M/S. STATE BANK OF PATIALA THROUGH GENERAL MANAGERversusCOMMISSIONER OF INCOME TAX, PATIALA

                    [2015] 12 S.C.R. 243



  M/S. STATE BANK OF PATIALA THROUGH GENERAL                   A
                    MANAGER
                               v.
       COMMISSIONER OF INCOME TAX, PATIALA
           (Civil Appeal Nos.5212-5220 of2007)                 B

                   NOVEMBER 18, 2015
    [A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
     Interest Tax Act, 1974:
                                                               c
      s.2(7) - Interest payable on default in payment of
amounts due under the discounted bill of exchange -
Liability to pay tax on such interest under the Act of 1974-
Held: Tax not payable - Interest is chargeable to tax under
the Interest Tax Act only if it arises directly from a loan or D
advance - This is clear from the use of the word "on" ins. 2(7)
of the Act - Interest payable "on" a discounted bill of
exchange cannot therefore be equated with interest payable
"on" a loan or advance.
                                                               E
      s.2(7)- Guarantee fees paid to the Deposit Insurance
and Credit Guarantee Corporation does not form part of
definition of interest ins. 2(7) of the Act of 1974.
     Words and phrases: Expression 'means and includes'
- Connotation of.                                              F

    Dismissing the appeals of revenue and allowing the
appeals of assessee, the Court

       HELD: 1. The definition of interest contained in the    G
Interest Tax Act, 1974 is a narrow one, and is exhaustive
as it is a 'means and includes' definition. [Para 7] [249-A]

     P Kasilingam v. PS. G. College of Technology
     1995 (2) SCR 1os1 :1995 Supp (2) sec 348 -
     relied on.                                                H
                         243
244        SUPREME COURT REPORTS              [2015] 12 S.C.R.

A        2. When default of payment takes place, the
   acceptor of the bill of exchange is bound to compensate
   any party to the bill for any loss or damage sustained by
   him and caused by such default. In most cases such
   loss or damage is a liquidated amount which can be
 B calculated from the rate mentioned on the face of the bill
   of exchange. The interest on which tax is payable under
   the Interest Tax Act is primarily on loans and advances
   made in India. By a deeming fiction, discount on bills of
   exchange made in India is also included. It is clear,
 C therefore, that discount on bills of exchange would
   obviously not come within the expression "loans and
   advances made in India", and consequently any amount
   that becomes payable by way of compensation after a
   bill is discounted by the Bank would not be an amount
 0
   which would be "on loans and advances made in India".
   [Paras 9, 10) [250-0-G]

           3. Section 2(7) itself makes a distinction between
      loans and advances made in India and discount on bills
 E    of exchange drawn or made in India. It is obvious that if
      discounted bills of exchange were also to be treated as
      loans and advances made in India there would be no
      need to extend the definition of "interest" to include
 F    discount on bills of exchange. "Loans and advances"
      has been held to be different from "discounts" and the
      legislature has kept in mind the difference between the
      two. It is, therefore, clear that the right to charge for
      overdue interest by the assessee banks did not arise on
 G    account of any delay in repayment of any loan or advance
      made by the said banks. That right arose on account of
      default in the payment of amounts due under a
      discounted bill of exchange. It is well settled that a
      subject can be brought to tax only by a clear statutory
 H    provision in that behalf. Interest is chargeable to tax
 MIS. STATE BANK OF PATIALA THROUGH G. M., v. CIT,          245
                     PATIALA

under the Interest Tax Act only if it arises directly from a A
loan or advance. This is clear from the use of the word
"on" in Section 2(7) of the Act. Interest payable "on" a
discounted bill of exchange cannot therefore be equated
with interest payable "on" a loan or advance. [Paras 15,
16] [258-A-B, 259-E-F]                                       B

      4. The expression "interest" is also defined under
the Income Tax Act in Section 2{28A). The said definition
is much wider than that contained in Section 2(7) of the
Interest Tax Act, 1974. The expression "payable in any      C
manner in respect of any moneys borrowed" is an
expression of considerable width. The said language
of the definition section contained in the Income Tax Act
is broader than that contained in the Interest Tax Act in
three respects. Firstly, interest can be payable in any     D
manner whatsoever. Secondly, the expression "in
respect of' includes interest arising even indirectly out
of a money transaction, unlike the word "on" contained
in Section 2(7) which connotes a direct arising of
payment ofinterest out of a loan or advance. And thirdly,   E
"any moneys borrowed" must be contrasted with "loan
or advances". The former expression would certainly
bring within its ken moneys borrowed by means other
than by way of loans or advances. Therefore, the Interest   F
Tax Act, unlike the Income Tax Act, has focused only on
a very narrow taxable event which does not include
within its ken interest payable on default in payment of
amounts due under a discounted bill of exchange. [Paras
17, 18] [260-D-G]                                           G

     5. Whether guarantee fees paid to the Deposit
Insurance and Credit Guarantee Corporation could be
included in the definition of interest in Section 2(7) of
the Interest Tax Act, 1974. It is clear that such definition H
246        SUPREME COURT REPORTS                [2015] 12 S.C.R.


A     does not include any service fee or other charges in
      respect of monies borrowed or debt incurred, again
      unlike the definition of 'interest' under the Income Tax
      Act. [Para 19] [260-H; 261-A-B]

 B         CIT v. Sahara India Savings & Investment Corpn.
           Ltd. (2009) 17 sec 43 - relied on.
           State Bank of Mysore v. Commissioner of I. T,
           Kamataka-1, Bangalore (1989) 175 ITR 607; CIT
           v. State Bank of Patia!a (2008) 300 ITR 395 (P&H);
 c         Commissioner of Income-Tax v. State Bank of
           Indore (1988) 172 ITR 24; Commissioner of
           Income Tax vs. State Bank of Travancore [1997]
           228 ITR 40 (Ker); Commissioner of Income Tax
           v. State Bank of Hyderabad [2014] 367 ITR.128
 D         (AP); Commissioner of Income Tax v.
           Cholamandalam Investment and Finance Co.
           Ltd.. [2008] 296 ITR 601 (Mad)- referred to.
                         Case Law Reference
 E
      1995 (2) SCR 1061           relied on·           Para 7
      (1989) 175 ITR 607          referred to          Para 12
      (2008) 300 ITR 395 (P&H) referred to             Para 13
 F (1988) 172 ITR 24              referred to          Para 14
      [1997] 228 ITR 40 (Ker)     referred to          Para 14
      [2014] 367 ITR 128 (AP)     referred to          Para 15
      [2008] 296 ITR 601 (Mad)    referred to          Para 15
 G
      (2009) 11 sec 43            relied on             Para 15
          CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
      5212-5220 of 2007

 H         From the Judgment and Order dated 05.09.2006 of the
 M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,               247
                     PATIALA

 High Court of Punjab and Haryana at Chandigarh in Income-      A
tax Reference Nos. 2 to 10 of 1994

                            WITH

   . C.A. NOS. 3185, 3383, 3764, 3766, 13465, 3380, 3763,       B
13464, 4008, 4322, 4987, 4988, 4990, 4991, 4992, 4993,
4994, 4995, 4996, 4997, 4986, 5328, 3381, 3382 OF 2015

     A. K. Sang hi, Sanjay Jhanwar, Krishnaveer Singh, Prakul
Khurana, Ashish Paikh, Aditya Vijay, Tarun Gupta, T. M. Singh, ·
Purnima Bhat Kak, Anil Katiyar, B.V. Balaram Das for the C
appearing parties.                          ·

     The Judgment of the Court was delivered by

     R. F. NARIMAN, J. 1. Leave granted in special leave        o
petition (civil) nos. 13359 of 2015 and 13357 of 2015

       2. There are 25 appeals that have been posted for·
hearing before us. They are concerned primarily with interest
that is received by various banks after bills of exchange have E
been discounted by them and a party defaults and hence has
to pay compensation by way of interest as payment is made
after the date stipulated in the bill of exchange. The precise
question that arises before us is whether such payment of
compensation to the said banks is "interest" liable to tax under F
the Interest Tax Act, 1974.

       3. The facts in all the cases are similar. The bank makes
purchases of bills of exchange from its customers and charges.
commission thereon for services rendered by it. The G
discounted bills so purchased are then presented to the parties
concerned for realization. If on presentation the bill is realized
within time, no charges are levied by the bank. In case the
bills are not realized in time but the other party pays the value
of the bill beyond the stipulat~d time, a certain amount in the H
248         SUPREME COURT REPORTS                  [2015] 12 S.C.R.

A form of interest is charged by the bank on a fixed percentage
  basis for every day of default. This amount is credited by the
  bank in its interest account.

        4. On these broad facts there is a sharp cleavage of
B opinion between the High Courts. The Madhya Pradesh High
  Court, Kerala High Court, Andhra Pradesh High Court, Madras
  High Court and Rajasthan High Court have all decided that
  such amounts are not chargeable to tax as "chargeable interest"
  under the Interest Tax Act. On the other hand, the Karnataka
C High Court and the Punjab and Haryana High Court have
  differed from this vrew and have stated that such amount would
  be so chargeable.

            5. The entire case hinges on the construction of Section
 o    2(7) of the Interest Tax Act, 1974 which defines "interest" as
      follows:-
           " Section 2(7), lnterestTaxAct, 1974
           2. In this Act, unless the context otherwise reqwres,-
 E         (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
 F         drawn or made in India,
           but does not include -
           (1) interest referred to in sub-section (1 B) of section 42
           of the Reserve Bank of India Act, 1934 (2of1934);
 G         (i1) discount on treasury bills;"
        6. Under Section 4 of the said Act, there shall be charged
   on every scheduled bank for every assessment year a tax in
   respect of chargeable interest of the previous year at the rate
 H of7%.
  M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,                   249
              PATIALA [R. F. NARIMAN, J.]

     7. The first important thing to notice is that the definition A
of interest contained in the Interest Tax Act, 1974 is a narrow
one, and is exhaustive as it is a 'means and includes' definition.
In P. Kasilingam v. P.S.G. College of Technology, 1995
Supp (2) SCC 348, this Court, when dealing with The Tamil
Nadu Private Colleges (Regulation) Act, 1976, stated as              B
follows:-

     "A particular expression is often defined by the
     Legislature by using the word 'means' or the word
     'includes'. Sometimes the words 'means and includes'            c
     are used. The use of the word 'means' indicates that
     "definition is a hard-and-fast definition, and no other
     meaning can be assigned to the expression than is put
     down in definition". (See: Gough v. Gough [(1891)2 QB
     665 : 60 LJ QB 726] ; Punjab Land Development and D
     Reclamation Qorpn. Ltd. v. Presiding Officer, Labour
     court [(1990) 3 sec 682, 717: 1991 sec (L&S) 71] .)
     The word 'includes' when used, enlarges the meaning of
     the expression defined s6 as to comprehend not only
     such things as they signify according to their natural E
     import but also those things which the clause declares
     that they shall include. The words "means and includes",
     on the other hand, indicate "an exhaustive explanation of
     the meaning which, for the purposes of the Act, must
     invariably be attached to these words or expressions". F
     (See : Dilworth v. Commissioner of Stamps [1899 AC
     99, 105-106 : (1895-9) All ER Rep Ext 1576] (Lord
     Watson); Mahalakshmi Oil Mills v. State ofA.P [(1989)
     1 SCC 164, 169: 1989 SCC (Tax) 56]" [at para 19]
                                                                     G
      8. The precise question that arises before us is whether
compensation that can be traced to Section 32 of the
Negotiable Instruments Act, 1881 can be regarded as interest
on loans and advances. Section 32 of the Negotiable
Instruments Act states as follows:-                                  H
250       SUPREME COURT REPORTS                   [2015] 12 S.C.R.

A        "Section 32. Liability of maker of note and acceptor
         of bill.
         In the absence of a contract to the contrary, the maker of
         a promissory note and the acceptor before maturity of a
         bill of exchange are bound to pay the amount thereof at
B
         maturity according to the apparent tenor of the note or
         acceptance respectively, and the acceptor of a bill of
         exchange at or after maturity is bound to pay the amount
         thereof to the holder on demand.
c        In default of such payment as aforesaid, such maker or
         acceptor is bound to compensate any party to the note
         or bill for any loss or damage sustained by him and
         caused by such default."
D       9. It will be seen that when default of payment takes place,
  the acceptor of the bill of exchange is bound to compensate
  any party to the bill for any loss or dama·ge sustained by him
  and caused by such default. In most cases such loss or
  damage is a liquidated amount which can be calculated from
E the rate mentioned on the face of the bill of exchange.

         10. The first thing that will be noticed is that the interest
  on which tax is payable under the Interest Tax Act is primarily
  on loans and advances made in India. By a deeming fiction,
F discount on bills of exchange made in India is also included. It
  is clear, therefore, that discount on bills of exchange would
  obviously not come within the expression "loans and advances
  made in India", and consequently any amount that becomes
  payable by way of compensation after a bill is discounted by
G the Bank would not be an amount which would be "on loans
  and advances made in India".

         11. Shri A. K. Sang hi, learned senior advocate appearing
  on behalf of the revenue basically placed for our consideration
H the reasoning of the Karnataka High Court judgment and
 M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,               251
             PATIALA [R. F. NARIMAN, J.]

adopted that reasoning as his argument. On the other hand, A
Shri Sanjay Jhanwar, learned counsel for the assessees,
placed before us the reasoning of the High Courts in his favour
and adopted the same as his argument. He also argued that
a loan of money may result in a debt but every debt does not
involve a loan. He further argued thatthe transaction of drawing, B
accepting, discounting or re-discounting of bills of exchange
can be bifurcated into three separate categories, and that the
drawer of a bill may discount the bill of exchange with the bank,
which would not result into a relationship of debtor and creditor
with the bank. It thus becomes imperative to first find out what C
in fact the High Courts have held on this vexed question.

     12. The Karnataka High Court in State Bank of Mysore
v. Commissioner of l.T., Karnataka-1, Bangalore, (1989)
175 ITR 607, has reasoned thus:                                  D

     "Sri Sarangan, learned counsel for assessee relying on
     a decision of the Madhya Pradesh High Court
     in C./. T v.State Bank of Indore (69 CTR (MP) 147)
     contended that though this sum of money may be interest E
     in its wider sense including both interest proper and
     interest by way of damages, still the provisions of Income
     Tax Act are not attracted since what can be brought within
     the purview of the Act is only interest on loans and
     advances. The amount charged by the assessee on F
     delayed payment of bills cannot be held to interest Or)
     loans and advances and it was not exigible to tax under
     the Interest Tax Act. He also relied upon Sec. 32 of the
     Negotiable Instruments Act and contended that the said
     provision contemplates only compensation and not the G
     interest at all. When the Bank discounts a bill what
     happens is the drawee gets a credit from the Bank to
     the extent of the amount covered by the Bill. This position
     has been explained in LAW OF BANKING By Paget, 9th H
     Edition at page 415 thus:
252   SUPREME COURT REPORTS                    [2015112 s:c.R.


A     'The discount of a bill is the purchase of it with, normally,
      a right of recourse and for a sum less than its face value.
      The discounter is free to deal with the Instrument as he
      pleases. Discount is a negotiation. Other things being
      equal tt)ere is no practical or legal distinction between
B     the ordinary negotiation of a bill and its being discounted
      except in the sum paid on it. Discounting is a means of
      lending as is pledge."
      It is stated in Byles on BILL OF EXCHANGE (24th
c     Edition) at page 282 as follows:
      "A banker clearly gives value for a bill when he discounts
      it, the transaction consisting of the purchase of the bill at
      a discount, i.e. allowing the interest for the time the bill
      has to run, subject in the event of dishonour to a right of
D     recovery from the person for whom it is discounted."
      The practice of the Bank itself, at the time of discounting
      is as disclosed in the letter used to be sent along with
      the intimation of discount which showed that in case of
 E    delayed payment an overdue interest at a particular rate
      had to be collected if not paid on presentation. These
      facts are sufficient to hold that the amount in question is
      interest under Sec. 2(7) of the Interest Tax Act.
      It is settled law that interest is damages or compensation
 F    for delayed payment of money due. Therefore the
      expression 'compensation' in Section 32 of the
      Negotiable Instruments Act will include interest paid by
      way of damages or compensation for delayed paymen~::>.
      We have already held that Discounting of Bills is a form
 G
      of advance or loan, and hence compensation pai_d on
      delayed payment of money due thereon is interest on
      loans and advances. Discount on bill is a form of advance
      or loan granted to its customer by a Bank and if that be
 H    the true position as indicated by Paget· any amount
 M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,                 253
             PATIALA [R. F. NARIMAN, J.]

     collected by the Bank for delayed payment of that amount     A
     cannot be anything but interest, whatever may be the
     nomenclature, anc;I is chargeable interest for the purpose
     of Interest Tax Act." [at pages 610- 611]            ·

      13. The Punjab and Haryana High Court in CIT v. State       B
Bank of Patiala, (2008) 300 ITR 395 (P&H) has merely
reiterated the aforesaid view.

     14. On the other hand, the Madhya Pradesh High Court
in Commissioner of Income-Tax v. State Bank of Indore,            C
(1988) 172 ITR 24 has reasoned thus:-

     "Now the right to charge the amount for delay in payment
     of bills accrued to the assessee by virtue of the provisions
     of seCtion 32 of the Negotiable Instruments Act, 1881,
     and in accordance with the terms of the agreement D
     entered into by the assessee with its constituents in
     pursuance of which bills were purchased by the
     assessee. On account of delayed payment of bills
     purchased by the assessee, the assessee. became
     entitled to liquidated damages by way of compensation, E
     as stipulated in the agreement. The right to charge that
     amount by the assessee did not, therefore, arise on
     account of any delay in repayment of any loan or advance
     made by the assessee. That right accrued on account of F
     default in the payment of the bills. It may be that the
     amount payable by way of compensation for detention
     of a sum of money due, can be said to be covered by the
     expression "interest" in its widest sense, including both
     interest proper and interest by way of damages. But the G
     provisions of the Interest-tax Act are attracted only in the
     case of interest on loans and advances. The amount
     charged by the assessee for delayed payment of bills
     cannot be held to be "interest on loans and advances". In
     our opinion, therefore, the Tribunal was not right in holding H
254         SUPREME COURT REPORTS                   [2015] 12 S.C.R.


 A         that the amounts in question charged by the assessee
           for delayed payment of bills were in the nature of interest
           on advances and exigible to tax. unde(the Interest-tax
           Act." [at page 28]

. B          The Kerala High Court in Commissioner of Income Tax
      vs. State Bank of Travancore, [1997] 228 ITR 40 (Ker), in
      arriving at the same conclusion as the Madhya Pradesh High
      Court, has, however, adopted a different line of reasoning in
      the following terms:-
 c          "These overdue bills are presented to the bank by the
            makers for the purpose of their recovery. As far as the
            makers are concerned, there may be justified or required
            circumsta".ces for them to approach the bank, The bank
            has ready facilities for recovery, more statutory powers
 D
            of stringent character and, therefore, the practice gets
           established that the makers hand over the overdue bills
           to the bank for recovery. It is thereafter that the bank sets
            in motion. In other words, what is undertaken by the bank
 E          is the recovery of the amount covered by the bill and in
           regard to which, by virtue of Section 32 of the Negotiable
           Instruments Act, 1881, a statutory liability is created with
           regard to the prompt payment. The details that are
           available in the context would show that the origin of the
 F         amount which is the subject-matter of an overdue bill gets
           snapped. In other words, the moment the maker presents
           the overdue bill to the bank for recovery, it becomes a
           document negotiable in itself on its own strength
           empowering the bank to effect recovery and creating the
 G         liabilities of the parties as regards prompt payment
           thereof. In such a situation, ignoring the intermittent
           acrobatics as to whether the amount can be understood
           as interest or could continue to have the character of its
           description as compensation in accordance with the
 H         provisions of Section 32 of the Negotiable Instruments
 M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,               255
             PATIALA [R. F. NARIMAN, J.)

     Act, 1881, would be wholly unnecessary, at least for the A
    ·purpose of consideration as to whether the amount can
     assume the character of "chargeable interest". It is
     elementary in the context that taxation liability has to be
     understood and established and unless this is apparent
     from the material on record, the imposition of tax does B
     not get justified. In other words, unless the amount which
     is sought to be chargeable as the chargeable interest
     has any necessary relationship with loans and advances,
     such an attempt to understand the amount alone would
     not satisfy the requirement of justification."              C

     15. Likewise, the Andhra Pradesh High Court in
Commissioner of Income Tax v. State Bank of Hyderabad,
[2014] 367 ITR 128 (AP) has also dissented from the Karnataka
High Court's view. In addition, theAndhra Pradesh High Court    D
has reasoned thus:

     "It is not uncommon that banks purchase Bills of
     Exchange from their customers and make payments, on
     being satisfied that they are in order. Whenever the E
     purchase of Bills of Exchange takes place, the purported
     transaction comes to be governed by Section 32 of the
     Negotiable Instrument Act. The basic transaction of
     borrowing and lending is required to be between the
     persons described as "maker" and "acceptor" under F
     Section 32 of the Negotiable lnstrumentAct. The person
     who purchased the Bills of Exchange becomes the
     "bearer" thereof. Section 32 of the Negotiable Instrument
     Act, defines the liability of the concerned persons to
     discharge their respective obligations. However. it is G
     difficult to imagine that the purchaser of the Bills of
     Exchange can be treated as a person who has advanced
     the loans, to the original borrower. For all practical
     purposes a different transaction altogether. comes into
     existence."                                               H
256      SUPREME COURT REPORTS                    [2015] 12 S.C.R.


A The Madras High Court in Commissioner of Income Tax v.
  Cholamandalam Investment and Finance Co. Ltd., [2008]
  296 ITR 601 (Mad) has simply followed the Kerala High Court's
  view, and the Rajasthan High Court· in a judgment dated
  12.11.2014, which is the impugned judgment in Civil Appeal
B No.4988 of 2015, has reasoned thus:-

        'The assessee-bank got right to charge the amount for
        the delay in payment of bills accrued to the assessee by
        virtue of the provisions of Sec. 32 of the Negotiable
c       Instrument Act, 1881 and in accordance with the terms
        of the agreement, that its constituents (borrowers), the
        bills were purchased by the assessee and on account of
        the delayed payment of bills, the assessee became
        entitled to liquidated damages by way of compensation
D       from the borrower. The right to charge that amount by the
        assessee did not, therefore, arise on account of any delay
        in re-payment of any loan or advances made by the
        assessee. It may be that the amount payable by way of
        compensation for detention of a sum of money due, can
E       be said to be covered by the expression "interest" in its
        widest sense including interest proper and interest by
        way of damages but the provision of the Interest Tax Act
        can be said to be attracted only in case of interest
        received on loans and advances. However, the
F       transaction ends on the due date occurs and the
        relationship of borrower lender end;;.
        In our view, the scope and definition of the term "interest"
        cannot be interpreted to bring within its fold any income
G       that is booked by an assessee under the head interest.
        The character of an overdue bill is not synonymous with
        the loans and advances and. therefore, it will not fall within
        the ambit and scope of interest u/s 2 (7) of the Interest
        Tax Act. The Parliament in its own wisdom has not
H       included any amount that is recovered in the form of
M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,                  257
            PATIALA [R. F. NARIMAN, J.]

   interest, penalty or otherwise under the definition of A
   Interest and had it been so, such nature of amount as
   contended by the revenue could have been brought within
   the ambit and scope of interest.
   We are further of the view that on the due date/cutoff date B
   whatever amount has been recovered by the assessee
   bank, will certainly fall in the nature of interest, but once··
   the due date/cutoff date is over, any amount received
   after that date by the bank, would be in the nature of
   compensation/penalty/liquidated damages and will not           c
   be "interest". It is well settled proposition of law that the
   way in which entries are made by an assessee in its
   books of account or the nomenclature given to a
   transaction by the parties is not determinative of the due
   character/nature of that transaction. The definition as we D
   have pointed out of "interest", shall not cover the amount
   received by the assessee after the due date."
    We have gone through the judgments rendered by
    various High Courts as quoted above and are not in E
    conformity with the view of Karnataka and Punjab and
    Haryana High Court and we concur with the view of
    Madhya Pradesh & Kerala High Court. Recently the
    Telangana and Andhra Pradesh High Court also had an
  . occasion to consider the same issue in the case of CIT F
    Vs. State Bank of Hyderabad: (2014) 367 ITR 128 and
    after considering the same issue, as is being examined
    by this Court and have come to the conclusion that the
    amount received after due date is not in the nature of
   ·interest.                                              G
   Accordingly, in our view, the amount received as "overdue
   interest" in inland/foreign demand bills is not liable to be
   taxed as interest under the Interest Tax Act and we answer
   this question in favour of the assessee and against the
   revenue."                                                      H
258        SUPREME COURT REPORTS                     [2015] 12 S.C.R.


  A We are of the view that the Karnataka High Court's reasoning
    is fallacious for the simple reason that Section 2(7) itself makes
    a distinction between loans and advances made in India and
    discount on bills of exchange drawn or made in India. It is
    obvious that if discounted bills of exchange were also to be
  B treated as loans and advances made in India there would be
    no need to extend the definition of "interest" to include discount
    on bills of exchange. Indeed, this matter is no longer res
    integra. In CIT v. Sahara India Savings & Investment
    Corpn. Ltd., (2009) 17 SCC 43, this Court while dealing with
· C the definition contained in Section 2(7) of the lnterestTaxAct,
    held:-
           "Section 2(5) defines "chargeable interest" to mean total
           amount of interest referred to in Section 5, computed in
 D         the manner laid down in Section 6. In other words, the
           "scope of chargeable interest" is defined under Section
           5 whereas "computation of chargeable interest" is under
           Section 6. Section 2(7) is the heart of the matter as far
           as the present case is concerned.
 E
           In accounting sense, there is a conceptual difference
           between loans and advances on the one hand and
           investments on the other hand. Section 2(7) defines the
           word "interest" to mean interest on "loans and advances
 F         including commitment charges, discount on promiss_ory
           notes and bills of exchange but not to include interest
           referred to under Section 42(1-B) of the Reserve Bank
           of India Act, 1934 as well as discoun~ on treasury bills".
           Section 2(7), therefore, defines what is interest in the
 G         first part and that first part confines interest only to loans
           and advances, including commitment charges, discount
           on promissory notes and bills of exchange.
           Pausing here, it is clear that the interest tax is meant to
           be levied only on interest accruing on loans and advances
 H
           but the legislature, in its wisdom, has extended the
  M/S. STATE BANK_.OF PATIALA THROUGH G. M. v. CIT,                259
              PATIALA [R. F. NARIMAN, J.]

      meaning of the word "interest" to two other items, namely, A
      commitment charges and d.iscount on promissory notes
      and bills of exchange. In normal accounting sense, "loans
      and advances", as a concept, is different from
      commitment charges and discounts and keeping in mind
      the difference between the three, the legislature, in its B
      wisdom, has specifically included in the definition under
      Section 2(7) commitment charges as well as discounts.
      The fact remains that interest on loans and advances
      will not cover under Section 2(7) interest on bonds and
      debentures bought by an assessee as and by way of C
      "investment". Even the exclusionary part of Section 2(7)
      excludes only discount on treasury bills as well as interest
      under Section 42(1-B) of the Reserve Bank of India Act,
      1934." [at paras 5- 7]
                                                                   D
         16. The Karnataka High Court's view is directly contrary
 to .the view of this Court, and, therefore, cannot be
 countenanced. "Loans and advances" has been held to be
 different from "discounts" and the legislature has kept in mind
the difference between the two. It is clear therefore that the E
 right to charge for overdue interest by the assessee banks did
 not arise on account of any delay in repayment of any loan or
advance made by the said banks. That right arose on account
of default in the payment of amounts due under a discounted
bill of exchange. It is well settled that a subject can be brought F
to tax only by a clear statutory provision in that behalf. Interest
is chargeable to tax under the Interest Tax Act only if it arises
directly from a loan or advance. This is clear from the use of
the word "on" in Section 2(7) of the Act. Interest payable "on" a G
discounted bill of exchange cannot therefore be equated with
interest payable "on" a loan or advance. This being the case,
it is clear that the reasoning contained in the High Courts which
differ from the Karnataka view is obviously correct but for the
reasons given by us.                                                H
260         SUPREME COURT REPORTS                 ~   [2015] 12 S.C.R.


A          17. It will be interesting to notice at this stage that the
      expression "interest" is also defined under the Income Tax Act.
      Section 2(28A) defines interest as follows:-

           "2. Definitions.- In this Act, unless the context otherwise
 B         requires.
            [(28A) "interest" means interest payable in any manner
            in respect of any moneys borrowed or debt incurred
            (including a deposit, claim or other similar rig_ht or
            obligation) and includes any service fee or other charge
 c          in respect of the moneys borrowed or debt incurred or in
            respect of any credit facility which has not been utilized.]"

            18. It will be noticed that this definition is much wider than
      that contained in Section 2(7) of the Interest Tax Act, 1974.
 D    The expression "payable in any manner in respect of any
      moneys borrowed" is an expression of considerable width. It
      will be noticed that the aforesaid language of the definition
      section contained in the Income Tax Act is broader than that
      contained in the Interest Tax Act in three respects. Firstly,
 E    interest can be payable in any manner whatsoever. Secondly,
      the expression "in respect of' includes interest arising even
      indirectly out of a money transaction, unlike the word "on"
      contained in Section 2(7) which, we have already seen,
      connotes a direct arising of payment of interest out of a loan
 F    or advance. And thirdly, "any moneys borrowed" must be
      contrasted with "loan or advances". The former expression
      would certainly bring within its ken moneys borrowed by means
      other than by way of loans or advances. We therefore conclude
      that the Interest Tax Act, unlike the. Income Tax Act, has focused
 G    only on a very narrow taxable event which does not include
      within its ken interest payable on default in payment of amounts
       due under a discounted bill of exchange.

       19. In fact, when we come to the second point agitated in
 H some of the appeals by revenue namely as to whether
 M/S. STATE BANK OF PATIALA THROUGH G. M. v. CIT,                261
             PATIALA [R. F. NARIMAN, J.]

guarantee fees paid to the Deposit Insurance and Credit A
 Guarantee Corporation could be included in the definition of
 interest in Section 2(7) of the Interest Tax Act, 1974, it will be
clear that such definition does not include any service fee or
other charges in respect of monies borrowed or debt incurred,
again unlike the definition of 'interest' under the Income Tax B
Act. We find that the Rajasthan High Court in the impugned
judgment in Civil Appeal No.4988 of 2015 is correct when it
observed:-
      ''On conjoint reading of the definition of interest, which. c
      has been quoted herein above and under the Interest
      Tax Act in para 4 (supra), it is noticec:Hhat the Interest Tax
      Act, does not include the term "any service fee or other
      charges in respect of money charge or debt incurred."
      under its ambit and putting to test the principle of D
      harmonious interjJretation, it is evident that the parliament
     in its wisdom has chosen not to add the aforesaid
     terminology under the Interest Tax Act, and what has not
      bee~ mentioned neither be added nor is 22 required to
     be read in between the lines. We have already observed E
     about principles of interpretation in para 8.5 and 8.6
     (supra) and mere crediting the said amount as interest
     will certainly not entitle the revenue to treat the same as
     interest. Hon'ble Apex Court in the case of Sutlej Cotton
     Mills and Godhra Electricity (supra) have clearly F
     expressed that mere crediting the amount under a head
     is not determinative of the real nature and real intent and
     purpose of the transaction is required to be seen.
     Therefore, we hold that the amount recovered by the G
     assessee from the constituents (borrower) cannot be
     taxed as interest in the hands of the assessee. On perusal
     of definition, it is distinctively clear that such charges
     recovered by the bank cannot be equated to the term
     interest under the Act. Though the receipt of Guarantee H
262          SUPREME COURT REPORTS                [2015] 12 S.C.R.


A           Fees received from constituents (borrowers) is not linked
            to what is paid to DICGC as insurance cover on behalf
            of depositors, the issue is not relevant for the reason
            stated by us herein above."

 8          20. In the circumstances, we dismiss the appeals of
      revenue and allow the appeals of the assessees and set aside
      the judgments in favour of revenue.

      Devika Gujral                                Appeals disposed of.

 c