TaxTMI 
TaxTMI 
2015 (10) TMI 1521
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....loans and advances within the meaning of section 2(7) read with section 2(5), 5 and 6 of the Interest Act, 1974 ?" 3. In proceedings under section 8 of the Interest Tax Act, 1974 (hereinafter referred to as "the Act"), the assessee claimed that the amount of Rs. 4,26,05,914/- and Rs. 5,54,96,239/- for assessment year 1995-96 and 1996-97 respectively, should be excluded from the chargeable interest. According to the assessee, these were not interest earned or received by the assessee from its borrowers and clients but they represented the amount of interest tax on chargeable interest recovered/collected by the assessee from its borrowers/clients and were, therefore, outside the purview of chargeable tax as defined in the Act. 4. The Assessing Officer disallowed the claim mainly on the ground that the assessee had included the said interest in the return and no claim had been made by the assessee on this point by filing even a revised return as also on the ground that in the earlier years, the claim had been disallowed. 5. The Commissioner of Income Tax (Appeals) in the assessee's appeal, held that as per the clarifications issued by the Reserve Bank of India, the banks were advi....
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....erest and deduct interest established to have become a bad debt, and that other than that no other deduction is permissible. It was argued that thus, the explanation gives a complete answer, namely that, except for what is expressly provided therein, there can be no further deduction. According to the learned counsel, the amount that the assessee collects from the borrowers is towards loan and advances and thus, it is the gross amount of interest that is collected and no amount is separately collected towards interest under the Interest Tax Act. It was, accordingly, urged that the Tribunal was not justified in allowing deduction of the amounts collected by the assessee towards interest tax from its consumers. 8. Opposing the appeal, Mr. R. K. Patel, learned counsel for the respondent assessee submitted that the Tribunal has rightly followed the decision of the Madras High Court in the case of Bank of Madura Limited (supra). It was submitted that under the RBI guidelines, the bank has been permitted to recover the interest chargeable under the Interest Tax Act from the borrowers and that the tax collected for payment of interest is not synonymous with interest collected against the....
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....t within the meaning of interest under the Act. However, such contention did not find favour with the Assessing Officer on the ground that no such claim had been made in the return nor was a revised return filed in respect of such claim. The Commissioner of Income Tax (Appeals) held that such amount collected by the bank, over and above, the interest chargeable by it also falls within the ambit of interest as contemplated under the Act. The Tribunal has followed the decision of the Madras High Court in the case of Commissioner of Incometax v. Bank of Madura Limited (supra) and directed that such amounts be deducted from the amount of chargeable interest returned by the assessee. 11. Before adverting to the rival contentions, reference may be made to the relevant provisions of the Act. Sub-section (5) of section 2 of the Act defines, "chargeable interest" to mean the total amount of interest referred to section 5, computed in the manner laid down in section 6. Sub-section (7) of section 2 defines "interest" to mean interest on loans and advances made in India and includes - (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and ....
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.... previous year shall be the total amount of interest (other than interest on loans and advances made to other credit institutions or to any cooperative society engaged in carrying on the business of banking) accruing or arising to the credit institution in that previous year. Thus, chargeable interest is the total amount of interest accruing or arising to the credit institution in the previous year. According to the assessee, what accrues to the bank is the amount of interest chargeable on the loans or advances in terms of the agreement entered into between the parties at the time of giving such loan or advance, whereas, according to the revenue, the amount collected by the assessee from the borrowers towards the interest tax payable on the interest charged on the loan amount also forms part of the chargeable interest. 14. As noted hereinabove, the interest charged by the assessee on the loans and advances given to the customers is in terms of the rates specified in the respective agreement granting such loan or advance. The additional amount towards payment of interest tax in the light of the guidelines issued by the Reserve Bank of India is collected towards payment of interest ....
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....o be application of the income of the assessee. 15. As regards applicability of the explanation to section 6 of the Act, as is sought to be contended by the learned counsel for the revenue, section 6 of the Act provides that in computing the chargeable interest of a previous year, there shall be allowed from the total amount of interest (other than interest on loans and advances made to credit institutions) accruing or arising to the assessee in the previous year, a deduction in respect of the amount of interest which is established to have become a bad debt during the previous year. The explanation thereto provides that in computing the chargeable interest of a previous year, no deduction, other than the deduction specified in the sub-section, shall be allowed from the total amount of interest accruing or arising to the assessee. Therefore, section 6 of the Act provides for computing chargeable interest accruing or arising to the assessee in the previous year. Thus, what is significant are the words, "interest accruing or arising to the assessee" because it is this interest which has to be taken into account while computing the chargeable interest. The question which, therefore, ....