1. By this reference under Section 256( 1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), the Income-tax Appellate Tribunal, Indore Bench, has referred certain questions of law to this court for its opinion.

2. The material facts giving rise to this reference, briefly, are as follows ;

The assessee is a subsidiary of the State Bank of India and assessed under the Interest-tax Act, 1974, for the assessment years 1975-76 to 1979-80 and 1981-82. During these assessment years, the assessee had, in its ordinary course of business, purchased bills of exchange drawn by its constituents and in some cases, on account of delay in payment beyond the days of grace, the assessee received liquidated damages by way of compensation. This amount, it was claimed by the assessee in the assessment proceedings under the interest-tax act, was not interest on loans and advances and was not, therefore, exigible to tax under the interest-tax act. The assessee further contended that the assessee had to pay to the Industrial Development Bank of India rediscounting charges and after adjusting that amount against the discount charges recovered by the assessee, the balance alone should be held exigible to tax. These contentions were rejected by the Income-tax Officer and, on appeal, by the Commissioner of Income-tax (Appeals). On further appeal before the Tribunal, the Tribunal did not uphold the contention of the assessee that the amount charged by the assessee for delayed payment was not exigible to tax under the interest-tax act. The Tribunal, however, upheld the contention raised on behalf of the assessee with regard to adjustment charges paid to the Industrial Development Bank of India. Aggrieved by the order passed by the Tribunal, the assessee as well as the Revenue sought reference. At the instance of the assessee, the Tribunal has referred the following question of law to this court for its opinion :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts charged by the assessee for the delayed payment of bills are in the nature of interest on advances and liable to be taxed under the interest-tax act for the assessment years 1975-76, 1976-77, 1977-78, 1978-79, 1979-80 and 1981-82?

At the instance of the Revenue, the Tribunal referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts paid by the assessee to the Industrial Development Bank of India as rediscounting charges were deductible in determining the assessee's income from interest on bills purchased under the interest-tax act for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82?"

At the time of hearing, the aforesaid question of law referred at the instance of the Revenue was reframed by us as follows with a view to bring out the real issue between the parties:

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts paid by the assessee to the Industrial Development Bank of India as rediscounting charges were not exigible to tax under the interest-tax act for the assessment years 1977-78, 1978-79, 1979-80 and 1981-82, while computing the assessee's income from interest on bills purchased by it during the assessment years in question ?"

3. Before we proceed to appreciate the contentions advanced on behalf of the parties, it would be useful to refer to the relevant provisions of the Interest-tax Act. Section 4 of that Act provides that there shall be charged on every scheduled bank for every assessment year, a tax referred to as "Interest-tax" in respect of its chargeable interest of the previous year at the rate specified in that provision. "Chargeable interest" is defined by Section 2(5) of that Act to mean the total amount of interest referred to in Section 5 computed in the manner laid down in Section 6. " Interest" is defined by Section 2(7) of that Act, as follows :

" (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 drawn or made in India, but does not include-

(i) any amount chargeable to income-tax under the Income-tax Act, under the head " Interest on securities " ;

(ii) discount on treasury bills ;

(iii) interest on moneys lent for the creation of a capital asset in India where the agreement under which such moneys are lent provides for the repayment thereof during a period of not less than seven years;

(iv) interest on any deferred credit (that is to say, credit on the terms that the payment is to be deferred) sanctioned by a scheduled bank in connection with the export of capital plant and machinery outside India;

(v) interest on any loan in foreign currency sanctioned by any Corporation or bank referred to in sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (9) for the import of capital plant and machinery from a country outside India. "

4. The first question that arises for consideration is whether the amounts charged by the assessee for delayed payment of bills can be said to be interest on loans and advances. The Tribunal was of the view that as the assessee had treated the amount in question in its books of account as interest and as in the agreements entered into between the assessee and its constituents relating to discounting of the bills, the constituents were referred to as borrowers and were required to pay interest on account of delay in payment by the drawee, the amount charged by the assessee for delayed payments must be held to be interest exigible to tax under the Interest-ax Act.

5. It is well-settled that the way in which entries are made by an assessee in his books of account or the nomenclature given to any transaction by the parties is not determinative of the true nature of that transaction. The real question for consideration in this case is whether the amount charged by the assessee for delayed payment of bills can be held to be "interest on loans and advances" which is exigible to tax under the Interest-tax Act. Section 2(7) of the Interest-tax Act, which defines "interest", lays down that it means interest on loans and advances. Therefore, unless it can be shown that the amount charged by the assessee for delayed payment of bills purchased by it from its constituents is, in reality, interest on loans and advances, the said amount cannot be held exigible to tax under the interest-tax act.

6. 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 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, 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 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 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 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 under the interest-tax act.

7. As regards the second question reframed by us and referred at the instance of the Revenue, the Tribunal relied on the decision of the Calcutta Bench of the Tribunal in Corporation Bank Limited v. ITO, Mangalore Circle, Mangalore (Interest Tax Appeals Nos. 3, 4 and 5/Bang/ 1979). The Tribunal was of the view that the discount charges received by the assessee were shared by the assessee and the Industrial Development Bank of India in pursuance of a joint venture undertaken in accordance with the Bills Rediscounting Scheme introduced in pursuance of the powers vested in the Industrial Development Bank of India. Learned counsel for the Revenue was unable to point out any cogent reason for taking a view different from that taken by the Calcutta Bench of the Tribunal in Corporation Bank's case (ITA Nos. 3, 4 and 5/Bang/ 1979). It was urged by learned counsel for the Revenue that rediscounting charges paid to the Industrial Development Bank of India by the assessee could not be allowed as a deduction as such deduction was not permissible under the provisions of the interest-tax act. As pointed out by the Calcutta Bench of the Tribunal, it is not a case of deduction under Section 6 of the Interest-tax Act. Under the Bills Rediscounting Scheme when bills were discounted by the assessee, there was an overriding title of the Industrial Development Bank of India and the assessee had to part with a portion of the discount charges. In our opinion, therefore, on the facts and in the circumstances of the case, the amounts paid to the Industrial Development Bank of India as rediscounting charges could not be held exigible to tax under the interest-tax act.

8. For all these reasons, our answer to the question referred at the instance of the assessee is in the negative and in favour of the assessee. Our answer to the question referred at the instance of the Revenue and reframed by us is in the affirmative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.