Case Law Details
Brief of the Case
Supreme Court held In the case of State Bank of Patiala vs. CIT that it is well settled that a subject can be brought to tax only by a clear statutory provision in that behalf. Interest is chargeable to tax under the Interest Tax Act, 1974 only if it arises directly from a loan or advance in India. Also the Interest Tax Act, unlike the Income Tax Act, has focused only on a very narrow taxable event which does not include interest payable on default in payment of amounts due under a discounted bill of exchange.
Facts of the Case
The bank makes purchases of bills of exchange from its customers and charges commission thereon for services rendered by it. The discounted bills so purchased are then presented to the parties concerned for realization. If on presentation the bill is realized within time, no charges are levied by the bank. In case the bills are not realized in time but the other party pays the value of the bill beyond the stipulated time, a certain amount in the form of interest is charged by the bank on a fixed percentage basis for every day of default. This amount is credited by the bank in its interest account. Under Section 4 of Interest Tax Act, there shall be charged on every scheduled bank for every assessment year a tax in respect of chargeable interest of the previous year at the rate of 7%.
On these broad facts there is a sharp cleavage of opinion between the High Courts. The Madhya Pradesh High Court, Kerala High Court, Andhra Pradesh High Court, Madras High Court and Rajasthan High Court have all decided that such amounts are not chargeable to tax as “chargeable interest” under the Interest Tax Act. On the other hand, the Karnataka High Court and the Punjab and Haryana High Court have differed from this view and have stated that such amount would be so chargeable.
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