appeals of assessee are directed against CIT(A) s separate orders dt. 22nd Sept., 2003 for asst. yrs. 1996-97 and 1997-98. In both these appeals assessee is aggrieved by order of CIT(A) in confirming interest-tax on overdue interest of Rs. 98,96,440 for asst. yr. 1997-98 and Rs. 1,15,79,794 for asst. yr. 1996-97 on lease rental payments and hire purchase instalments. Brief facts of case are that assessee is credit institution. Subsequent to assessments for asst. yrs. 1996-97 and 1997-98, AO noticed from records that assessee-company has not offered overdue interest receipts for taxation purposes. Accordingly, notice under s. 10 of Interest-tax Act, 1974 was issued to assessee. Subsequently notice under s. 8(1) was also issued in reply to which assessee submitted that overdue interest is not liable for inclusion in chargeable interest under Interest-tax Act. AO was not convinced with assessee s explanation and held that overdue interest is nothing but interest receipts which has to be included in chargeable interest. He therefore computed same as chargeable interest. Aggrieved, assessee filed appeal before CIT(A) who considered various judicial pronouncements as well as contentions raised by assessee and confirmed order of AO. assessee is in second appeal before us. learned counsel for assessee submitted that under Interest-tax Act what is chargeable is only interest on loans and advances made by assessee and it does not include all receipts in nature of interest. Thus, according to him, interest on overdue amount paid to assessee which is in nature of compensation against delayed payment on account of bill discounting transactions, hire purchase instalments, lease rental payments etc. cannot be termed as interest on loans and advances and this is not exigible to tax under Interest-tax Act. In support of his contentions he relied upon following decisions (i) Life Insurance Corporation Of India vs. Jt. CIT (2002) 74 TTJ (Mumbai) 624: (2002) 82 ITD 749 (Mumbai); (ii) CIT vs. State Bank of Travancorr (1997) 140 CTR (Ker) 358: (1997) 228 ITR 40 (Ker); (iii) CIT vs. State Bank of Indore (1988) 69 CTR (MP) 147: (1988) 172 ITR 24 (MP); (iv) Central Bank of India vs. Jt. CIT (2006) 102 TTJ (Mumbai) 280: (2006) 99 ITD 34 (Mumbai). learned Departmental Representative, on other hand, supported orders of authorities below and submitted that lease rental payments and hire purchase instalments have been found to be in nature of financing arrangements and therefore interest on delayed payment also attains nature of interest on loans and advances and therefore taxable under Interest-tax Act. In support of his contentions he relied upon decision of Karnataka High Court in case of State Bank of Mysore vs. CIT (1988) 74 CTR (Kar) 52: (1989) 175 ITR 607 (Kar). Having heard both parties and having considered their rival contentions, we find that assessee company, credit institution, is liable to pay interest-tax on interest earned by it from loans and advances advanced by it. assessee has taken stand that amounts in dispute are overdue interest on delayed payments on account of bill discounting transactions, hire purchase instalments and lease rental payments. It is therefore necessary to examine whether they would satisfy definition of interest under Interest- tax Act. term interest has been defined under s. 2(7) of Interest-tax Act as under " 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 in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include (i) interest referred in sub-s. (b) of s. 42 of RBI Act and (ii) discount on treasury bills." This definition has been extensively considered and analysed threadbare b y Bench of this Tribunal in case of Life Insurance Corporation Of India vs. Jt. CIT (supra). In said case Tribunal was dealing with issue as to whether Government of India securities, debentures and bonds are loans and advances and interest therefrom is exigible to interest-tax. After considering issue at length, it was held that only interest on loans and advances made with sole purpose of financing borrower is to be taxed. After considering decisions of apex Court in cases of Mahalakshmi Oil Mills vs. State of AP AIR 1989 SC 335 and P. Kasilingam vs. P.S.G. College of Technology AIR 1995 SC 1395 on expressions "means and includes" and "means" used in definition clauses, and after considering definition of term "interest", it was held that when only term means is used, it gives hard and fast definition whereas when only "includes" is used, it enlarges meaning of expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which clause declares that they shall include. On other hand, when term "means and includes" is used, it indicates exhaustive explanation of meaning. Thus, it was observed that there may be some other items also which, though strictly, may not be interest, but may be having some characteristics of interest and considering meaning of expression "means and includes" as explained in above two decisions of Supreme Court, no more items can b e included in definition except two specifically included by legislature. Madhya Pradesh High Court in case of State Bank of Indore (supra), was in seisin of situation where assessee claimed that damages received for delayed payment was in nature of compensation for damages and was not interest on loans and advances and thus not exigible to interest, tax under Interest-tax Act. Court held that right to charge amount for delay in payment of bills accrued to assessee by virtue of provisions of s. 32 of Negotiable Instruments Act, 1881 and in accordance with terms of agreement entered into by assessee with its constituents in pursuance of which bills were purchased by assessee. On account of delayed payments of bills purchased by assessee, assessee became entitled to liquidated damages by way of compensation as stipulated in agreement. right of assessee to charge amount did not, therefore, arise on account of any delay for repayment on any loans or advances made by assessee. provisions of Interest-tax Act were attracted only in respect of interest on loans and advances and therefore amount charged by assessee for delayed payment of bills could not be held to be "interest on loans and advances" and is not exigible to tax under Interest-tax Act. This very same view was also expressed by Kerala High Court in case of State Bank of Travancore (supra), wherein it was held that character of overdue bills is wholly distinct from loans and advances, and interest on loans and advances alone is taxable under Interest-tax Act. character of overdue bill is not synonymous with loans and advances. Therefore interest on overdue bills is to be excluded from chargeable interest under IT Act, 1974. J Bench of this Tribunal in case of Central Bank of India (supra) had occasion to consider whether service charges received by bank from its credit cardholders on overdue payments can be considered as interest on loans and advances liable to interest tax, and it was held that said charges are not exigible to interest tax. learned Departmental Representative has placed reliance on decision of Karnataka High Court in case of State Bank of Mysore vs. CIT (supra) wherein it was held that discount on bills is form of advance or loan granted to its customer by bank and therefore, any amount collected by bank for delayed payment of that amount would be interest, whatever may be nomenclature and be chargeable interest under s. 2(7) of Interest-tax Act. This decision has already been considered by Tribunal in case of LIC of India (supra). All above decisions relied upon by assessee clinch issue that only interest on loans and advances is chargeable under Interest-tax Act. As expression "means and includes" is used in definition of interest, it is exhaustive definition and cannot bring all receipts in nature of interest under its purview. In case on hand, overdue interest is against delayed payments on account of bill discounting transactions, hire purchase instalments and lease rental payments. Thus, it is clear that this overdue interest tax is in nature of compensation for damages caused to assessee due to delayed payments and thus issue is squarely covered by above decisions. In this view of matter, we quash order of AO and allow assessee s appeals. In result, assessee s appeals are allowed. *** BFIL FINANCE LTD. v. INCOME TAX OFFICER