2007 (10) TMI 253 - HC - Income Tax

Amount received as advance for supply of required quantity of silk fabrics - appellant could not arrange the required silk fabrics and, therefore, returned the deposit by making cash payment - section 269T is applicable to every kind of deposit and there is no difference between a trade deposit or business deposit or deposit - Tribunal is legally correct that the provision of section 269T is applicable to the trade advance also penalty u/s 271E is justified

Summary

Issues Involved:
1. Legality of penalty under section 271E.
2. Applicability of section 269T to trade advances.
3. Nature of the deposit as trade advance.

Detailed Analysis:

1. Legality of Penalty under Section 271E:

The Tribunal confirmed the penalty of Rs. 1,00,000 under section 271E of the Income-tax Act, 1961, for the violation of section 269T. The assessee argued that the word "deposit" under section 269T does not include "trade deposit," and thus, the penalty is invalid. The Tribunal, however, held that section 269T applies to all kinds of deposits, including trade deposits. The High Court upheld the Tribunal's decision, stating that the legislative intent behind section 269T is to counteract tax evasion and that the word "deposit" should be interpreted broadly to include all types of deposits.

2. Applicability of Section 269T to Trade Advances:

The appellant contended that section 269T does not apply to trade advances, arguing that the term "deposit" should be interpreted narrowly using the doctrine of "ejusdem generis." However, the High Court rejected this argument, stating that the rule of ejusdem generis does not apply as the term "deposit" in section 269T is not followed by general words but stands alone. The Court emphasized that the term "deposit" in the Explanation to section 269T is meant to be understood in its widest connotation, including trade deposits. The Court also noted that the legislative amendments and the Departmental Circular No. 551, dated January 23, 1990, support this broad interpretation to prevent tax evasion.

3. Nature of the Deposit as Trade Advance:

The appellant claimed that the deposits were trade advances for the supply of silk fabrics, which were returned when the supply could not be made. The Tribunal, however, found that these were not trade advances but deposits as per the account books. The High Court agreed with the Tribunal, stating that the obligation to return the money, regardless of the initial purpose, makes it a deposit under section 269T. The Court also held that the applicability of section 269T does not depend on the genuineness or the source of the deposit but on the mode of repayment. The Tribunal's finding that the deposits were not trade advances was upheld as a factual determination.

Conclusion:

The High Court dismissed the appeal, affirming the Tribunal's interpretation of section 269T and the imposition of penalty under section 271E. The Court concluded that section 269T applies to all types of deposits, including trade deposits, and that the Tribunal's factual finding regarding the nature of the deposits was correct. The appeal was dismissed with no order as to costs.