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Section 5 of the Interest-tax Act, 1974 - Chargeable interest - Assessment years 1983-84 to 1986-87 - Whether interest paid by assessee, a nationalised bank, as rediscounting charges to its participating financial institutions, is an allowable deduction while computing chargeable interest under section 5 - Held, yes FACTS For the assessment years 1983-84 to 1986-87, the assessee, a nationalised bank, filed its return of chargeable interest and claimed deduction of rediscounting charges paid to IDBI and other credit institutions under the Rediscounting/Refinancing Scheme. The Assessing Officer disallowed the assessee's claim on the ground that the rediscounting charges/refinancing charges constituted interest under section 5, chargeable to tax. However, on appeal, the Commissioner (Appeals) directed the Assessing Officer to allow deduction in respect of interest as claimed. That view was confirmed by the Tribunal. On reference : HELD The assessee was a nationalised bank. The RBI had sanctioned schemes for participation of financial institutions like IDBI, ICICI, RBI, LIC, etc., in the matter of lending by nationalized banks. For that purpose, funds were disbursed by participating institutions to the nationalized banks at a lower rate of interest in cases where the funds were disbursed for specified projects approved by participating financial institutions. That was a finding of fact, which was not disputed by the department. Hence, when the bank received interest from its borrower, it paid rediscounting charges to the financial institutions, participating in their advance. Therefore, in the instant case, the claim of the assessee-bank was that rediscounting charges paid by it to the participating financial institution stood excluded from the expression 'chargeable interest' under section 5. That argument of the assessee was correct. The title to the rediscounting charges vested in the participating financial institution which was IDBI in the instant case. That title did not vest in the assessee. Therefore, the rediscounting charges could not be taxed as interest accruing or arising to the assessee-bank under section 5. A bare reading of section 5 shows that the…

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