9911796707
TMI Blog2006 (9) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... has been referred for opinion of this court by the Income-tax Appellate Tribunal, Chandigarh Bench, arising out of its order dated May 17, 1993, in respect of the assessment years 1977-78 to 1979-80 and 1981-82 to 1986-87: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the amount of liquidated damages received by the assessee by way of compensation on account of delay in payments beyond the days of grace is not interest includible in the chargeable interest for the calculation of interest tax?" 2. The assessee is a subsidiary of State Bank of India and is assessed under the Interest-tax Act, 1974 (for short, "the Act"). The assessee purchased bills of exchange drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (ii) discount on treasury bills ;" 5. The issue was considered by a Division Bench of the Karnataka High Court in State Bank of Mysore v. CIT [1989] 175 ITR 607. Rajendra Babu J.. (as his Lordship then was), after considering a contrary view taken by the Madhya Pradesh High Court in CIT v. State Bank of Indore [1988] 172 ITR 24, observed as under (page 610) "When the bank discounts a bill, what happens is that the drawee gets a credit from the bank to the extent of the amount covered by the bill. This position has been explained in Law of Banking by Paget , 9th edition, at page 415, thus 'The discount of a bill is the purchase of it with, normally, a right of recourse and for a sum less than its face value. The discou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on loans and advances. Discount on bill is a form of advance or loan granted by a bank to its customer and if that be the true position as indicated by Paget, any amount collected by the bank for delayed payment of that amount cannot be anything but interest, whatever may be the nomenclature, and is chargeable interest for the purpose of the Interest-tax Act. With great respect to the learned judges of the Madhya Pradesh High Court, we cannot subscribe to their view that discounting of bills is not a means of lending. In any event, in the present case, there is a specific agreement between the parties to pay overdue interest at a particular rate if the amount is not paid on presentation of the bill within the time stipulated. When ..... X X X X Extracts X X X X X X X X Extracts X X X X
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