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Issues Involved:
1. Amount of subsidy given by the Reserve Bank of India. 2. Inclusion of compensation received on bills of exchange for delay in payment. 3. Inclusion of inspection charges. 4. Inclusion of interest on securities in the computation of chargeable interest. 5. Interest on balances in the 'protested bills account'. Summary: Issue 1: Amount of Subsidy Given by the Reserve Bank of India The assessee argued that the subsidy received from the Reserve Bank of India for promoting exports should not be charged to interest tax. The Assessing Officer and Commissioner (Appeals) disagreed, citing the Karnataka High Court's decision in CIT v. Vijaya Bank [1989] 175 ITR 611. The Tribunal upheld this view, stating that the subsidy is linked with the loan advanced and should be included in the chargeable interest. Hence, this ground of appeal is dismissed. Issue 2: Inclusion of Compensation Received on Bills of Exchange for Delay in Payment The assessee contended that overdue interest on delayed payments does not constitute interest u/s 2(7) of the Interest-tax Act. The Commissioner (Appeals) disagreed, following the Karnataka High Court's decision in State Bank of Mysore v. CIT [1989] 175 ITR 607. However, the Tribunal sided with the assessee, noting that the Madhya Pradesh High Court's view, supported by the Kerala and Madras High Courts, favored the assessee. The Tribunal concluded that overdue interest is not chargeable under the Interest-tax Act. Hence, this ground of appeal is decided in favor of the assessee. Issue 3: Inclusion of Inspection Charges The assessee argued that inspection charges recovered for verifying stocks and securities should not be included in the chargeable interest. Both the Assessing Officer and Commissioner (Appeals) disagreed. The Tribunal found merit in the assessee's argument, stating that recovery of inspection expenses cannot be termed as interest on loans and advances. Therefore, the inspection charges are not liable to be included in the chargeable interest, and this addition is deleted. Issue 4: Inclusion of Interest on Securities in the Computation of Chargeable Interest The assessee contended that interest on securities should not be equated with interest on 'loans and advances' and thus falls outside the purview of section 2(7) of the Interest-tax Act. The Tribunal noted that the exclusion clause was omitted from section 2(7) with effect from 1st October 1991, indicating that interest on securities is now included in the tax base. The Tribunal upheld the revenue authorities' decision to include interest on securities in the chargeable interest, rejecting the assessee's arguments based on legislative intent and notifications. Hence, this ground of appeal is dismissed. Issue 5: Interest on Balances in the 'Protested Bills Account' The Assessing Officer added notional interest on sticky advances to the chargeable interest. The Commissioner (Appeals) deleted the additions, applying section 43D of the Income-tax Act retroactively. The Tribunal disagreed, citing Supreme Court decisions in State Bank of Travancore v. CIT [1986] 158 ITR 102 and Kerala Financial Corpn. v. CIT [1994] 210 ITR 129, which held that interest accrues even on sticky advances. The Tribunal restored the matter to the Assessing Officer for quantification of the interest after affording an opportunity of hearing to the assessee. Hence, this ground of appeal is allowed for quantification purposes. Conclusion: The appeals are partly allowed, with specific issues decided in favor of the assessee and others in favor of the revenue authorities.
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