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2007] 293 ITR 115 [2007] 165 TAXMAN 61 (SC) SUPREME COURT OF INDIA Commissioner of Income-tax* v. Canara Bank S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ. CIVIL APPEAL NOS. 6724 TO 6729 OF 2003 JULY 30, 2007 Section 2(7) of the Interest-tax Act, 1974 - Interest - Assessment years 1979-80 to 1985-86 - IDBI introduced bills rediscounting scheme to increase sales of indigenous machinery/capital equipment by offering to prospective buyers/users deferred payment facilities - Under scheme, IDBI itself did not discount bills but used to rediscount those discounted by nationalized banks - Assessee, a nationalized bank, collected rediscounting charges to be paid to IDBI under scheme - Whether rediscounting charges collected by assessee could be treated as chargeable interest under section 2(7) - Held, no FACTS The assessee, a nationalized bank, did not include rediscounting charges of IDBI collected by the assessee in its chargeable interest. According to the revenue, said charges represented the assessee's interest income and, therefore, the same were taxable as chargeable interest as defined under section 2(7). The Tribunal held that an amount representing rediscounting interest paid on promissory note/bill did not accrue or arise to the assessee by reason of diversion of such discount through overriding title in favour of the IDBI and, hence, did not form part of chargeable interest under section 2(7). On appeal to the Supreme Court : HELD The bills rediscounting scheme was introduced in April, 1965, in terms of the powers vested in the IDBI under section 9(1)(b) of its statute, which authorized IDBI to accept, discount or rediscount bills of exchange, promissory notes of industrial concerns. The object of the scheme is two-fold, i.e., to increase the sales of indigenous machinery/capital equipment by offering to the prospective buyers/users deferred payment facilities. While the manufacturers received the value of the machinery within a few days of delivery by discounting the bills with the banker, the buyer/user could utilize the machinery acquired and repay its costs over a number of years. Therefore, the scheme facilitated sales of machinery, thereby contributing to…

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