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... endors from whom credit cardholders make purchases and in turn the assessee raises bills on its customers. The customers are required to make the payments by a specified date i.e., 15th of the next month. If payment is not made by the due date, the service charge is debited to the account of cardholders and the same is included in the billing for the next month. Such charges are debited @ 2.5 per cent per month. The assessee was asked by the Assessing Officer to show causes as to why service charges should not be included in the total chargeable interest. The explanation of assessee was that the amount due from the customers cannot be treated as "loans and advances" and, accordingly, the same is not chargeable to tax. Reliance was placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) CIT v. State Bank of Travancore [1997] 228 ITR 40 (Ker.) (iii) CIT v. State Bank of Indore [1988] 172 ITR 24 (MP) (iv) CIT v. United India Roller Flour Mills Ltd. [1985] 155 ITR 358 (Mad.) (v) LIC of India v. Jt. CIT [2002] 82 ITD 749 (Mum.) (vi) Grindlays Bank v. Dy. CIT [2002] 79 TTJ (Delhi) 475. On the other hand, the Learned Departmental Representative has strongly relied on the orders of the lower authorities and the decision of Karnataka High Court relied on by the Learned CIT (Appeals). 4. Rival submissions have been considered carefully in the light of relevant provisions of the Act as well as case law referred to. The term "Interest" in commercial parlance is understood in the widest possible sense, i.e., any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan or borrowed capital and, therefore, interest paid could not be allowed under section 10(2)(vi) of the said Act. Their Lordships observed as under:- "An agreement to pay the balance of consideration due by the purchaser does not in truth give rise to a loan. A loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources. Every creditor who is entitled to receive a debt cannot be p regarded as a lender." The above observations clearly indicate the distinction between interest on a debt and interest on loan/advance. 7. Now, it would be useful to refer to the decision of the Tribunal in the case of Oriental Insurance Co. Ltd. v. Dy. CIT [2004] 89 ITD 520 (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in debt instruments like Government securities, bonds or debentures could not regarded as loan transactions and, therefore, interest on such debt instruments was in exigible to Interest Tax. 10. The Hon'ble Madhya Pradesh High Court in the case of State Bank of Indore, held that though the amount paid by way of compensation for detention of a sum of money due would amount to interest but such interest could not be considered as interest on loans and advances and consequently would not fall within the scope of section 2(7) of the Interest-tax Act. This view was followed by the Tribunal in the case of Store Bank of Hyderabad v. Dy. CIT [1998] 66 ITD 464 (Hyd.) and it was, therefore, held that compensation received on bills of exchange f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Accordingly, we hold that service charges received by the assessee from credit cardholders on overdue payments cannot be considered as interest on loans and advances and consequently the provisions of the Interest-tax Act would not apply to the present case. 12. We are aware that Hon'ble Karnataka High Court in the case of State Bank of Mysore has taken a contrary view. However, the majority opinion is in favour of the assessee to which we agree. Even otherwise, where two views are possible on interpretation of the provisions of a statute, the legal position is that the view favourable to assessee should be adopted in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). Therefore, following the same, the issue has to be decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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