Bank of India Vs DCIT (Bombay High Court)
In a significant ruling for the banking sector, the Bombay High Court has declared that the Export Credit (Interest Subsidy) Scheme, 1968, subsidy received by banks from the Reserve Bank of India (RBI) cannot be treated as ‘interest’ chargeable under Section 4 of the Interest Tax Act, 1974. This decision, stemming from an appeal filed by Bank of India against the Deputy Commissioner of Income Tax (DCIT) for the assessment year 1992-93, overturns previous rulings by tax authorities and the Income Tax Appellate Tribunal (ITAT).
The case revolved around whether an amount of Rs. 12,93,55,595/-, received by Bank of India as an interest subsidy from the RBI, constituted ‘assessable interest’ under the Interest Tax Act. The bank, a public sector banking company primarily engaged in receiving deposits and deploying them as advances to earn interest, had excluded this amount from its declared net chargeable interest of Rs. 4,46,54,29,457/-, arguing it did not fall within the scope of Section 4 of the Act. However, the Assessing Authority, in its order dated March 24, 1995, relied on a decision of the Karnataka High Court in CIT vs. Vijaya Bank (1989) 175 ITR 811 to include the subsidy. This inclusion led to the assessment of chargeable interest at Rs. 705,64,57,822/- for the bank. This decision was subsequently affirmed by the Commissioner of Income Tax (Appeals) on January 31, 1996, and later by the Income Tax Appellate Tribunal on January 15, 2003, which also relied on the Vijaya Bank judgment and past orders in Bank of India’s own cases for previous years. This consistent affirmation by lower tax authorities set the stage for Bank of India’s appeal to the Bombay High Court under Section 260A of the Income-tax Act, 1961. The core question before the High Court was “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.”
