Judgment

R.F. Nariman, J.

1. Leave granted in special leave 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 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 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 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 stipulated time, a certain amount in the form of interest is charged by the bank on a fixed percentage basis for every day of defau