- (1.) FOLLOWING substantial question of law has been referred for opinion of this Court by the Tribunal, Chandigarh Bench, "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the amount of liquidated damages received by the assessee by way of compensation on account of delay in payments beyond the days of grace is not interest includible in the chargeable interest for the calculation of interest tax -
(2.) THE assessee is a subsidiary of State Bank of India and is assessed under the Interest -tax Act, 1974 (for short, 'the Act'). The assessee purchased bills of exchange drawn by its constituents and in some cases on account of delay in payment beyond the days of grace received liquidated damages by way of compensation. The assessee claimed that the said amounts represented "damages" and not "interest" and thus, were not exigible to tax under the Act. The AO held that the amounts involved amounted to interest and had been shown as such in the books of account. The amounts in dispute are as under : "Asst. yr. Amount (Rs.) 1977 -78 43,56,900 1978 -79 62,80,210 1979 -80 18,52,291 1981 -82 39,83,346 1982 -83 81,29,854 1983 -84 1,06,04,611 1984 -85 52,40,185 1985 -86 56,74,535 1986 -87 20,03,457".
(3.) ON appeal, the CIT(A) reversed the view of the AO. The Tribunal upheld the said view. Sec. 2(7) of the Act is reproduced below : "2(7) 'interest' means interest on loans and advances made in India and includes - - (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include - - (i) interest referred to in sub -s. (1B) of s. 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills;" ;