Interest on bonds and debentures falls outside interest tax where the statute limits taxable interest to loans and advances.

Interest earned from bonds and debentures was held outside the charging provision of the Interest Tax Act, 1974 because section 2(7) confines "interest" to interest on loans and advances made in India, with limited statutory inclusions and exclusions. Investment in bonds or debentures was not treated as a loan or advance, so the receipts did not attract interest tax. The Court further stated that a departmental instruction cannot override or control the plain construction of the statute.

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Issues: Whether interest earned from bonds and debentures is exigible to interest tax under the Interest Tax Act, 1974.

Analysis: The assessee was a financial company and the receipts in question were interest from debentures and bonds. The definition of "interest" in section 2(7) of the Interest Tax Act, 1974 was confined to interest on loans and advances made in India, with specified inclusions and exclusions. On a plain reading, investment in bonds or debentures could not be treated as a loan or an advance. The Court held that the legislative scheme did not bring such interest within the charging provision, and the departmental instruction relied upon could not control the construction of the statute.

Conclusion: Interest earned from bonds and debentures is not chargeable to interest tax under the Interest Tax Act, 1974.

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