2002 (8) TMI 270 - AT - Income Tax

Summary

Issues Involved:
1. Inclusion of interest on debentures, bonds, and securities in chargeable interest u/s 2(7) of the Interest Tax Act.
2. Inclusion of export subsidy as interest chargeable to Interest Tax.

Issue 1: Inclusion of Interest on Debentures, Bonds, and Securities

The assessee, Punjab National Bank, challenged the inclusion of interest on debentures, bonds, and securities in the computation of chargeable interest under the Interest Tax Act. The Assessing Officer (AO) included such interest based on the amended definition of "interest" u/s 2(7) of the Interest Tax Act, effective from 1-10-1991, which did not exclude interest on securities, unlike the earlier version of the Act. The CIT(A) upheld the AO's decision, rejecting the assessee's reliance on the Finance Minister's speech and the definition of interest on securities under the Income Tax Act.

The Tribunal considered the arguments from both sides, including reliance on the Madras High Court decision in Lakshmi Vilas Bank Ltd., which held that interest on securities, bonds, and debentures does not constitute interest on loans and advances. The Tribunal also noted the Bangalore Bench's decision in Canara Bank Ltd., which supported the assessee's view.

The Tribunal concluded that the majority view of various coordinate benches, including Bangalore, Mumbai, Allahabad, and Delhi, was in favor of the assessee. It held that interest on securities, bonds, and debentures could not be classified as "interest on loans and advances" and thus was not chargeable under the Interest Tax Act. The Tribunal emphasized judicial propriety and followed the majority view, rejecting the contrary decision of the Hyderabad Bench in State Bank of Hyderabad.

Issue 2: Inclusion of Export Subsidy as Interest Chargeable to Interest Tax

The assessee also contested the inclusion of Rs. 19,17,224 received towards export subsidies as interest chargeable to Interest Tax. The Tribunal referred to the Karnataka High Court decision in CIT v. Vijaya Bank, which held that export subsidy is interest u/s 2(7) of the Interest Tax Act and is to be included in chargeable interest. Following this precedent, the Tribunal upheld the CIT(A)'s decision to include the export subsidy in chargeable interest.

Conclusion:

The Tribunal partly allowed the appeals, deciding in favor of the assessee on the issue of interest on debentures, bonds, and securities, and against the assessee on the issue of export subsidy.