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Issues involved: Determination of whether the interest component of a finance leasing amount received by the assessee bank is liable to be included in 'chargeable interest' under section 2(7) of the Interest-tax Act, 1974 for the assessment years 1996-97 to 1998-99.
Summary: Issue 1: Nature of Lease Transactions The assessee, a nationalized bank, engaged in leasing transactions where assets were claimed to be owned by the bank for depreciation purposes. Revenue contended that these transactions were de facto finance transactions with actual ownership vested in the lessee, leading to a portion of lease rentals being treated as interest receipts. The dispute centered on whether the interest earned from such transactions should be considered 'chargeable interest' under the Act. Issue 2: Interpretation of 'Interest' Section 2(7) of the Act defines 'interest' as interest on loans and advances made in India, with specific inclusions. The Tribunal analyzed whether the interest component of a finance leasing transaction could be categorized as 'interest on loans and advances'. Previous decisions highlighted the distinction between finance transactions and loans/advances, emphasizing that finance leasing, while involving interest-like payments, did not equate to interest on loans and advances. Decision: After considering the legal position and factual matrix, the Tribunal concluded that finance leasing, though containing interest elements, did not meet the criteria of 'interest on loans and advances' necessary for inclusion in 'chargeable interest' under the Interest-tax Act. The Tribunal directed the Assessing Officer to exclude the lease rental component attributable to interest from the taxable 'chargeable interest', granting relief to the assessee. The appeals were allowed based on this determination.
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