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TMI Blog2014 (12) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... while some of the appeals/references are by the revenue and since the facts, controversy and questions involved in all the cases being similar, with the consent of the parties, the bunch of cases are being decided by this common order. 3. Brief facts, which can be noticed, are that the assessee-bank is a subsidiary of the State Bank of India and is in the banking industry for the last several years and is involved in the activity of advancing money and receiving money from various persons. The controversy in all these cases relates to Interest Tax Act, 1974. Following substantial questions of law have been referred to by the ITAT in the reference applications, later on following substantial questions of law have been admitted by this Court u/s 260A and emerge for consideration in the present bunch of references and appeals:- "1. Whether in the facts and circumstances of the case, the ITAT was justified in holding that amount paid by the assessee to the IDBI, RBI on rediscounting of bills are not part of interest income and as such not chargeable to interest tax? & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to RBI/IDBI:- 6. The claim of the bank is that the bank discounts various bills of its constituents (borrowers) and the discount earned on such bills is credited to discount account. The contention of the bank is that some of these bills are passed on to the RBI/IDBI for re-discounting and on such passing of the bills, the bank has to pay discount to the RBI/IDBI thus the discount earned by the bank would be the discount minus re-discount charges paid to RBI/IDBI and thus amount paid is allowable as a deduction out of the total amount earned and only net is to be considered as chargeable under the Interest Tax Act. Learned counsel for the assessee relied upon following judgments in support of his submission:- (1) CIT Vs. State Bank of Indore (1987) 172 ITR 24 (MP); (2) CIT Vs. Canara Bank (1988) 175 ITR 601 (Kar.); (3) CIT Vs. Bank of Maharashtra (2003) 264 ITR 568 (Bom.); (4) CIT Vs. Canara Bank (2007) 293 ITR 115 (SC). 6.1. Per contra, the claim of the revenue is that the said amount, which has been paid to the RBI/IDBI, is not required to be deducted as it is paid separately by the bank and there is no reason or co-relation with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for consideration is with regards to the subsidy received by the assessee from the RBI on export credit loans. It was the claim of the assessee that as per the scheme of the RBI, the assesse bank used to advance money to various exporters to carry out export business. Such advances generally are termed as packing credit and as per the scheme of the RBI, banks are required to charge interest on such advances at the specific rates provided under the said scheme. The RBI would grant subsidy to the bank for the shortfall in interest received from the customer. On perusal of aforesaid facts, it is clear that such subsidy is not received from the customers and is not relatable to what was lended & advanced by the bank, hence it cannot be treated as Interest as provided u/s 2(7) of the Act. Subsidy received from RBI is in the form of support to the bank and cannot be equated to interest. On close perusal of definition of interest, it is borne that only interest on loans and advances made in India is covered. Since loan and advance has not been made to RBI, thus would not come under the purview of Interest, at all. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Canara Bank (1988) 175 ITR 601 (Kar.); CIT Vs. Cholamandalam Investment & Finance Co. Ltd. (2008) 296 ITR 601 (Mad.); CIT Vs. Vijaya Bank (2006) 285 ITR 97 (Kar.); CIT Vs. State Bank of Mysore (2009) 315 ITR 278 (Kar.). 8.2. The contention of the revenue, on the contrary, is that the very nature of the term ''overdue interest'', which is also credited by the assessee under the head interest sufficiently shows that is is taxable u/s2(7) of the Act. The overdue interest is directly related to the advances made by the bank on the purchase of demand bill from its constituents and is certainly liable to be taxed as interest within the definition of Sec. 2(7) of the Interest Tax Act. 8.3. Learned counsel for the Revenue further contended that the "overdue interest" is directly related to the advance made by the bank on the purchases of demand bills from its constituents and once the bank itself admits that it is in the nature of "overdue interest", then there is a direct nexus with the loan and advances made by the assessee bank. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of "interest" under the Interest Tax Act is comprehensive and devoid of any ambiguity. The words employed in the said definition clearly envisage that only the interest on loans and advances is exigible to tax under the Interest Tax Act. The Apex Court has also stated in A.V. Fernandez Vs. State of Kerala (1957) AIR 657 (SC) the following fiscal principle : " If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject cannot be taxed. If on the other hand, the case is not covered within the four corners of the provisions of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter." 8.8. The assessee-bank got right to charge the amount for the delay in payment of bills accrued to the assessee by virtue of the provisions of Sec. 132 of the Negotiable Instrument Act, 1881 and in accordance with the terms of the agreement, that its constituents (borrowers), the bills were pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by various High Courts as quoted above and are not in conformity with the view of Karnataka and Punjab and Haryana High Court and we concur with the view of Madhya Pradesh & Kerala High Court. Recently the Telangana and Andhra Pradesh High Court also had an occasion to consider the same issue in the case of CIT Vs. State Bank of Hyderabad: (2014) 367 ITR 128 and after considering the same issue, as is being examined by this Court and have come to the conclusion that the amount received after due date is not in the nature of interest. 8.12. Accordingly, in our view, the amount received as "overdue interest" in inland/foreign demand bills is not liable to be taxed as interest under the Interest Tax Act and we answer this question in favour of the assessee and against the revenue. (Question No.4): Guarantee Fees Paid to Deposit Insurance and Credit Guarantee Corporation (DICGC):- 9. The contention of the assessee is that the guarantee commission is an incidental service charge which the assessee bank collects from its constituents (borrowers) and passes the same to the Deposit Insurance and Credit Guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n profit or loss to the assessee. Ld. counsel thus contended that the amount as collected was passed on to the DICGC and he further contended that even if it can be termed as interest, then the entire amount was passed on to the DICGC and that if taxed interest at the end of the day, nothing remains with the assessee. 9.2. Per-contra, learned counsel for the revenue contended that the nature of the transaction itself speaks that it is in the nature of interest and was also shown as interest in the books of accounts and when it has been shown by way of interest, character remains the same as that of interest. He further contended that, had it been so, the assessee ought to have credited the said amount which has been charged by the assessee from the constituents (borrower) as incidental charges or service charges for onward payment to DICGC. He also contended that there is nothing on record to show that assessee paid in advance and collected later from constituents and no reason has been assigned, why one would pay in advance when no occasion arose for payment at all, by this, he wanted to bring home to the point that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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