A bare reading of s. 2(28A) would reveal that interest is payable in respect of ‘moneys borrowed’ or ‘debt incurred’. It, of course, would include a deposit, claim or other similar right or application of any service fee or other charges in respect of the moneys borrowed or debt incurred. All the subscribers/ members of the chit contribute moneys each month and bid takes place among the members.
The highest bidder is entitled to take the chit, i.e. the money contributed by all the members, after deducting the bid amount offered by him. It is this bid amount which is distributed among all the subscribers/ members equally. Obviously, this amount is not in respect of any moneys borrowed by the assessee or any debt incurred by the assessee. A chit agreement clearly does not fall within the ambit of “money-lending “or”debt incurred” and, therefore, will not be covered by the definition of “interest” as contemplated by the Act.—Shriram Chits & Investment (P) Ltd. vs. Union of India & Ors. AIR 1993 SC 2063 relied on.
From whatever angle the matter is to be looked into, the amount disbursed to the members from their contribution cannot be treated as ‘interest’ . The Tribunal was, thus, right in holding that the assessee had not paid any interest to its subscribers of the chit. The payments made/disbursed to the subscribers/ members were not ‘interest’ and, therefore, the question of deducting any tax at source therefrom would not arise. The Tribunal has rightly held that the assessee was not required to deduct the tax at source within the meaning of s. 194A and as such the assessee was not in default under s. 201.