VIJAYA BANK Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference two questions have been referred to us for our opinion by the income Tax Appellate Tribunal, Bangalore Bench, Bangalore, and they are as under:

(2.) The first question is referred at the instance of the revenue and the second question is referred at the instance of the assessee. So far as the answer to the first question is concerned, it is concluded by a decision of this Court in I.T.R.C. No. 33 of 1981 decided on 10-6- 1988 (Cl.T. v. Canara Bank) and therefore, we answer the same in the affirmative and against the revenue.

(3.) So far as the second question is concerned, the facts are as follows : In the course of the banking activities, the assessee advances money on export at the shipment stage. The Reserve Bank of India subsidises interest if the lending Bank charges interest at a specified rate lower than the normal rate of interest under the scheme known as "The Export Credit (Interest Subsidy) Scheme. 1968 (heremafier referred to as the Scheme). To make up the loss of interest to a certain extent on such transactions the Reserve Bank of India gives subsidy. The assessee claimed before the I.TO. for the relevant years in question that this amount given as subsidy by R.B.I, under the scheme is not taxable because it represents the subsidy and not interest and therefore was not chargeable to tax under the Interest Tax Act. It was contended that it is only the interest paid on loans and advances and not other forms of payment that was the subject matter of tax under the said Act. it was further contended that the subsidy does not really cover the difference between the normal rate of interest and the rare actually applied. Interest is only a compensation allowed by law or contracted by parties for the use or detention of money The subsidy is paid not by the borrower but by a different agency and hence is not interest paid loan or advance.