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TMI Blog2013 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... re applicable. Therefore, the monies which are received by the appellant company by way of subscription money for allotment of debenture cannot be equated with respect of any deposit within the meaning of Section 269SS of the I. T. Act and the provisions of section 269SS will not be attracted to the subscription received for issue of debenture and, therefore, the penalty levied u/s 271D is cancelled. In the present case, Ld. CIT (A) cancelled the penalty levied on the assessee u/s 271D of the Act, observing the provisions of Section 269SS of the Act to be not attracted. Obviously, when the OFCDs of the assessee do not fall under and cannot be equated with receipt of 'loan' or 'deposit' under the provisions of Section 269SS of the IT Act, evidently, no violation of the said Section can be said to have been committed by the assessee. Hence, penalty u/s 271D of the IT Act is entirely not attracted – Further, the question of the assessee having been prevented by reasonable cause within the meaning of Section 273B of the IT Act for not complying with the provisions of Section 269SS of the Act, no longer survives – Decided against the Revenue. - ITA No.5772/Del/2010 - - - Dated:- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 269SS of Income Tax Act, 1961), that the Auditors of the assessee considered the amount under OFCD as securities and not as loans/deposits and have given the following note:- 'The Company has also received subscription through private placement in respect of Optionally Fully Convertible Debentures. As per the expert opinion of the Solicitor and Advocate obtained by the company, subscription received on issue of OFCD which is in the nature of Securities and not in the nature of loan or deposit within the meaning of Section 269SS of the Income Tax Act. Relying on the same the subscription received under OFCD has not been considered to be falling within the purview of Section 269SS of the Income Tax Act although in the Tax Audit Report issued by us for financial year 2002-03 the same were considered by us for the purpose of Section 269SS of the Income Tax Act in absence of legal opinion to this effect.' 6. During the assessment proceedings, the assessee company was requested by the Assessing Officer to provide details of OFCDs. From the details submitted by the assessee, it was observed by the Assessing Officer that money was received in violation of provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir report have made observations on the differences between loan and deposit and subscription receive under OFCDs which is in the nature of security . iii. The IT Act recognizes the difference between the terms loan deposit and security which is evident from the fact that the TDS provisions for securities is in Section 193 whereas those for other than securities is in 194A (2). iv. Similar distinctions are clear u/s 56(2) of the IT Act, 1961 and also section 2(28B) of the IT Act, 1961 which defines the interest on securities to mean:- a. interest on any security of the Central Government or a State Government; b. interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central State or Provincial Act. v. Thus, under the Income Tax Act, interest on debentures has to be treated as interest on securities meaning thereby that the Debentures are recognized as securities and not as Loans Deposits. vi. The subscription received towards allotment of OFCDs is not in the nature of acceptance of money as loan or deposit . The opinion of M/s Jhunj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken by the assessee. The question is therefore whether OFCDs are loans or deposits? The assessee has quoted various provisions of the 1. T. Act, 1961 and the Companies Act,1956 to claim that the subscription under OFCDs are in the nature of debentures which are securities and therefore do not fall in the class of loans or deposits. 2.8.3 However, it is not possible to accept the claim of the assessee that the subscriptions collected under OFCDs scheme being debentures have the character of securities and not loans and deposits . The word security as per common usage in the financial world refers to instruments through which Public deposits are mobilized either by the State or entities authorized under law such as Body Corporates. The major distinction that a security has vis-a-vis an ordinary deposit is that a security is marketable and transferable. Therefore, a security is a deposit with certain additional attributes. Therefore, the use of the word security in no way deprives the basic character of a deposit in any transaction. Further, the debentures are specialized instruments where a debenture holder has the option to convert his deposit into equity shares at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor to convert the same into equity shares. In case of redemption, the debenture holder gets back his principal with interest. In case of conversion into equity share, the debenture holder gets the interest up to the date of such conversion. Therefore, the essential character of the debenture is that of a deposit. A reference to the Red Herrings Prospectus issued by the Company shows that the depositor is allowed to exercise the option of equity conversion only after completion of 91st month and before the 92nd month. Considering the long time period the depositor keeps his money with the Company before he is allowed the option of equity conversion, the OFCDs in the instant case, appear more to be in the nature of deposits rather than debentures. 2.8.7 The assessee has further claimed that since securities and debentures are listed together in section 2(28B) of the Income Tax Act 1961 which defines interest on securities goes to prove that debentures are not deposits. Further, the Act specifies the head under which such income by way of interest on securities would be taxable but no such definition is given for interest on loans and advances which goes to show that securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refully considered the arguments of the appellant. The word loan or deposit is nowhere defined under the Income Tax Act. The definition of the word loan as given in the Blacks Law Dictionary is - Lending . Delivery by one party to and receipt by another party sum of money upon agreement, express or implied to repay it with or without interest. The above definition of the loan does not cover the money received for subscription of debenture. Similarly the word 'Deposit' has been defined the commit to custody, or to lay down, to place, to put, to let fall (as sediment). The lodge for safe-keeping or as a pledge to entrust to the care of another. It also includes money placed with a person as an earnest or security for the performance of some contract. Thus, the word 'Deposit' also does not have a semblance to the subscription received for issue of debentures. The word 'Debenture' has been defined as a long term unsecured debt instrument, issued pursuance to an indenture. Thus, on reading of the above definition, it is clear that all the three different words have separate meanings. Similarly the definition of debenture under the Companies Act and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h receipt of Loan or Deposit within the meaning of section 269SS of the Income Tax Act. This view is also supported by the decision of the Hon'ble Supreme Court cited herein above wherein the Hon'ble Supreme Court has held that the interest on investments (Securities and bonds and debentures) was not in the nature of interest on Loan or Advance to which the provisions of Interest Tax Act where applicable. Therefore, the monies which are received by the appellant company by way of subscription money for allotment of debenture cannot be equated with respect of any deposit within the meaning of section 269SS of the Income Tax Act and the provisions of section 269SS will not be attracted to the subscription received for issue of debenture and, therefore, the penalty levied under section 271D is cancelled. 11. Before us, on this issue, the Ld. DR has contended that it has been conclusively held by the Hon'ble Delhi High Court in the case of 'CIT vs. Jet Life India', 16 Taxman.com 403 (Del) (copy is placed on record) that debentures are loans and that following the legislative amendment w.e.f. 01.06.2002, loans are covered under Sections 269SS and 269T a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such OFCDs continuing to remain debentures till they were converted; that in other words, the OFCDs issued by the assessee were debentures in presenti and became shares in futuro; that even if the OFCDs were hybrid securities as defined in Section 2(19A) of the Companies Act, they shall remain within the purview of the definition of 'securities' in Section 2 (h) of the SCR Act; that the assessee had treated the OFCDs only as debentures in the IMRHP, application forms and also in their balance sheets; that the term 'securities' defined in the Companies Act has the same meaning as that in the SCR Act, which would also cover the species of 'hybrid' u/s 2(19A) of the Act; that since the definition of 'securities' u/s 2 (45AA) of the Companies Act includes 'hybrid', SEBI has jurisdiction over hybrids like OFCDs issued by the assessee, since the expression 'securities' has been specifically dealt with under Section 55A of the Companies Act; and that the assessee had contended that SEBI had no jurisdiction over the hybrids and that 'hybrids' would be treated as 'securities' within the meaning of the Companies Act, but cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s). On receipt of subscription amounts from investors, the appellant-companies had issued different kinds of bonds (described as Abode Bonds, Nirman Bonds and Real Estate Bonds, by SIRECL; and Multiple Bonds, Income Bonds and Housing Bonds, by SHICL). Since the term hybrid has been expressed as ...means any security... there can be no doubt that a hybrid is per-se a security. Moreover, the term security in its definition includes ...other marketable securities of a like nature... . Therefore, even if for one or the other reason, the OFCDs issued by the appellant-companies may not strictly fall within the terms debentures or bonds (referred to in the definition of the term securities ) they would nonetheless fall within the ambit of the expression securities of a like nature . For this, the reasons are as follows. The definition of the term hybrid also explains that a hybrid has the character of more than one kind of security or their derivatives . The term securities also includes derivatives . Therefore, even if the definition of the term hybrid is construed strictly, it would fall in the realm of securities of a like nature . And if, securities of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Hon'ble Supreme Court in 'Sahara India Real Estate Corpn. Ltd. Others' (supra), the OFCDs of the assessee before us are neither 'loans', nor 'deposits'. 18. In 'Jet Life' (supra), true, the Hon'ble Delhi High Court has held debentures to be covered by the term 'loan'. However, that decision is dated 13.12.2011 and the Hon'ble High Court obviously did not have the benefit of the Supreme Court decision in 'Sahara India Real Estate Corpn. Ltd. Others' (supra), which is a judgement dated 31.08.2012, and was not available when the High Court passed its order. Moreover, the law laid down by the Hon'ble Supreme Court is, it goes without saying, the law as it always stood. 19. Apropos the objection taken by the department that the decision of the Hon'ble Supreme Court is not with regard to the IT Act, but it relates to the Companies Act and the SEBI Act, there is no dispute to this fact. But, as discussed herein before, since the Income-tax Act does not define the terms 'loan' and 'deposit', recourse has to be taken to cognate Acts and for the purposes of 'debentures' and &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of 'bonds' or 'debentures' are not in the nature of receipt of a deposit. Section 2(b) of the securities Act defines the word 'security' and the word 'loan' or 'deposit' are not included in the definition of a security. Similarly under the I. T. Act, Section 2(28B) of the I. T. Act defines Interest on Securities to mean- (i) interest on any security of the Central Government or a State Government; (ii) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central State or Provincial Act, but does not include interest on loan or deposit. Thus, the intent of the legislature is absolutely clear that interest on security is different from interest on loan or deposit. In the same parlance the securities are different from Loans and Deposits and debentures is in the nature of a Security and is not in the nature of any loan or deposit as envisaged by the provisions of section 269SS of the I. T. Act. It is also well settled law that interpretation of taxing statutes -same expression in different enactments must be given sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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