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TMI Blog1987 (6) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the assessee is entitled to exclude interest paid on participation certificates ? 3. Whether, on the facts and in the circumstances of the case, interest earned on kuri defaults (defaulters) could not be assessed under the Interest-tax Act, 1974 ?" The assessee is a scheduled bank. For the assessment year 1975-76, the assessee filed a return of income under the Interest-tax Act, showing the chargeable interest at Rs. 91,70,200. In the revised return dated November 15, 1977, the chargeable interest was shown as Rs. 91,30,360 after deducting a sum of Rs. 2,75,687 being rediscounting charges on bills paid to the Reserve Bank of India. The assessee also claimed deduction of a sum of Rs. 20,833 representi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a advances only to specific transactions after ascertaining the identity of persons whose bills are discounted, that it is really a joint venture by the assessee and the Reserve Bank of India where the assessee and the Reserve Bank of India share in common ratio the amount of profits paid by the customers. According to him, re-discounting is only a joint venture wherein the finance is provided by the Reserve Bank of India and the transactions are handled and serviced by the assessee. The profits on those transactions are shared between the participants of the joint venture. It is further contended that the participation by the General Insurance Corporation, the Life Insurance Corporation and other re-financing institutions are essentially a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at happened in this case. So Rs. 2,75,685 did not at any time belong to the assessee. It did not accrue to it. It accrued only to the Reserve Bank of India. It is the share of profit of the Reserve Bank of India. It is not deduction from out of what is earned by the assessee. " In the case of participation charges, the Tribunal came to the conclusion that it is also a joint venture like re-discounting. The Tribunal observed : "The participation is in respect of a particular transaction. So it is only a case of sharing the profit like re-discounting done by the Reserve Bank. All that applies to re-discounting applies to the payment for participation. " The above findings regarding the nature of the transactions involved in re-discounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, if the foreman realises any interest, the amount collected by way of interest will not become "interest" under the Interest-tax Act. But the situation in the case of a prized subscriber will be entirely different. In K. P. Subbarama Sastri v. K. S. Raghavan [1987] 2 SCC 424 ; [1987] KLT 753, the court took the view that the subscriber truly and really becomes the debtor for the prized amount paid to him. The subscriber has got the right to discharge that liability in instalments. Therefore, the interest paid by a prized subscriber on defaulted instalments will be interest paid on a loan or advance made by the foreman. Accordingly, the interest realised by the assessee from prized subscribers in the kuri conducted by it should be exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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