Commissioner of Income Tax vs Cholamandalam Investment and Finance Co. Ltd.

P.D. Dinakaran, J.—The above tax case appeals are directed against the order of the Income Tax Appellate Tribunal in I.T.A. Nos. 70 to 74/Mds/2002, dated February 28, 2006, raising the following common substantial question of law:

Whether, in the facts and circumstances of the case, the Tribunal was right in excluding additional discount charges from the chargeable interest under the Interest-tax Act, 1974?

The assessee, a non-banking finance company, excluded additional discount charges from chargeable interest for all the assessment years, but the Assessing Officer added the same as chargeable interest u/s 2(7) of the Interest-tax Act.

The Commissioner of Income Tax (Appeals), on appeal, held that the additional discount charges are not chargeable interest under the Interest-tax Act. The Appellate Tribunal, on appeal, confirmed the order of the Commissioner of Income Tax (Appeals). Hence, the present appeal raising the substantial question of law referred supra.

To decide the issue whether the additional discount charges are not liable to tax under the Interest-tax Act, it is useful to refer the decision in Commissioner of Income Tax Vs. State Bank of Travancore, , wherein the Kerala High Court held that the character of an overdue bill is wholly distinct from loans and advances and the interest on the loans and advances alone is taxable under the Interest-tax Act and the character of an overdue bill is not synonymous with loans and advances and therefore, the interest on overdue bills is to be excluded from chargeable interest under the Interest-tax Act.

Applying the above ratio to the facts of the case, we hold that the Interest-tax Act is attracted only in respect of interest on loans and advances and the additional discount charges which is an amount given as a premium, would not attract the provisions of the Interest-tax Act. The Appellate Tribunal is therefore correct in excluding additional discount charges from the chargeable interest under the Interest-tax Act.

Finding no substantial question of law that arises for our consideration, the appeals are dismissed at the admission stage itself.