COMMISSIONER OF INCOME TAX Vs. INDIAN OVERSEAS BANK

JUDGEMENT

(1.) THE above tax case appeals are directed against the common order of the Income-tax Appellate Tribunal in ITA. No. 1607/mds/97 and ITA no. 1608/mds/97, dated 16. 7. 2004.

(2.) THE Revenue is the appellant. THE assessment year s involved are 1992-1993 and 1993-94. THE assessee filed its return declaring chargeable interest at Rs. 1,62,05,76,863/- for the period 1. 10. 1991 to 31. 3. 1992. A notice was issued under Section 8 (2) of the Interests Tax Act and on the basis of the details filed, assessment was completed. THE assessee claimed exemption on the interest received from credit institutions at Rs. 1,17,03,966/-and interest on bills discounted at Rs. 5,76,79,379/ -. THE claim of the assessee was negatived, against which an appeal was filed by the assessee before the commissioner of Income-Tax (Appeals), who partly allowed the appeal. Against this, Revenue approached the Tribunal.

(3.) AS far as the second question whether the interest tax collected from the borrowers would form part of the income of the assessee is concerned, the same is squarely covered by the decision of this Court reported in 215 ITR 928 (Commissioner of Income tax Vs. Bank of Madura Ltd.), wherein this Court held thus, ". . . There is no prohibition for the bank to collect the tax payable by it from its borrowers under the various heads for various purposes. The bank was charging interest at 12 per cent on the amount advanced by it to its borrowers. The amount of seven per cent collected from the borrowers is for the purpose of paying tax under the Interest-tax Act. In fact, the collection of these amounts has no nexus with the amount advanced by the assessee-bank to its borrowers. In reality, it is interest on interest. It is stated that there is an oral contract between the borrowers and the bank for the payment of seven per cent on the borrowed amount. The amount collected at seven per cent by the bank was paid as tax under the Interest-tax Act, 1974. The assessee-bank is also offering this seven per cent collection for income-tax purposes and income-tax was levied thereon. The assessee-bank has to pay advance tax every three months. Therefore, the amount collected by the assessee-bank, though it reached its hands, ultimately went into the coffers of the Government. The assessee-bank is not appropriating the said amount for its own benefit. Under the law there is no prohibition for such collection. Thus, considering the facts arising in this case in the light of the judicial pronouncements cited supra, we hold that the Tribunal was correct in holding that seven per cent amount collected by the assessee-bank would not fall under the definition "interest" as stated in section 2 (7) of the interest-tax Act. . . . "