Judgment ( 1. ) THIS is a reference made at the instance of the assessee under Section 256 (1) of the Income-tax Act, 1961, to answer the following question of law referred by. the Tribunal (Income-tax Appellate Tribunal) arising out of their order, dated May 23, 1997, in Appeals Nos. 1 and 2/ind of 1991 (annexure D) : "whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the export subsidy granted to the assessee by the Reserve Bank of India does not lose the character of interest though it is not paid by the borrower and the same is, therefore, includible in chargeable interest under the Interest-tax Act, 1974 ?" ( 2. ) THE assessee is a nationalised bank. It is a subsidiary of the State Bank of India. The assessee-bank in its day-to-day banking activity is required to advance credit to several exporters engaged in export business on lesser rate of interest. The Reserve Bank of India then on their part pay the amount to the assessee to the extent of loss incurred by the assessee due to extending credit to the exporter at a lesser rate of interest. This amount paid by the Reserve Bank of India is termed as export subsidy. ( 3. ) FOR the assessment years 1985-86 and 1986-87, the assessee-bank received from the Reserve Bank of India a sum of Rs. 7,35,452 and Rs. 1,93,749, respectively, by way of what is termed as export subsidy, as referred to supra. ( 4. ) THE question arose before the Assessing Officer about the true nature of the aforesaid sum received by the assessee from the Reserve Bank of India so as to bring the same for being taxed in the hands of the assessee. The contention of the assessee was that the amount being received by the assessee in the nature of export subsidy from the Reserve Bank of India the same is not liable to be taxed. The Assessing Officer did not accept this contention of the assessee. He held that the true character of any amount received by way of or in the name of export subsidy can only be regarded as such when it is paid to an exporter engaged in the business of export. The Assessing Officer did not accept this contention of the assessee. He held that the true character of any amount received by way of or in the name of export subsidy can only be regarded as such when it is paid to an exporter engaged in the business of export. In other words, he (Assessing Officer) was of the view that it is only when an assessee is engaged in the business of export as an exporter and it is in the course of such export business he receives some money for its utilisation for being used in his export business, the same can be regarded and/or termed as an export subsidy in the hands of the assessee, else not. Since, in this case, the assessee is a bank and not engaged in any export business activity, but is essentially engaged in banking business, nor has received the said sum from the Reserve Bank of India for utilisation in any export activity as an exporter, the same cannot be regarded or characterised as an export subsidy so as to take out the same from the taxing net. The Assessing Officer then held that the amount received by the assessee is essentially in the nature of interest as defined under Section 2 (7) of the Interest-tax Act and, hence, liable to be included in the total income of the assessee for paying tax. ( 5. ) THE assessee felt aggrieved by the finding of the Assessing Officer, referred to supra, and filed an appeal to the Commissioner of Income-tax (Appeals ). The Commissioner of Income-tax (Appeals) while dismissing the appeal upheld the finding of the Assessing Officer. He too was of the view that since the assessee was not engaged in any activity of export in its business, they were not entitled to treat the amount so received as an export subsidy. The assessee then carried the matter in appeal to the Tribunal. Even the Tribunal while dismissing the appeal, upheld the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals ). The assessee then prayed to the Tribunal to refer the aforesaid question of law to this court for being answered. The Tribunal acceded to this prayer made by the assessee and made this reference on the question referred supra under Section 256 (1) of the Act. ( 6. The assessee then prayed to the Tribunal to refer the aforesaid question of law to this court for being answered. The Tribunal acceded to this prayer made by the assessee and made this reference on the question referred supra under Section 256 (1) of the Act. ( 6. ) HEARD Shri R. T. Thanewala, learned counsel for the applicant, and Shri R. L. Jain, learned counsel for non-applicant. ( 7. ) LEARNED counsel for the assessee, reiterated the same submissions which were being urged before the lower authorities. According to him, in order to hold the money received by the assessee to be an interest as defined under Section 2 (7) of the Act, it must satisfy the requirement of the said section. Learned counsel urged that when the Reserve Bank of India gave the money treating the same as an export subsidy, the same should have been held to be so rather than to treat as an interest. In reply, learned counsel for the Revenue supported the reasoning of the Tribunal and placing reliance on the decision of the Karnataka High Court reported in CIT v. Vijaya Bank [1989] 175 ITR 611 contended that the issue involved in this case stands answered against the assessee and hence, this court should follow the reasoning of the Karnataka High Court and answer the reference on the same lines. ( 8. ) HAVING heard learned counsel for the parties and having perused the record of the case, we are of the view that the question referred has to be answered against the assessee and in favour of the Revenue ( 9. ) AT the outset, we may take note of the fact as brought to our notice by learned counsel for the Revenue that this very issue which is a subject matter of this reference came up for consideration before the Karnataka High Court in the case of Vijaya Bank [1989] 175 ITR 611. While answering the same against the assessee their Lordships held as follows (headnote) : "in the course of its banking activities, the assessee advanced money on export at the shipment stage. The Reserve Bank of India subsidised the interest if the lending bank charged interest at a specified rate lower than the normal rate of interest under the scheme known as The Export Credit (Interest Subsidy) Scheme, 1968. The Reserve Bank of India subsidised the interest if the lending bank charged interest at a specified rate lower than the normal rate of interest under the scheme known as The Export Credit (Interest Subsidy) Scheme, 1968. To make up the loss of interest to a certain extent on such transactions, the Reserve Bank of India gave subsidy. The assessee claimed before the Income-tax Officer for the relevant years in question that the amount given as subsidy by the Reserve Bank of India under the Scheme was not taxable because it represented the subsidy and not interest and, therefore, was not chargeable to tax under the Interest-tax Act, and that the subsidy was paid not by the borrower but by a different agency and hence was not interest paid on loan or advance. . . . Held, that under Clause 2 (i) of the Export Credit (Interest Subsidy) Scheme, 1968, the subsidy was paid by the Reserve Bank to offset a part of the loss incurred by the assessee as a result of charging interest at a rate lower than the normal rate of interest. The subsidy was dependent upon the loan or advance being given and a lower rate of interest being charged. If the borrower had been allowed to pay at the normal rate of interest to the bank and if he had been subsidised by the Reserve Bank of India towards payment of interest, the assessee could not have raised the sort of contention it had raised. Such a contention could not be raised by the assessee merely because the Reserve Bank of India directly paid the subsidy. The subsidy was paid towards interest and, therefore, the payment made by the Reserve Bank of India to the assessee was nothing but interest under Section 2 (7) of the Interest-tax Act, 1974. Moreover, consideration could flow from a person other than the borrower (in this case, the Reserve Bank of India) and the payment, therefore, did not lose the character of interest. Therefore, the subsidy could be included in the chargeable interest under Section 5 of the Interest-tax Act, 1974. " ( 10. ) IN our considered view, we find no reason much less cogent one to differ from the view so taken by the Karnataka High Court, referred to supra. Therefore, the subsidy could be included in the chargeable interest under Section 5 of the Interest-tax Act, 1974. " ( 10. ) IN our considered view, we find no reason much less cogent one to differ from the view so taken by the Karnataka High Court, referred to supra. It is much more so when learned counsel for the assessee could not bring to our notice any view contrary to the one taken by the Karnataka High Court or that the same has been overruled by the apex court when asked. ( 11. ) ONCE we concur with the view taken by the Karnataka High Court which does hold that the amount paid by the Reserve Bank of India to the bank under the export scheme cannot partake of the nature of export subsidy but is in fact in the nature of interest to offset a part of the loss incurred by the assessee, due to charging interest at a rate lower than the normal rate of interest, the same is liable to be taxed as such. In such case, what is required to be seen is the true character of the money paid and not its nomenclature. Mere use of the word export subsidy does not make the money received by an assessee as a money received towards export subsidy. It is a misnomer. When the bank has never entered into any export business, the question of its receiving any subsidy under the head export subsidy does not arise. The payment of subsidy is always regarded as an incentive to an entrepreneur to do business effectively and efficiently. In the present case, the assessee extends credit facility to an exporter by charging lower rate of interest. The Reserve Bank of India then compensate the bank by paying the money to the extent of the difference between the specified rate of interest and the rate at which the credit was given by the assessee to the exporter. In such transaction, the element of export so far as the assessee and the Reserve Bank of India is concerned does not arise. In the circumstances, if the taxing authorities regarded the amount in question to be in the nature of an interest as defined under Section 2 (7) of the Interest-tax Act, 1974, then, no flaw can be found in such approach. ( 12. In the circumstances, if the taxing authorities regarded the amount in question to be in the nature of an interest as defined under Section 2 (7) of the Interest-tax Act, 1974, then, no flaw can be found in such approach. ( 12. ) THE submission of learned counsel for the assessee was that the amount in question cannot be regarded as an interest within the meaning of Section 2 (7) of the Act. We do not agree. Indeed, this submission was dealt with in the case of Vijaya Bank [1989] 175 ITR 611 (Karn) and repelled as referred to supra. We concur with the finding so recorded and hence, do not consider it necessary to again repeat the same. ( 13. ) IN view of the aforesaid discussion, we answer the question referred against the assessee and in favour of the Revenue. In other words, we hold that the amount received by the assessed from the Reserve Bank of India is chargeable to tax as interest. ( 14. ) NO costs.