Interest-tax treatment of overdue receipts: delayed bill discounting, hire purchase and lease rental amounts are not taxable interest.

The definition of "interest" under section 2(7) of the Interest-tax Act, 1974 is exhaustive and is confined to interest on loans and advances, subject only to the statutory inclusions. Overdue amounts received for delayed payment under bill discounting transactions, hire purchase instalments and lease rentals are treated as compensation or liquidated damages for delay, not as interest on loans and advances. The statutory concept cannot be expanded to cover every receipt resembling interest. Accordingly, such overdue receipts are not chargeable to interest tax.

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Issues: Whether overdue interest received on delayed payment relating to bill discounting transactions, hire purchase instalments and lease rental payments is chargeable to interest tax as interest on loans and advances under the Interest-tax Act, 1974.

Analysis: The definition of "interest" in section 2(7) of the Interest-tax Act, 1974 is exhaustive and covers only interest on loans and advances, with only the specific inclusions stated in the provision. Amounts received for delayed payment on bills, hire purchase instalments and lease rentals are in the nature of compensation or liquidated damages for delay and do not arise from loans and advances made by the assessee. The statutory meaning cannot be enlarged to cover every receipt having a similarity to interest. The receipts in question are distinct from interest on loans and advances and are not brought within chargeable interest by the Act.

Conclusion: The overdue interest was not exigible to interest tax and the assessee succeeded on the issue.

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