BANK OF INDIA vs. DEPUTY COMMISSIONER OF INCOME TAX

This Appeal under Section 260A of the Income-tax Act, 1961 has been filed by the Assessee and pertains to the assessment year 1992-93. The appeal was admitted on following substantial question of law :- Whether on the facts and in the circumstances of the case the Tribunal was justified in coming to the conclusion that the subsidy of Rs.12,93,55,595/- received by the Appellant from Reserve Bank of India under the Export Credit (Interest Subsidy) Scheme, 1968 forms part of assessable interest under section 2(7) of the Interest Tax Act, 1974. 1 of 7

Facts giving rise to filing of this appeal are that the Appellant is a Public Sector Banking Company formed with the principal object of engaging in banking activity which inter alia comprising of receiving deposits from the public and deploying such deposits with borrowers as advances with a view to earn interest income. The Assessee filed return of income for the year 1992-93 and declared net chargeable interest at Rs.4,46,54,29,457/-. In the said return Assessee did not include the interest subsidy of Rs.12,93,55,596/- as chargeable interest tax on the interest subsidy of Rs.12,93,55,595/- received from the Assessee from the RBI under Export Credit (Interest Subsidy) Scheme, 1968 (the Scheme). The Assessor computed

Learned counsel for the Assessee while inviting the attention of this Court to Section 2(7) of the Act submitted that amount of subsidy received by the Assessee from the RBI on the Scheme cannot be treated as ‘interest’ under Section 2(7) of the Act. It is submitted that the issue involved in the instant appeal is no longer res integra. In support of the aforesaid submission reliance has been placed on decisions of the Supreme Court in State Bank of Patiala V/s. Commissioner of Income -Tax2 and Muthoot Leasing and Finance Ltd. and Another V/s. Commissioner of Income-Tax3. It is pointed out that issue has been answered in favour of the Assessee by the Division Bench of Delhi High Court in Punjab National Bank V/s. Commissioner of Income-Tax4. It is further pointed out that the Special Leave Petition preferred by the Revenue against aforesaid decision has been dismissed by the Supreme Court. In support of his submission reference has also been made to another decision of the Division Bench of 2 (2016) 383 ITR 244(SC) 3 (2023) 450 ITR 496 (SC)

We have considered the rival submissions made by both the learned counsel appearing for the parties and perused the records. 5 (2010) 2 taxmann.com 137 (Delhi) 6 (2015) 63 taxmann.com 103 (Rajasthan)

The solitary question for consideration is whether the amount of subsidy received by the Assessee from RBI under the Scheme can be treated as ‘interest’ as defined under Section 2(7) of the Act. Before proceeding further it is apposite to take note of Section 2(7) of the Act, which reads as under:- 2(7) “interest” means 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 (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934(2 of 1934); (ii) discount on treasury bills;

The Supreme Court in State Bank of Patiala (supra) dealt with Section 2(7) of the Act and inter alia; held that unlike the Income Tax Act in a very narrow taxable event which does not include within its ken interest payable on default in payment of amounts due under a discounted bill of exchange. In paragraph 15 it was held as under: “15 …In our view, the scope and definition of the term 'interest' cannot be interpreted to bring within its fold any income that is booked by an assessee under the head interest. The character of an overdue bill is not synonymous with the loans and advances and, therefore, 5 of 7

In Muthoot Leasing and Finance Ltd. and Another (supra), it was inter alia; held that character of overdue bill is not synonymous to loans and advances and therefore, it will not fall within the scope and ambit of interest under Part-I of Section 2(7) of the Act. It was further held that interest is chargeable to tax under the Act only if it arises directly from a loan or advance and not otherwise. It is well settled in law that in construing fiscal statutes and in determining the liability of the subject to tax one must have regard to the strict letter of law. It is equally well settled legal proposition that if a case is not covered within the four corners of provision of taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature. [SEE : AV FERNANDEZ VS. STATE OF KERALA, AIR 1957 SC 657]. It is equally settled proposition in law that before taxing any person it must be shown that he falls within ambit of charging section by clear words used in the Section. [SEE : COMMISSIONER OF WEALTH TAX, 120.]

In the backdrop of aforesaid principles, we may now revert to the facts of the case in hand. In the instant case, no 6 of 7