9911796707
TMI Blog1991 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ed companies and it sold the same during the said previous year for a total sum of Rs. 63,52,565. The cost of the said shares sold during the previous year was Rs. 23,25,466 and the capital gain arising on the sale of the said shares amounted to Rs. 40,27,099. Within the said previous year itself, the assessee-trust made a fixed deposit of Rs. 31,75,000 with the scheduled banks for a period of 60 days. During the next previous year ending on March 31, 1982, the assessee-trust gave loans to private parties after encashment of the said fixed deposit of Rs. 31,75,000 made during the previous year under reference. The assessee-trust did not receive the entire sale proceeds of the said shares during the previous year involved herein and a sum of Rs. 16,19,700 was received in the next previous year. The assessee-trust exercised the option of applying a part of the capital gains in the following previous year as provided in Explanation 2 to section 11(1). In the course of the assessment proceedings, the assessee-trust submitted before the Income-tax Officer that no tax could be charged on the capital gains arising on the sale of the said shares, since it had acquired another capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the bank could be taken as acquisition of a new capital asset within the meaning of section 11(1A). The Revenue contends that the deposit of the sale proceeds with the bank is not conversion of the proceeds of sale into a new asset. The proceeds forming a cash fund continue to have the character of cash fund even when in deposit with the bank. Such deposit, according to the Revenue, not amounting to acquisition of any fresh capital asset, does not entitle the trust to the benefit of section 11(1A). The substance of the contention of learned counsel for the Revenue is that the sale proceeds being a capital fund continue to be so even when in deposit with the bank. The import of the argument is that the transaction partakes of bailment by way of locatioet conduction i.e., the placing of the goods with the bailee (the banker) on hire, no new asset originating. Therefore, the sale proceeds did not take on a new character so as to be converted into a new asset. It was submitted by Mr. Bajoria, learned counsel for the assessee, that the fixed deposits with the banks are capital assets distinct from liquid cash proceeds and by virtue of deposits in banks the sale proceeds get transform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds arising on transfer of long-term capital assets are invested in acquisition of specified new assets. One of the assets so specified in sub- clause (vi) of clause (a) of Explanation 1 to section 54E(1) as investment for claiming the said exemption in respect of long-term capital gains is deposit for a period of not less than three years with the State Bank of India or a nationalised bank or a co-operative society engaged in banking. In it inheres the statutory recognition of deposit in bank as an asset. Section 11(1A) is akin to section 54E with a broader spectrum. Both the said sections grant exemption in respect of long-term capital gains when the sale proceeds are invested in another asset. If bank deposits are assets in which the sale proceeds could be invested for claiming the exemption for the purposes of section 54E, there can be no reason or logic for not treating such bank deposits as a capital asset for the purposes of section 11(1A). Section 11(1A), unlike section 54E or 54F of the Act, does not even require that the new capital asset should be of any specified type. The provisions of the Wealth-tax Act, 1957, are also significant. In the net wealth of an assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the terms agreed to between him and the customer. And it makes no difference in the jural relationship whether the deposits were made by the customer himself, or by some other persons, provided the customer accepts them. There might be special arrangement under which a banker might be constituted a trustee, but apart from such an arrangement, his position qua banker is that of a debtor and not trustee. The law was stated in those terms in the old and well-known decision of the House of Lords in Foley v. Hill [1848] 2 HLC 28 ; 9 ER 1002, and that has never been questioned. " The fact that the deposits are debts and are not equivalent to money would also be evident from the provisions of section 3 of the Transfer of Property Act, 1882, which defines "actionable claim" to include debts. Section 130 of the Transfer of Property Act, 1882, provides how such debts can be transferred. In the circumstances, it is not correct to equate the bank deposits with money. In case the bank is unable to pay the amount of fixed deposit, the depositor can only obtain a pro rata dividend declared on realisation of his assets like any other creditor and cannot claim any specific money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in CIT v. Ambalal Sarabhai Trust (No. 3) [1988] 173 ITR 683. In that case, the trust sold the shares and allowed 90 per cent. of the sale proceeds of the shares to remain with the buyer as a fixed deposit carrying interest and it invested ten per cent. in fixed deposit with the bank. The Gujarat High Court held that the said fixed deposits with the buyer of the shares and the bank were acquisition of a capital asset for the purposes of section 11(1A) and the trust was not liable to be taxed on the capital gains accruing on the sale of the said shares. The special leave petition filed by the Department against the said decision of the Gujarat High Court was dismissed by the Supreme Court in the case of the same assessee. In CIT v. Trustees of H. E. H. the Nizam's Charitable Trust [1981] 131 ITR 497 (AP), the sale proceeds of certain shares belonging to the trust were invested in the shape of deposits in banks. It was held that the net consideration of the shares had been utilised for acquiring another capital asset within the meaning of section 11(1A). Learned counsel for the assessee is correct in emphasising that the relation of banker and customer is not that of a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l effect of the transaction is that of a loan to the bank upon the promise and obligation, usually implied by law, to pay or repay the amount deposited, usually upon demand; there is nothing of a trust or fiduciary nature in the transaction, nor anything in the nature of a bailment in the transaction or relationship or in the nature of any right to the specific moneys deposited. Rather, the funds thus received are commingled with other funds of the bank and may be loaned or otherwise disposed of by the bank ; indeed, if the funds are lost, destroyed, or stolen, or become worthless the loss must be borne by the bank, even though it is free from negligence or fault." "The relationship of a depositor in a savings bank account or of a depositor having a savings account, to the bank is dependent upon the nature of the bank's business or corporate make-up and upon the way and for whose ultimate benefit the business of the bank is conducted. If the deposit is in a savings bank which has a, capital stock and stockholders, the relationship is practically the same as that existing between the depositor of a commercial account and the bank which runs the account, viz., that of debtor and cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. But we find it difficult to reconcile why the Board felt called upon to impose a minimum period of six months for a deposit to qualify as an asset. Deposit is in law either an asset or not an asset. But there is no point in fixing a minimum time frame. If a deposit for a term of six months or more is a new capital asset for the purpose of sub-section (1A) of section 11 when made out of the proceeds of sale of an existing capital asset, we perceive no reason why a deposit for a lesser term should not likewise be an asset different from the proceeds deposited. How the duration of the term of the deposit can be the test of its being an asset or not is apparently not intelligible. To our mind, the fixing of an arbitrary time-frame for a deposit to qualify as an asset does not stand to reason and does not accord with the fundamentals of the law and practice relating to banking. Once a deposit is accepted to be an asset, the larger or lesser duration of the term is an immaterial consideration. The circular of the Board that is not consonant with the general principles of law cannot hold sway. The restrictive stipulation of the minimum period of six months has the effect of mutilating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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