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TMI Blog2016 (8) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... d to interest tax. Therefore we answer both the questions in favour of assessee and against the revenue. Amount being processing fees, reimbursement charges and damage charges and interest portion of lease rental deleted from the chargeable interest - Held that:- The expenses such as processing fees, damage charges, verification charges, reimbursement charges and lease rent etc are expenses and they cannot be added to the income. The character of the receipts above is not synonymous to interest on loans and advances. Thus, we are of the view that the Tribunal has rightly answered the questions in favour of assessee and against the revenue. - TAX APPEAL NO. 113 of 2007 With TAX APPEAL NO. 112 of 2007 With TAX APPEAL NO. 1303 of 2009 With TAX APPEAL NO. 1304 of 2009 With TAX APPEAL NO. 1305 of 2009 With TAX APPEAL NO. 1054 of 2010 - - - Dated:- 5-7-2016 - MR. KS JHAVERI AND MR. G.R.UDHWANI, JJ. FOR THE APPELLANT : MRS MAUNA M BHATT, ADVOCATE FOR THE OPPONENT : MR MANISH J SHAH, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude from chargeable interest ₹ 9,02,09,133/= being interest paid to NHB on refinance arrangement ? Whether, the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT [A] and thereby deleting the addition of ₹ 2,30,01,009/= being fees and other charges which are in the nature of interest for the loans and advances given ? Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT [A] and thereby deleting the addition of ₹ 19,22,96,972/= being lease rent included in the chargeable interest ? Whether the Appellate Tribunal is right in law and on the facts in setting aside the issue relating to the addition of ₹ 84,28,337/= being interest on debentures and bonds, to the file of the Assessing Officer ? Tax Appeal No. 1304 of 2009 Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by the CIT(A) deleting the addition of ₹ 1,33,81,775/- in respect of interest component of lease rent? Tax Appeal No. 1305 of 2009 Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under: ... The true test for the application of the rule of diversion of income by an overriding charge is whether the amount sought to be deducted in truth never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one s own income which has been received and is since applied. 4.1 Mr. Bhatt submitted that no deduction can be allowed to the assessee as the sections of the Interest Tax Act are very clear. He submitted that the Assessing Officer is therefore justified in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument or, in other words, the person who has received the loan in accordance with the terms and conditions from the point of view of compliance. Even the Industrial Development Bank of India has power to inspect the accounts. 17. Particularly Chapter V of the scheme relating to the procedure for availing of refinance tells us the procedure for repayment of refinance with reference to Clause 1(c) thereof. It is specifically stated there that all the repayment made by the borrowing concerns are passed on to the Industrial Development Bank of India. It is also found therein that even where partial refinance has been granted, the bank (in this case the assessee) may retain the earlier maturities towards repayment of its own participation in the loan and pass on the latter maturities/repayments to the Industrial Development Bank of India. It is emphasised there that alternatively the bank may repay proportionate of such instalment to the Industrial Development Bank of India. It is also further emphasised that the bank must remit instalments of refinance to the Industrial Development Bank of India on due dates regardless of whether or not the individual repayments of instalment loan h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already considered the decision of the Kerala High Court in the case of State Bank of Travancore (supra) and the Tribunal is justified in dismissing the claim raised by the revenue. The concerned amoutn cannot have the legal requirement in terms of Interest Tax Act to be the chargeable interest because it cannot be said that on the said amount interest has accrued or arisen to the credit of the assessee bank. We are supported in this regard by the decision of the Punjab and Haryana High Court in the case of Commissioner of Income Tax vs. Punjab State Industrial Development Corporation reported in [2010] 326 ITR 390 (P H) wherein the Court relied and followed the decision of the Kerala High Court in the case of State Bank of Travancore (supra). 7. Similarly, in the case of Commissioner of Income Tax vs. Bank of Maharashtra reported in [2003] 264 ITR 568 (Bom) , the Bombay High court has observed that when the bank receives interest from its borrower it pays rediscounting charges to the financial institutions participating in their advance. The rediscounting charges do not accrue or arise to the assessee bank and hence they cannot form part of the chargeable interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eresting to notice at this stage that the expression interest is also defined under the Income Tax Act. Section 2(28A) defines interest as follows:- 2. Definitions.--- In this Act, unless the context otherwise requires. [(28A) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized.] 18. It will be noticed that this definition is much wider than that contained in Section 2(7) of the Interest Tax Act, 1974. The expression payable in any manner in respect of any moneys borrowed is an expression of considerable width. It will be noticed that the aforesaid language of the definition section contained in the Income Tax Act is broader than that contained in the Interest Tax Act in three respects. Firstly, interest can be payable in any manner whatsoever. Secondly, the expression in respect of includes interest arising even indirectly out of a money transaction, unlike the word on contained in Section 2(7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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