2017 (2) TMI 33 - HC - Income Tax

Penalty u/s 271E - Applicability of Section 269T - distinction between loan and deposit - Held that - Since in the present case there is no doubt about the fact that the payment had been made toward a loan, share capital debenture, it would certainly not amounted to a deposit and therefore, the provisions of Section 269T of the Act is clearly not attracted. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of Section 269T of the Income Tax Act, 1961 regarding distinction between loan and deposit.
2. Validity of cancellation of penalty amounting to ?1,95,50,000 imposed by the Joint Commissioner of Income Tax, Range-6, Kanpur.

Analysis:
1. The appeal before the Allahabad High Court pertained to the interpretation of Section 269T of the Income Tax Act, 1961 in relation to the distinction between a loan and a deposit. The department challenged the cancellation of a penalty amounting to ?1,95,50,000 imposed by the Joint Commissioner of Income Tax, Range-6, Kanpur, for the assessment year 1998-1999. The crux of the matter revolved around whether the term 'loan' and 'deposit' are interchangeable under the said section post an amendment made to remove any doubts in this regard.

2. The Court considered the fact that the assessee had taken a loan through transfer entries rather than in cash. The Tribunal's decision, based on a Delhi ITAT ruling, concluded that 'loan' and 'deposit' are distinct terms, leading to the assessee not falling under the purview of Section 269T for the relevant year. The counsel for the assessee cited a Delhi High Court case emphasizing that penal provisions like Section 269T must be strictly construed, especially since the legislature used 'deposit' distinctively from 'loan'. As the payment in question was towards a loan, share capital, or debenture, it did not qualify as a 'deposit', thereby not attracting Section 269T.

3. Consequently, the Court ruled in favor of the assessee, holding that the provisions of Section 269T were not applicable in the given scenario. The judgment dismissed the appeal filed by the department under Section 260A of the Income Tax Act, 1961 against the Tribunal's order. The decision was based on the clear distinction between a loan and a deposit, as interpreted in light of relevant precedents and legal provisions.

4. In conclusion, the Allahabad High Court's judgment clarified the interpretation of Section 269T concerning the differentiation between a loan and a deposit. The decision highlighted the importance of strict construction of penal provisions and the significance of legislative language in determining the applicability of tax laws. The ruling provided clarity on the specific circumstances under which Section 269T would be triggered, ultimately upholding the assessee's position and dismissing the department's appeal.