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TMI Blog1988 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 80,55,976 representing the rediscounting interest paid on bills did not accrue or arise to the assessee-bank by reason of diversion of such discount through an overriding title in favour of the Reserve Bank of India and the Industrial Development Bank of India and hence did not form part of the chargeable interest under the provisions of the Interest-tax Act, 1974 ? (2) Whether, on the facts and In the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the transaction between the assessee and the Industrial Development Bank of India in connection with rediscounting of bills under the scheme of refinancing by the Industrial Development Bank of India and a similar scheme of the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal by the assessee, the Appellate Assistant Commissioner came to the conclusion that on the discounting of the bills, the assessee is taking the discount as income in its books and the subsequent rediscounting with the Industrial Development Bank of India is only for obtaining the liquid resources necessary for the bank to continue its discounting operations. Hence, it is only in the nature of payment of interest on loans borrowed which is not allowable as deduction. The Appellate Assistant Commissioner further held that it is only part of the refinancing scheme in which the assessee was not acting as an agent of the Reserve Bank of India/Industrial Development Bank of India in respect of the said bills. On these grounds, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Development Bank of India and the assessee-bank joined together in working out the scheme. In this view of the matter, the assessee's claim that the sum of Rs. 80,55,976 is not chargeable to tax was upheld. The matter will have to be examined in the light of the following aspects which have been highlighted during the arguments of learned counsel for the parties, viz., (i) that the transaction under the scheme is in the nature of a joint venture ; (ii) that the assessee acts as an agent of the Industrial Development Bank of India under the scheme ; and (iii) that there is an overriding title in favour of the Industrial Development Bank of India in respect of the gross interest received by the assessee-bank. It is urged by Sri. K. Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice the salient features of the scheme which is admittedly the basis of the transactions under which the disputed interest has accrued. The bills rediscounting scheme was introduced in April 1965, in terms of the powers vested in the Industrial Development Bank of India under section 9(1)(b) of its statute, which authorises it to accept, discount or rediscount bills of exchange, promissory notes of industrial concerns subject to such conditions as may be prescribed. The objective of the scheme is two-fold, i.e., to push up the sales of indigenous machinery/ capital equipment by offering to the prospective purchasers/users deferred payment facilities. While the manufacturers get the value of the machinery within a few days of delivery by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt paid to the bank. If, on discounting the bills, any excess amount is found to have been charged, the same should be refunded to the purchaser through the discounting bank. The Industrial Development Bank of India has thus the right to refuse rediscounting of bills of such manufacturers/ sellers who do not strictly comply with these requirements. Certain guidelines are also prescribed under Chapter-V of the scheme, which discloses that the scheme is designed to provide a quick and simple means to give financial assistance to the manufacturers of indigenous machinery. Every bill or promissory note is required to be accepted and made payable at two alternate places, viz., certain offices of the discounting banks as prescribed and the corre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n before the said amount reached the hands of the assessee, it was impressed with the character of rediscount charges payable to the Industrial Development Bank of India. We are fortified in our view by the decision of the Madhya Pradesh High Court in CIT v. State Bank of Indore [1988] 172 ITR 24, wherein it was held that "Under the Bills Rediscounting Scheme, when bills were rediscounted by the assessee, there was an overriding title of the Industrial Development Bank of India and the assessee had to part with a portion of the discount charges." The Scheme, viewed as a whole, makes it clear that the assessee-bank is only a medium or a conduit pipe for the disbursement of the development fund for the implementation of the scheme for which i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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