2024 (5) TMI 746 - HC - Income Tax

Penalty u/s 271D and 271E - scope of the term loan and deposit - amount received on account of share application money and repayment - violation of the provisions of Sections 269SS and 269T - whether share application money received by the assessee and its repayment in excess of Rs. 20,000/- otherwise than by way of an account payee cheque or by account payee bank draft would fall within the phrase loan or deposit ? - HELD THAT - We find that the words loan or deposit has been defined in Explanation-(iii) to Section 269T which is not an expansive definition. It provides that loan or deposit mean any loan or deposit of money which is repayable after notice or repayable after a period and, in case of a person other than a company including loan or deposit of any nature. Share application money is neither repayable after notice nor repayable after a period. It is for participation in the capital of the company. Therefore, neither as per the definition of the words loan or deposit as given in the Explanation-(iii) to Section 269T of the Act, 1961 nor in ordinary sense, share application money can be said to be a loan or deposit. Once share application money is neither loan nor deposit, then neither Section 269SS nor 269T shall attract. Consequently, no penalty either u/s 271D or u/s 271E could be imposed. In case of loan it is ordinarily the duty of the debtor to seek the creditor and to repay the money according to the agreement. A loan grants temporary use of money or temporary accommodation on certain conditions. Thus loan is an act of advancing money by one person to another under an agreement by which the recipient of money agrees to repay the amount on agreed terms. In case of a deposit, it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. The essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf deposit has been accepted on fulfilment of certain conditions. Share application money is for participation in capital of a company which is neither a loan nor a deposit. Once the share application money is neither a loan nor deposit, the provisions of Section 269SS or 269T shall not attract. Consequently, no penalty u/s 271D or 271E of the Act, 1961, as the case may be, could be imposed. ITAT has referred to several judgments of different High Courts and took a view that share application money or its repayment is neither a loan nor a deposit and as such, provisions of Section 269SS or 269T are not attracted and consequently no penalty could be imposed u/s 271D or 271E. Looking into the object and purpose of Section 269SS and 269T of the Act, 1961 read with the Explanation defining the words loan and deposit , the share application money can neither be said to be loan nor a deposit, and accordingly, the provisions of Section 269SS or Section 269T or the consequential penalty provisions under Sections 271D or Section 271E shall have no application on facts and circumstances of the present case. Decided in favour of the assessee.

Summary

Issues Involved:
1. Whether the amount received as share application money and its repayment violated Sections 269SS and 269T of the Income Tax Act, 1961, thereby attracting penalties u/s 271D and 271E.

Summary:

Issue 1: Violation of Sections 269SS and 269T
The core issue in this appeal was whether the share application money received and repaid by the respondent/assessee in amounts exceeding Rs. 20,000/- without using an account payee cheque or bank draft constituted a violation of Sections 269SS and 269T of the Income Tax Act, 1961, thereby attracting penalties u/s 271D and 271E.

Relevant Provisions and Definitions:
Sections 269SS and 269T prohibit the acceptance and repayment of loans or deposits exceeding Rs. 20,000/- otherwise than by an account payee cheque or bank draft. Penalties for violations are prescribed u/s 271D and 271E. The definitions of "loan" and "deposit" were crucial, with Section 269T explaining that these terms refer to money repayable after notice or a period.

Findings and Discussion:
The court examined the definitions of "loan" and "deposit" from various dictionaries and judicial precedents, noting that these terms imply a liability to return the money under certain conditions. The court concluded that share application money does not fit these definitions as it is intended for participation in the company's capital and is neither repayable after notice nor after a period.

Conclusion:
Since share application money is neither a loan nor a deposit, Sections 269SS and 269T do not apply. Consequently, no penalties u/s 271D or 271E could be imposed. The court upheld the ITAT's decision, finding no illegality in its order and dismissed the appeal, answering the substantial question of law in favor of the assessee and against the revenue.