Delhi H.C : Whether export subsidy from the RBI were chargeable to tax as interest ?

High Court Of Delhi

Punjab National Bank Vs. CIT

Assessment Year : 1981-82 to 1983-84

Section : 2(7)

V.B. Gupta And Madan B. Lokur, JJ.

ITR Nos. 330 To 332 Of 1986

January 3, 2008

JUDGMENT

1. The following question of law has been referred for our opinion in respect of the assessment years 1981-82, 1982-83 and 1983-84 :

“Whether on the facts and in the circumstances of the case, the amounts of Rs. 23,37,224, Rs. 59,88,360 and Rs. 74,92,486 received by the assessee as export subsidy from the Reserve Bank of India were chargeable as interest under the Interest-tax Act, 1974 for the assessment years 1981-82, 1982-83 and 1983-84 respectively ?”

2. Under an export credit subsidy scheme floated by the Reserve Bank of India, nationalised banks were required to advance loans to their customers at a lower rate of interest than the normal commercial rate of interest. It was postulated by the Reserve Bank of India that as a result of this, the banks would suffer a short fall in interest earnings and the deficit would be made up by the Reserve Bank of India by way of subsidy. In accordance with this scheme, the assessee granted loans to its customers at a lower rate of interest and for the assessment years that we are concerned with, the export subsidy granted to the assessee was to the extent of Rs. 23,37,224 for the assessment year 1981-82, Rs. 59,88,360 for the assessment year 1982-83 and Rs. 74,92,486 for the assessment year 1983-84.

3. According to learned counsel for the Revenue, this amount was taxable under the Interest-tax Act, 1974, being interest received by the assessee. However, the contention of the assessee was that this was export subsidy received by it and was not interest. Therefore, it was not taxable under the Interest-tax Act, 1974. The view canvassed by the assessee was not accepted either by the Assessing Officer or the Commissioner of Income-tax (Appeals) or by the Income-tax Appellate Tribunal.

4. The Tribunal relied upon an earlier order passed by it in respect of the assessment year 1977-78. The Tribunal has made a reference in this court in respect of the assessment year 1977-78 and that reference is listed as I. T. R. No. 357 of 1984. We are told by learned counsel for the assessee that approval of the Committee on Disputes in respect of that reference has been sought but no decision has yet been taken by the Committee and the broad facts of that reference are also indicated above.

5. In view of the opposing contention, the only question that we are concerned with is whether the amount received by the assessee would fall within the meaning of the word “interest” as defined in the Interest-tax Act, 1974. Learned counsel for the assessee has placed before us the definition of “interest” which appears in section 2(7) of the Interest-tax Act, 1974. It reads as under :

“‘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 ;”

6. It is submitted by learned counsel for the assessee that “interest” as defined in the Act is interest on loans and advances made by the assessee to some entity. It is nobody’s case, and this is admitted by learned counsel for the Revenue, that the assessee gave any loan or advance to the Reserve Bank of India. Consequently, any amount that the assessee received from the Reserve Bank of India cannot be treated as interest simply because it has not given any loan or advance to the Reserve Bank of India. On the other hand, interest received by the assessee on loans and advances given to its customers under the scheme would certainly fall within the definition of “interest” as defined in section 2(7) of the Act. It is only to make up the loss on interest that the assessee is suffering due to the export credit subsidy scheme that the Reserve Bank of India is compensating the assessee. According to learned counsel for the Revenue, there is no interest received by the assessee but only an export subsidy.

7. We are in agreement with the view canvassed by learned counsel for the assessee. Admittedly, no loan or advance was given by the assessee to the Reserve Bank of India. Any amount received by the assessee from the Reserve Bank of India would be in the nature of export credit subsidy or compensation for loss of interest, by whatever name it may be called. But that will not convert the amount received by the assessee from the Reserve Bank of India into “interest” as defined in section 2(7) of the Interest-tax Act, 1974. Since the amount received by the assessee is not relatable to a loan or advance given by the assessee to the Reserve Bank of India.

8. That being the position, we are of the view that the Tribunal erred in taking a decision against the assessee and interpreting the word “interest” as including the amount of export subsidy received by the assessee from the Reserve Bank of India.

9. In the circumstances, we answer the question referred to us in the negative, in favour of the assessee and against the Revenue.

10. The references are disposed of accordingly.

[Citation : 332 ITR 337]

Leave a Reply

Your email address will not be published. Required fields are marked *