Law:

Section:

Section 2(7) of the Interest-tax Act, 1974 - Interest - Assessment years 1977-78 to 1979-80 and 1981-82 to 1986-87 - Whether amount of liquidated damages received by assessee by way of compensation on account of delay in payments of bill of exchange beyond days of grace is interest includible in chargeable interest for calculation of interest tax - Held, yes FACTS The assessee-bank 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. The Assessing Officer, however, held that the amounts involved amounted to interest. On appeal, the Commissioner (Appeals) reversed the order of the Assessing Officer. On further appeal, the Tribunal upheld the order of the Commissioner (Appeals). On reference : HELD In view of the decision of the Karnataka High Court in State Bank of Mysore v. CIT [1989] 175 ITR 607/[1988] 41 Taxman 275, the Tribunal was not 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 of bill of exchange beyond the days of grace was not interest includible in the chargeable interest for the calculation of interest-tax. [Paras 5 and 6] CASES REFERRED TO State Bank of Mysore v. CIT [1989] 175 ITR 607 /[1988] 41 Taxman 275 (Kar.) [Para 4] and CIT v.State Bank of Indore [1988] 172 ITR 24 /[1987] 35 Taxman 491 (MP). Dr. N.L. Sharda and Aman Bansal for the Appearing Parties. JUDGMENT 1. Following substantial question of law has been referred for opinion of this Court by the Income-tax Appellate Tribunal, Chandigarh Bench, arising out of its order dated 17-5-1993, in respect of assessment years 1977-78 to 1979-80 and 1981-82 to 1986-87:- "Whether on the facts and in the circumstances of the case, the Appellate 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…

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