2011 (11) TMI 252 - HC - Income Tax

Treatment of Share Application money as loans & Advances(269SS) - Penalty under 271D - Held That - Share application monies received by a company, pending allotment of shares, do not amount to loan or deposit. Loan grants temporary use of money, or temporary accommodation, and that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it has been made, on fulfillment of certain conditions. If these tests are applied to the facts of the case before us receipt of application money do not amount to loan or advance.

Summary

Issues:
1. Appeal against penalty under Section 271D of the Income Tax Act, 1961.
2. Interpretation of Section 269SS regarding receipt of share application money in cash.
3. Applicability of judicial precedents in determining violation of tax provisions.

Issue 1: Appeal against penalty under Section 271D of the Income Tax Act, 1961

The appeal filed by the Revenue under Section 260A of the Income Tax Act was against the order of the Income Tax Appellate Tribunal (ITA) relating to the assessment year 2005-06. The main issue raised in the appeal was whether the penalty of Rs.18,00,000 imposed by the Assessing Officer under Section 271D was justified. The Tribunal, in its order, noted the cleavage of judicial opinion on the treatment of share application monies as a deposit or loan under Section 269SS. It relied on the Supreme Court's judgment in CIT vs. Vegetable Products Ltd, emphasizing that in case of ambiguity in a taxing provision, the interpretation favoring the assessee should be adopted. Consequently, the Tribunal dismissed the Revenue's appeal against the penalty.

Issue 2: Interpretation of Section 269SS regarding receipt of share application money in cash

The Assessing Officer contended that the receipt of share application monies in cash violated Section 269SS, making the assessee liable for penalty under Section 271D. The Additional Commissioner of Income Tax upheld the penalty, emphasizing the violation based on a judgment of the High Court of Jharkhand. However, the CIT(A) and the Tribunal disagreed, stating that the share application monies did not amount to a loan or deposit under Section 269SS. The Tribunal highlighted the importance of judicial opinions and ruled in favor of the assessee, considering the ambiguity in the tax provision and the absence of a clear definition of share application monies as a loan or deposit.

Issue 3: Applicability of judicial precedents in determining violation of tax provisions

The Revenue raised questions regarding the applicability of judicial precedents, specifically mentioning the judgment of the High Court of Jharkhand and the Madras High Court. The Tribunal acknowledged the conflicting opinions and applied the principle from the Supreme Court's judgment to resolve the ambiguity. It emphasized that in cases where multiple interpretations exist, the one favoring the assessee should be adopted. The Tribunal's decision to dismiss the Revenue's appeal was based on this principle, indicating that no substantial question of law arose from the order. Ultimately, the appeal was declined, and no costs were awarded.

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