The court upheld the classification of fees as 'interest' under the Income Tax Act, allowing corresponding exemptions and highlighting the independent nature of various deductions.

JUDGMENT :

Anita Sumanth J.

This Tax Case (Appeal) relating to assessment year 2006-07 has been filed at the instance of the assessee assailing order dated 28.09.2012 passed by the Income Tax Appellate Tribunal (in short ‘ITAT”/’Tribunal’).

2. We have heard the detailed submissions of Mr.Niraj Sheth, learned counsel appearing for Mr.O.R.Santhanakrishnan, learned counsel on record for the appellant/assessee and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent/revenue.

3. The substantial questions of law that had been admitted on 19.06.2013 are taken up for consideration in seriatim. The first and second substantial questions of law read as follows:

‘1. Whether the Income Tax Appellate Tribunal erred in holding that the appellant was not entitled to the exemption under Section 10 (23G) of the Act in respect of Liquidated Damages, Underwriting Commission and Structuring Fees?

2. Whether the Income Tax Appellate Tribunal ought to have held that Liquidated Damages, Underwriting Commission and Structuring Fees were entitled to the exemption under Section 10 (23G) of the Act inter alia as such receipts fell within the definition of "interest" in Section 2 (28A) of the Act?

4. The aforesaid questions of law relate to entitlement to exemption under Section 10 (23G) of the Income Tax Act, 1961 (in short ‘Act’) in respect of Liquidated Damages, Underwriting Commission and Structuring Fees.

5. Both Mr.Niraj Sheth, learned counsel for the appellant and Mr.T.Ravikumar, learned Senior Standing Counsel for the revenue would accede to the position that the entitlement qua Liquidated Damages has been considered by this Court in T.C.(A)Nos.1288 and 1290 of 2007 by decision dated 08.09.2015 and hence that issue stands squarely covered by the said decision in favour of the appellant.

6. As far as Underwriting Commission and Structuring Fees are concerned, they were not part of the substantial question of law in the aforesaid Tax Case (Appeals). However, we have been taken in detail by both learned counsel to the provisions of Section 10 (23G), in particular the definition of ‘interest’ in the Explanation to the aforesaid clause as well as the definition of ‘interest’ in Section 2 (28A) of the Act and have carefully perused both the definitions.

7. As far as Underwriting Commission is concerned, we are of the view that the same would be directly encompassed by the definition of ‘interest’ under Clause (f) of Explanation to Section 10 (23G), as that clause itself refers to commission received by a financial institution for extending a guarantee or enhancing credit.

8. As far as Structuring fees is concerned, the Assessing Authority has taken note of the nature of payment which is for the purpose of conversion of the financial assistance, for meeting the financial requirements.

9. Learned counsel for the appellant would explain further by stating that structuring fees are fees that are charged from the borrower when there are modifications sought to the mode of financial assistance granted by the appellant either by additional/enhanced financial assistance or by opening a new loan, or otherwise.

10. We find that Section 2 (28A) which defines ‘interest’ would itself encompass such a fee. The definition, which is inclusive defines ‘interest’ to say that interest payable in any manner, in respect of monies borrowed or debts incurred including deposit, claim and other right or obligation, and includes service fee or other charge in respect of the monies borrowed or debt incurred