2008 (1) TMI 537 - HC - Income Tax

Whether on the facts and in the circumstances of the case, the amounts of Rs. 23,37,224, Rs. 59,88,360 and Rs. 74,92,486 received by the assessee as export subsidy from the Reserve Bank of India were chargeable as interest under the Interest-tax Act, 1974 for the assessment years 1981-82, 1982-83 and 1983-84 respectively - It is only to make up the loss on interest that the assessee is suffering due to the export credit subsidy scheme that the Reserve Bank of India is compensating the assessee - Any amount received by the assessee from the Reserve Bank of India would be in the nature of export credit subsidy or compensation for loss of interest, by whatever name it may be called - Since the amount received by the assessee is not relatable to a loan or advance given by the assessee to the Reserve Bank of India - Decided in favor of the assessee

Summary

Issues:
Whether amounts received as export subsidy from the Reserve Bank of India are chargeable as interest under the Interest-tax Act, 1974 for specific assessment years.

Analysis:
The case involved a dispute regarding the taxability of amounts received as export subsidy from the Reserve Bank of India under the Interest-tax Act, 1974 for certain assessment years. The Reserve Bank of India had a scheme where nationalized banks provided loans at reduced interest rates to customers, compensated by the Reserve Bank of India through subsidies. The assessee received export subsidies totaling Rs. 23,37,224, Rs. 59,88,360, and Rs. 74,92,486 for the assessment years in question.

The Revenue argued that these subsidies were taxable as interest under the Interest-tax Act, 1974. However, the assessee contended that the subsidies were not interest but rather export subsidies. This argument was rejected by the Assessing Officer, Commissioner of Income-tax (Appeals), and the Income-tax Appellate Tribunal, which referred to a previous order related to a similar issue.

The key question was whether the subsidies received could be considered "interest" as defined in the Interest-tax Act, 1974. The definition of "interest" in the Act included interest on loans and advances made in India, which the assessee had not provided to the Reserve Bank of India. Therefore, the subsidies received were not within the scope of the Act's definition of interest.

The High Court agreed with the assessee, emphasizing that since no loans or advances were extended to the Reserve Bank of India, the received subsidies were in the nature of export credit subsidy or compensation for lost interest. The Court concluded that the Tribunal had erred in considering the subsidies as interest, ruling in favor of the assessee and against the Revenue. Consequently, the question was answered in the negative in favor of the assessee, and the references were disposed of accordingly.