Overriding title in bill rediscounting scheme excludes diverted charges from chargeable interest; only net retention is taxable.

Under a binding bill rediscounting scheme, rediscounting charges diverted at source under an overriding title did not form part of the assessee-bank's chargeable interest under the Interest-tax Act, 1974. The scheme left the bank with only a limited retained margin, and that net amount alone represented its real income and taxable interest. The bank acted merely as an implementing conduit for the redistribution of the charges, so the gross receipt was not wholly attributable to it. Questions of agency and joint venture were unnecessary to decide.

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Issues: Whether the rediscounting charges payable under the bill rediscounting scheme formed part of the assessee-bank's chargeable interest under the Interest-tax Act, 1974, or whether only the net amount retained by the bank was taxable by reason of an overriding title in favour of the Industrial Development Bank of India and the Reserve Bank of India.

Analysis: The scheme created a pre-arranged, integrated financing arrangement under which the assessee-bank could retain only a limited margin, while the rediscounting charges were required to be passed on to the rediscounting institution under the terms of the scheme. The amount diverted at source never became the bank's real income to that extent, and the bank functioned only as a medium for implementation of the scheme. The amount retained by the assessee alone constituted its chargeable interest. The separate questions of agency and joint venture were therefore unnecessary to decide.

Conclusion: The rediscounting charges were not includible in the assessee-bank's chargeable interest; only the net interest retained by it was taxable, and the answer was in favour of the assessee and against the Revenue.

Ratio Decidendi: Where, under a binding financing scheme, a portion of the gross receipt is diverted before it reaches the assessee by an overriding title, that portion does not form part of the assessee's real income or taxable interest.

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