LexM/S. STATE BANK OF PATIALA THROUGH GENERAL MANAGER versus COMMISSIONER OF INCOME TAX, PATIALA
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2015] 12 S.C.R. 243
M/S. STATE BANK OF PATIALA THROUGH GENERAL
A
MANAGER
v.
COMMISSIONER OF INCOME TAX, PATIALA
(Civil Appeal Nos.5212-5220 of2007)
NOVEMBER 18, 2015
[A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
Interest Tax Act, 1974:
B
c
s.2(7) - Interest payable on default in payment of
amounts due under the discounted bill of exchange -
Liability to pay tax on such interest under the Act of 1974-
Held: Tax not payable - Interest is chargeable to tax under
the Interest Tax Act only if it arises directly from a loan or D
advance - This is clear from the use of the word "on" ins. 2(7)
of the Act -
Interest payable "on" a discounted bill of
exchange cannot therefore be equated with interest payable
"on" a loan or advance.
s.2(7)- Guarantee fees paid to the Deposit Insurance
and Credit Guarantee Corporation does not form part of
definition of interest ins. 2(7) of the Act of 197 4.
E
Words and phrases: Expression 'means and includes'
- Connotation of.
F
Dismissing the appeals of revenue and allowing the
appeals of assessee, the Court
HELD: 1. The definition of interest contained in the G
Interest Tax Act, 197 4 is a narrow one, and is exhaustive
as it is a 'means and includes' definition. [Para 7] [249-A]
P Kasilingam v. PS. G. College of Technology
1995 (2) SCR 1os1 :1995 Supp (2) sec 348 -
relied on.
H
243
244
SUPREME COURT REPORTS
[2015] 12 S.C.R.
A
2. When default of payment takes place, the
acceptor of the bill of exchange is bound to compensate
any party to the bill for any loss or damage sustained by
him and caused by such default. In most cases such
loss or damage is a liquidated amount which can be
B calculated from the rate mentioned on the face of the bill
of exchange. The interest on which tax is payable under
the Interest Tax Act is primarily on loans and advances
made in India. By a deeming fiction, discount on bills of
exchange made in India is also included. It is clear,
C therefore, that discount on bills of exchange would
obviously not come within the expression "loans and
advances made in India", and consequently any amount
that becomes payable by way of compensation after a
0 bill is discounted by the Bank would not be an amount
which would be "on loans and advances made in India".
[Paras 9, 10) [250-0-G]
3. Section 2(7) itself makes a distinction between
loans and advances made in India and discount on bills
E of exchange drawn or made in India. It is obvious that if
discounted bills of exchange were also to be treated as
loans and advances made in India there would be no
need to extend the definition of "interest" to include
F discount on bills of exchange. "Loans and advances"
has been held to be different from "discounts" and the
legislature has kept in mind the difference between the
two. It is, therefore, clear that the right to charge for
overdue interest by the assessee banks did not arise on
G account of any delay in repayment of any loan or advance
made by the said banks. That right arose on account of
default in the payment of amounts due under a
discounted bill of exchange. It is well settled that a
subject can be brought to tax only by a clear statutory
H provision in that behalf. Interest is chargeable to tax
MIS. STATE BANK OF PATIALA THROUGH G. M., v. CIT,
245
PATIALA
under the Interest Tax Act only if it arises directly from a A
loan or advance. This is clear from the use of the word
"on" in Section 2(7) of the Act. Interest payable "on" a
discounted bill of exchange cannot therefore be equated
with interest payable "on" a loan or advance. [Paras 15,
16] [258-A-B, 259-E-F]
B
4. The expression "interest" is also defined under
the Income Tax Act in Section 2{28A). The said definition
is much wider than that contained in Section 2(7) of the
Interest Tax Act, 1974. The expression "payable in any C
manner in respect of any moneys borrowed" is an
expression of considerable width. The said language
of the definition section contained in the Income Tax Act
is broader than that contained in the Interest Tax Act in
three respects. Firstly, interest can be payable in any D
manner whatsoever. Secondly, the expression "in
respect of' includes interest arising even indirectly out
of a money transaction, unlike the word "on" contained
in Section 2(7) which connotes a direct arising of
payment ofinterest out of a loan or advance. And thirdly, E
"any moneys borrowed" must be contrasted with "loan
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