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Issues: Whether subsidy received by a bank from the Reserve Bank of India under the Export Credit (Interest Subsidy) Scheme, 1968 constitutes "interest" within section 2(7) of the Interest Tax Act, 1974 and is therefore chargeable to interest tax.
Analysis: The definition of "interest" under section 2(7) is confined to interest on loans and advances in India, together with the specific inclusions and exclusions stated therein. Applying the settled principle that fiscal statutes must be construed strictly and that liability to tax must arise from clear words of the charging provision, the amount received as subsidy or compensation for loss on interest could not be treated as interest unless it arose directly from a loan or advance. No loan or advance was made by the assessee to the Reserve Bank of India, and the amount was not within the specific inclusions such as commitment charges or discount on bills. The Court also followed the view that such subsidy is not interest chargeable under the Interest Tax Act.
Conclusion: The subsidy did not constitute "interest" under section 2(7) of the Interest Tax Act, 1974 and was not chargeable to interest tax. The question of law was answered in the negative and the appeal succeeded in favour of the assessee.
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