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TMI Blog2014 (12) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 2(22)(e) of the Act will not apply to inter corporate deposits - the assessee has accepted inter corporate deposits from a sister concern and also assessee is engaged in the business of finance, as is clear from the objects mentioned in Memorandum of Association, the provisions of section 2(22)(e) of the Act will not apply to the facts of this case as the inter corporate deposits cannot be treated as loans or advances in terms of section 2(22)(e) of the Act – Decided against revenue. - I.T.A No. 978/Kol/2011 - - - Dated:- 18-12-2014 - Shri Mahavir Singh, JM And Shri Shamim Yahya, AM,JJ. For the Appellant : Shri R. P. Nag, JCIT For the Respondent : Shri R. N. Bajoria, Adv. Shri Debabrata Ghosh, AR ORDER Per Shri Mahavir Singh, JM : This appeal by revenue is arising out of order of CIT(A)-VIII, Kolkata in Appeal No.367/ CIT(A)-VIII/Kol/09-10 dated 11.04.2011. Assessment was framed by DCIT, Circle-8, Kolkata, u/s. 147/143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 2004-05 vide his order dated 29.12.2009. 2. The only issue in this appeal of revenue is against the order of CIT(A) del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services Private Limited (the company, EYMBSPL) (previously known as Ind Global Corporate Finance Private Limited). Closing balance as on 31st March 04 was ₹ 5,42,52,477. M/s. Ind Global Corporate Finance Pvt. Ltd. EYMBSPL had accumulated profits aggregating to ₹ 55,70,808 as on 31.03.2003 which increased to ₹ 69,60,262 as on 31.3.2004. The AO has treated ₹ 69,60,262 as deemed dividend by allegedly considering the above amount given as Inter corporate deposits as loan/advance and the amount of ₹ 69,60,262 as accumulated profit on the date of distribution. The authorized representative of the assessee had submitted that: (a) Inter-corporate deposits are not loan/advance. (b) Deemed dividend does not apply to lending of money as part of business of the company. And filed its detailed submissions as stated above. I have carefully considered the issue. It has been submitted that one of the objects of the assessee is to advance, deposit or lend money, to or with any company, body corporate, firm, person or association whether falling under the same management or otherwise. As per Sec. 2(22)(e)(ii) of the Income tax Act, 1961 dividend does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income, the assessee would have ended the year with a loss. On the basis of the above facts, the Hon'ble ITAT Kolkata in the case of R D Fans Ltd. (Supra) held as under: 22. Considering the facts and circumstances and the decision above, we are of the view that the money lending was the substantial part of the business of M/s. DBPL. Therefore, loans from M/s. DBPL did not fall within the mischief of section 2(22)(e) of the I. T. Act because the case of the said company would be covered by exception (ii) to section 2(22)(e) of the Income Tax Act. As a result we set aside the orders of the authorities below and delete the entire addition. The facts of the instant case are identical to the facts considered by the Hon'ble Kolkata Tribunal. Respectfully following the decision of the Hon'ble Tribunal, I hold that the assessing officer is not correct in invoking the provisions of section 2(22)(e) of the Income Tax Act, 1961 and therefore the addition made of ₹ 69,60,262 is deleted. Aggrieved, now revenue is in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. The facts relating to the issue are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008) 115 ITD 218 (Ahd.) wherein in para 68 of the said order the issue has been considered whether the interest on inter corporate deposit is interest on loans or advances and has come to a conclusion that the two expressions loans and deposits are to be taken different and distinction can be summed up by stating that in the case of loan the needy person approaches the lender for obtaining the loan but the depositor goes to deposit for investing his money primarily with the intention of earning interest. Ld. counsel for the assessee also relied on the decision of coordinate Bench of ITAT, Kolkata B Bench in the case of IFB Agro Industries Ltd. Vs. JCIT, (2014) 42 Taxman.com 246 (Kol) wherein the issue of loans and advances is extensively dealt with vis- -vis deposits and held the issue in favour of the assessee. We find that this issue is covered now in favour of assessee and against revenue, whereby, according to us, the provisions of section 2(22)(e) of the Act does not apply to inter corporate deposits. Special Bench of this Tribunal in the case of Gujarat Gas Financial Services Ltd.(supra) has considered the issue of inter corporate deposits vis- -vis the definition of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffers to borrow money and once that offer is accepted/ the lender is bound to give money to the borrower on terms settled. It is also to be noticed that a taxing statute has to be strictly construed and the subject cannot be taxed unless comes within the letter of the law. The argument that a particular income falls within the spirit of the law cannot be availed of by the Revenue. It is trite law that no tax can be imposed on the subject without the words in the Act. No tax can be imposed by inference or analogy. The cardinal principle of interpretation of fiscal law is that it should be considered strictly. In view of the above, the interest on inter-corporate deposits unless they clearly fall within the meaning of interest on loans and advances would not be taxable. Inter corporate deposit can neither be a loan nor an advance. Therefore, the Assessing Officer is directed to exclude the interest on inter- corporate deposit from the assessment of the assessee. Consequently, the levy of penalty made would also not stand. They are, accordingly, deleted. 71. It has considered the decision of Bajaj Auto Holdings Ltd. Vs. DCIT, 95 ITD 356 (Mum) referred to by the CIT{A) and distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intent/on of earning interest. In view of this legal position/ it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in s. 2(7) of the Act and as such would not be liable to interest tax. The answer to the question under reference in our humble opinion is that investments made by way of short term deposits and also in the form of securities and bonds cannot be considered as loans and advances and as such interest thereon shall be outside the scope of interest// defined under see. 2(7) of the Act. 74. In these circumstance we hold that interest on inter corporate deposits is not an interest on loan or advance and therefore would not be includible in the chargeable interest under the Interest Tax Act. 5. Ld. counsel for the assessee further drew our attention to the main objects of the company wherein the company was to carry on the business of merchant banking i.e. financing, which clearly reveals that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Financial Consultants, Management Consultants, Brokers, dealers, Agents and to carry on the business of share broking, money broking, exchange bill broking, factoring and general brokers, shares, debentures, debenture stock, bonds, units, obligations, securities, commodities, bullion, currencies and to manage the funds of any person or company by investment in various avenues like mutual fund, growth fund, income fund, risk fund, tax exempt funds, pension/superannuation fund and to pass on the benefits of portfolio investments to the investors as dividends, bonus, interest and to provide a complete range of personal financial services like investment planning, estate planning, tax planning, portfolio management, consultancy/counseling service in various fields, commercial, financial, legal, economic, direct and indirect taxation and other levies, statistical, accountancy, data processing by acquiring, purchasing sophisticated office machineries such as computers, tabulators, addressing machines and to carry on the business of having schemes for arranging credits and loans on national and international level including interoperate finance, bridge finance, hire purchase consultancy ..... 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