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TMI Blog2005 (11) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... which will be strictly applied, the interest on inter-corporate deposits unless they clearly fall within the meaning of interest on loans and advances would not be taxable. We accordingly hold that inter-corporate deposit can neither be a loan nor an advance. We, therefore, direct the Assessing Officer 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. In the result, all the appeals of the assessee are allowed. - HON'BLE R.P. GARG, VICE PRESIDENT AND I.S. VERMA, JUDICIAL MEMBER For the Appellant : S.N. Soparkar, Adv. For the Respondent : P.R. Ravikumar, DR ORDER R.P. Garg, Vice President. 1. These six appeals by the assessee are against the orders of Commissioner of Income-tax (Appeals) for the assessment years 1998-99 to 2000-01 arising out of assessment orders and penalties levied by the Assessing Officer. For the sake of convenience, they are being disposed of by this common order. 2. The dispute in all these appeals is as to whether the income from interest on inter corporate deposits was chargeable to tax under Interest-tax Act or not and thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the decisions some of which though are not directly on the issue but makes a distinction between the deposit and a loan. These are (i) CIT v. Sahara India Saving and Investment Corpn. [2003] 264 ITR 646 (All.); (ii) CIT v. United Western Bank [2003] 259 ITR 312 (Bom.); (iii) Baidya Nath Plastic Industries (P.) Ltd. v. K.L. Anand, ITO [1998] 230 ITR 522 (Delhi); (iv) A.M. Shamsudeen v. UOI [2000] 244 ITR 266 (Mad.); (v) The decision of the Tribunal in the case of Oriental Insurance Co. Ltd. v. Dy. CIT [2004] 89 ITD 520 (Delhi); and (vi) Sahara India Saving Investment Corpn. Ltd. v. Asstt. CIT [2001] 79 ITD 56 (All.) wherein the interest from deposit and security deposits are held to be not interest on loans and advances. The ld. Departmental Representative, on the other hand, relied upon the decision of Mumbai Tribunal in the case of Bajaj Auto Holdings Ltd. v. Dy. CIT [2005] 95 ITD 356 wherein it was held that interest on deposit is interest on advance. Here in this case, the decision of the Delhi Tribunal in 89 ITD 521 was not discussed. 5. We have heard the parties and considered their rival submissions. Section 4 of the Interest-tax Act is a charging section and it reads a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- 12. The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction. 10. Again, in the case of Ram Rattan Gupta v. Director of Enforcement, Foreign Exchange Regulation AIR 1966 SC 495, the Supreme Court in the context of section 4 of FERA of 1947 discussed the definition between loan and deposit as under:- The expression 'to lend' in the ordinary use means to deliver to another a thing or on condition that the thing lent shall be returned with or without compensation for use made of it by the person to whom it lent. The subject-matter of lending also be money. Though a loan contract created a debt, there may be a debt and without contracting a loan, in other words, the concept of debt is more comprehensive than that of loan. It is settled law that the relationship between the banker and a customer qua debtor and creditor. Though, ordinarily a deposit of an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement for using the amount. However, the question in a given case whether the debit is deposit or a loan will be one of fact which will have to be decided on the facts and circumstances of each case. The use of the term loan' or 'deposit' may not itself be conclusive, though, of course, it is a circumstance which would be taken into account. What should be regarded is the cumulative effect of the evidence which bears on the character of the debt as a loan or a deposit. Where certain amount are paid or given by a particular person to other without there being a requirement of the person receiving the same, without applying the above test, it would certainly be a deposit. This is the only distinction. 13. The Bombay High Court in the case of Pennwalt (India) Ltd. v. Registrar of Companies [1987] 62 Comp. Cas. 112 discussed the concept of loan and deposit with reference to sections 58A and 227(1A)(d) as under:- Held, allowing the petition, that there was a distinction between a loan and a deposit for the purpose of the Companies Act, 1956, and in the absence of anything to hold that the deposits made by the appellant-company with well known independent companies were i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general meaning of the term 'interest' could not be read into it, (ii) it was only the interest on loans and advances which was within the ambit of definition of the term 'interest' and consequently, liable to interest tax, and (iii) the assessee's investments in securities, debentures and F.Ds, etc. being investments as per the R.B.'s directions were for carrying on the business of Residuary Non-Banking Co. and could not partake the character of investment by way of loans and advances and consequently the income therefrom could not take the colour of interest on loan or interest on advances . The Revenue in that case, contended that since earlier definition of section 2(7) specifically excluded interest on securities from the definition of interest , while the new definition of the word interest does not specifically exclude interest on securities, the legislative intend was obviously that now interest on securities will also be treated as interest within the meaning of section 2(7) of the Act. This contention of the Revenue was not accepted by the High Court. 16. In the case of CIT v. United Western Bank Ltd. [2003] 259 ITR 312 the Bombay High Court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with the provisions of sections 269SS, 269T and 271E, the Madras High Court held that the mere presence of some attributes of the loan transaction in a deposit would not be sufficient to regard a loan as a deposit. They are two transactions in the commercial world and by interpreting and expanding the scope of the term deposit in section 269T, it is impermissible to enlarge the concept and take in the concept of loan transaction also within the meaning of section 269T. The submission of the ld. counsel of the Revenue that the expression deposit is widely defined under section 269T and it would include the loan was not accepted. 19. In the case of Life Insurance Corpn. of India v. Jt. Commissioner of Interest-tax [2002] 82 ITD 749, the Mumbai Bench of the Tribunal in the context of the term interest used in section 2(7) of the Interest-tax Act it was held that interest tax has to be levied only on loans and advances and not on investment as a whole and in that context the investment in debentures, bonds and Government securities was held to be outside the scope of section 2(7) of the Act. When a person deposits money in a bank, a debtor-creditor relationship is created, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positor, who goes to the depositee for investing his money primarily with the intention to earn interest. That is why the Hon'ble Supreme Court held in the case of Ram Ratan Gupta that deposit even in current account with the bank did not amount to loan. In view of such distinction, we are of the view that the interest on deposits would not fall within the ambit of the expression 'chargeable interest' appearing in section 5 of the Act. 21. The Ahmedabad Bench of the Tribunal relying upon the decision of Delhi Tribunal in Oriental Insurance Co. Ltd.'s case directed the Assessing Officer to exclude the interest earned by the assessee on the deposits made with financial institutions while computing the total chargeable income under the Interest-tax Act. It had quoted the following observations from the decision of the Tribunal in the case of Oriental Insurance Co. Ltd.'s case:- In view of the above provisions, the case of the revenue is that deposits with banks and other institutions would fall within the ambit of the word 'loans'. While the case of the assessee is that 'loans' and 'deposits' are different expressions having different meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. however, observed with regard to assessability of interest on deposit under Interest-tax Act as under making a distinction of the judgment of the Bombay High Court in the case of Pennwalt (India) Ltd. by stating that while interpreting section 2(7) of the Interest-tax Act the ratio of Bombay High Court decision would not be applied and the ambit and scope of the term 'interest' has to be independently determined. Similar would be the position with regard to cases which arise under sections 269SS and 269T of the Act. The relevant observations are: 9. The definition of the word 'interest', as contained under section 2(7), has been already reproduced above. For the purposes of the Interest-tax Act, 'interest' means interest on loans and advances made in India. The definition further goes to say that it includes certain items, but, does not include certain other items. There is no other provision in the Interest-tax Act which refers to 'deposit' in contra-distinction to 'loan' or 'advance'. Interest on 'deposit' is not specifically excluded from the definition under section 2(7). Interest on loans as well as advance is chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 that advance means literally a payment beforehand; in certain cases it may be a loan but it cannot be said that a sum paid by way of advance is necessarily a loan. In Raja of Venkatagiri v. Krishnayya Rao Bahadur AIR 1948 PC 150 at p. 155, it was observed that ordinarily an advance does not connote any idea of repayment. It is, therefore, clear that the word 'advance' used in section 296 means an advance in the nature of a loan and not merely an advance as is understood in common parlance in the sense of payment of money beforehand and which is likely to become due at some future time. 25. It may be stated here that section 296 of Companies Act provides for the applicability of section 295 regulating loans to directors for book debt which is in the nature of loans or advances from its inception. 26. The term loans and advances should be understood conjointly and not in isolation. If so read, the advances which are in the nature of loan alone should be covered in the term. As observed by the Madras High Court and the Privy Council decisions aforesaid, the advances may in certain circumstances be loan but not necessarily always. Ordinarily an advance is a payment beforehand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand if the court seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt, J. in his classic statement: In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One must only look fairly at the language used. In A.V. Fernandez v. State of Kerala [1957] 8 STC 561; AIR 1957 SC 657, the Supreme Court of India stated the principle as follows: If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appellant has relied on the decision of the Supreme Court in Krishi Utpadan Mandi Samiti v. Shankar Industries [1993] Supp. 3 SCC 361 (II). In that decision the question came up for interpretation before the Supreme Court about the definition of agricultural produce in section 2(a) of the U.P. Krishi Utpadan Mandi Adhiniyam. Section 2(a) reads as follows: 2(a) 'Agricultural Produce' means such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry or forest as are specified in the Schedule, and includes admixture of two or more of such items, and also includes any such item in processed form, and further includes gur, rab, shakkar, khandsari and jaggery. The Supreme Court in paragraph 12 of its judgment has observed: It is a well-settled rule of interpretation that where the Legislature uses the words 'means' and 'includes' such definition is to be given a wider meaning and is not exhaustive or restricted to the items contained or included in such definition. Thus the meaning of 'agricultural produce' in the above definition is not restricted to any products of agriculture as specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the preceding words and it is by way of extension, and not for restriction. In fact this is precisely the meaning, which we are giving to the word interest in section 2(7) of the Interest-tax Act. The word includes used there also enlarges the meaning of the preceding words, that is to say, the word interest means interest by way of loans and advances, and two other items also. However, the enlargement of the definition is only to the extent mentioned in the definition itself, and no further. Hence we do not agree with the submission of learned counsel for the appellant that the natural meaning of the word interest must be given to it. It may be mentioned that legal fictions are well known in law. A statute often defines something, which is different from the meaning, which it has in common parlance. For example, section 43(3) of the Income-tax Act defines a plant to include books. Ordinarily a plant means a factory, and no one in common parlance regards a book as a factory. However, in the Income-tax Act a book is treated as a factory for the purpose of depreciation under section 32. A large number of such other instances of legal fictions can be given. It is open to the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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