Interest Tax Act scope excludes penal interest on delayed recurring deposit instalments as it is not a loan or advance.

Penal interest charged by a bank on delayed instalments in recurring deposit accounts is not chargeable to tax under the Interest Tax Act, 1974. The statutory definition of "interest" is confined to interest on loans and advances made in India, and the delayed instalment obligation in a recurring deposit does not constitute a loan or advance from the bank to the depositor. On that basis, penal interest arising from late payment falls outside the chargeable field under the Act and is not exigible to tax.

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Issues: Whether penal interest charged by a bank on delayed instalments in recurring deposit accounts is chargeable to tax under the Interest Tax Act, 1974.

Analysis: The definition of "interest" under Section 2(7) of the Interest Tax Act, 1974 is confined to interest on loans and advances made in India, with limited inclusions that do not cover the present levy. The delayed instalment in a recurring deposit account is only a depositor's commitment and does not represent a loan or advance from the bank to the depositor. The penal interest charged for late payment therefore does not answer the statutory description of chargeable interest under the Act.

Conclusion: The penal interest on delayed payment of recurring deposit instalments is not exigible to tax under the Interest Tax Act, 1974, and the issue is decided against the Revenue and in favour of the assessee.

Ratio Decidendi: Under the Interest Tax Act, 1974, only interest on loans and advances made in India constitutes chargeable interest, and penal interest arising from delayed recurring deposit instalments is outside that statutory field.

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