DCIT, Circle - 11, Kolkata, Kolkata V. M/s. P.C. Chandra Holdings Pvt. Ltd., Kolkata

ITA 1600/KOL/2011

• Counselvise Citation: 160023514 RSA 2011
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V APPALA RAJU
• Assessee Lawyers: RAVI TULSYAN
• Keywords: Deemed dividend
• Section: 12; 14A

Judgement Text

I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA CORAM : SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI ABRAHAM P. GEORGE (ACCOUNTANT MEMBER) I.T.A. NO.: 1600/KOL./ 2011 ASSESSMENT YEAR : 2008-2009 DEPUTY COMMISSIONER OF INCOME TAX,............. ..APPELLANT CIRCLE-11, KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. P.C. CHANDRA HOLDINGS PVT. LTD.,.............. .............RESPONDENT P-24A, CIT ROAD, ENTALLY, KOLKATA-700 014 [PAN : AABCP 7519 D] APPEARANCES BY: SHRI V. APPALA RAJU, ADDL. CIT, SR. D.R., FOR THE D EPARTMENT SHRI RAVI TULSYAN, A.R., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : DECEMBER 12, 2013 DATE OF PRONOUNCING THE ORDER : DECEMBER 19, 2013 O R D E R PER ABRAHAM P. GEROGE: 1. IN THIS APPEAL FILED BY THE REVENUE, IT ASSAILS THE DELETION OF AN ADDITION OF RS.1,60,00,000/- MADE BY THE ASSESSING OFFICER UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), VIDE ITS GROUNDS NO. 1 & 2. 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE B USINESS OF TRADING IN BULLION HAD FILED ITS RETURN FOR THE IMPUGNED AS SESSMENT YEAR DECLARING AN INCOME OF RS.1,62,09,940/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTED THAT ASSESSEE WAS HOLDING 10.03% OF EQUITY SHARES OF ONE M/S. CHANDRAS CHEMICAL ENTERP RISES (P) LTD. AND 12% OF EQUITY SHARES OF M/S. D.L. JEWELS (P) LTD. A SSESSEE HAD RECEIVED I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 2 UNSECURED LOANS OF RS.1,50,00,000/- FROM THE FORMER AND RS.10,00,000/- FROM THE LATTER. ASSESSING OFFICER WAS OF THE OPINI ON THAT SECTION 2(22)(E) OF THE ACT WAS ATTRACTED. M/S. CHANDRAS CHEMICAL E NTERPRISES (P) LTD. WAS HAVING ACCUMULATED PROFITS OF RS.6,59,82,622/- AS ON 31.03.2008 AND M/S. D.I. JEWELS (P) LTD. WAS HAVING ACCUMULATED PR OFIT OF RS.17,98,965/- AS ON 31.03.2008. WHEN PUT ON NOTICE, ASSESSEE STAT ED THAT THESE WERE TERM DEPOSITS RECEIVED BY IT FROM THE SAID TWO COMP ANIES AND WAS SHOWN AS UNSECURED LOAN IN THE BALANCE-SHEET FOR COMPLYIN G WITH SCHEDULE VI OF THE COMPANIES ACT, 1956. AS PER THE ASSESSEE, DEPOS ITS WERE TAKEN IN THE ORDINARY COURSE OF BUSINESS. ASSESSEE ALSO PRODUCE D A LEGAL OPINION TAKEN BY IT FROM DR. DEBI PROSAD PAL, STATING THAT DEPOSITS RECEIVED FROM THE SAID TWO COMPANIES WOULD COME WITHIN THE EXCEPT IONS PROVIDED ON SECTION 2(22)(E) OF THE ACT. HOWEVER, ASSESSING OFF ICER DID NOT ACCEPT THESE CONTENTIONS. ACCORDING TO HIM, ASSESSEE WAS N OT A BANKING OR NON- BANKING FINANCIAL INSTITUTION. IT HAD NOT TAKEN ANY PERMISSION FROM RBI TO RECEIVE ANY TERM DEPOSIT. CONFIRMATIONS GIVEN BY THE RESPECTIVE PARTIES REFLECTED THAT WHAT WERE RECEIVED WERE ONLY UNSECUR ED LOANS. THE LOANS WERE TAKEN ON DIFFERENT DATES AND HENCE, COULD NOT BE CONSIDERED AS DEPOSIT. RELYING ON THE DECISION OF HONBLE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF OSCAR INDUSTRIES (P) LTD. VS.- DCIT [98 ITD 339], ASSESSING OFFICER CAME TO A CONCLUSION THAT THE AMOUNTS RECEI VED BY THE ASSESSEE FROM THE TWO COMPANIES WOULD FALL WITHIN THE REALM OF DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. ADDITION OF RS.1 ,60,00,000/- WAS MADE. 3. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. C IT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT WHAT WERE RECEIVE D FROM M/S. CHANDRAS CHEMICAL ENTERPRISES (P) LTD. AND M/S. D. I. JEWELS (P) LTD. WERE ONLY INTER-CORPORATE DEPOSITS. AS PER THE ASSESSEE, UNLESS AND UNTIL MONEY RECEIVED WAS IN THE NATURE OF A LOAN OR ADVAN CE, SECTION 2(22)(E) WOULD NOT BE ATTRACTED. INTER-CORPORATE DEPOSITS R ECEIVED WERE FOR SPECIFIC PERIOD WITH SPECIFIC INTEREST RATES. IT WA S COMMON IN THE CORPORATE MANAGEMENT TO KEEP SURPLUS FUNDS IN INTER -CORPORATE DEPOSITS. I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 3 JUST BECAUSE IT WAS PLACED UNDER THE HEAD LOANS AN D ADVANCES IN THE BALANCE-SHEET FOR COMPLYING WITH THE REQUIREMENT OF SCHEDULE VI OF THE COMPANIES ACT, 1956, WOULD NOT MAKE IT A LOAN PER SE. 4. LD. CIT(APPEALS) WAS APPRECIATIVE OF THESE CONTE NTIONS. ACCORDING TO HIM, THE SUMS WERE FOR A SPECIFIC PERIOD AT SPEC IFIED INTEREST RATE. INTEREST WAS ALSO PAID BY THE ASSESSEE AFTER DEDUCT ING TAX. RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS.- ANKITEK PVT. LTD. [340 ITR 42], LD. CIT(APPEALS) HELD THAT DEPOSITS RECEIVED IN NORMAL COURSE OF BUSINESS COULD NOT BE CONSIDERED A S LOANS AND ADVANCES FOR THE PURPOSE OF APPLICATION OF SECTION 2(22)(E) OF THE ACT. TAKING THIS VIEW, HE DELETED THE ADDITION. 5. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE O RDER OF LD. CIT(APPEALS) SUBMITTED THAT ASSESSEE ITSELF HAD SHO WN THE AMOUNT AS LOAN IN ITS BALANCE-SHEET. IT, THEREFORE, CANNOT SAY THA T SUCH AMOUNTS WERE INTER-CORPORATE DEPOSITS. LD. CIT(APPEALS) HAD REAC HED A CONCLUSION WITHOUT PROPERLY APPRECIATING THE NATURE OF AMOUNTS RECEIVED. THEREFORE, ACCORDING TO HIM, LD. CIT(APPEALS) FELL IN ERROR IN DELETING THE ADDITIONS UNDER SECTION 2(22)(E) OF THE ACT. 6. PER CONTRA LD. A.R. SUPPORTED THE ORDER OF LD. C IT(APPEALS). HE ALSO RELIED ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF IFB AGRO INDUSTRIES LIMITED VS.- JCIT IN ITA NO. 1 721/KOL/2012, ORDER DATED 12.03.2013, IN SUPPORT OF HIS CONTENTION, THA T SECTION 2(22)(E) COULD NOT BE ROPED IN, TO TAX ON INTER-CORPORATE DE POSITS AS DEEMED DIVIDEND. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, ASSESSEE PRODUCED COPIES OF LEDGER ACCOUNTS OF M/S. CHANDRAS CHEMICA L ENTERPRISES (P) LTD. AS WELL AS M/S. D.I. JEWELS (P) LTD. AS APPEARING I N ITS BOOKS. ENTRIES IN I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 4 THESE LEDGER MARKED AS ANNEXURE-A & ANNEXURE-B ARE REPRODUCED HEREUNDER :- DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 26.4.2007 DR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 162667 ON STAN-CHART FOR RS.20,00,000/- & 412611 ON UBI FOR RS.30,00,000/- TOWARDS ICDS AT AN INTEREST @ 12% P.A. FOR 700 DAYS RECEIPT 8 50,00,000 23.6.2007 DR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 224888 ON STAN-CHART & CH. NO. 412951 ON UBI AS ICD AT AN INTEREST @ 12% P.A. FOR 900 DAYS RECEIPT 48 50,00,000 15.3.2008 DR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 052511 ON STAN-CHART FOR RS.40,00,000/- & CH. NO. 335097 ON STATE BANK OF INDIA FOR RS.10,00,000/- TOWARDS ICDS AT AN INTEREST @ 12% P.A. FOR RECEIPT 196 50,00,000 I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 5 650 DAYS 31.3.2008 DR INTEREST ON ICDS BEING INTEREST FOR THE YEAR FROM 1.4.2007 TO 31.3.2008 ON ICD PROVIDED JOURNAL 24 10,50,820 CR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 149245 TO 149248 TOWARDS INTEREST ON ICD FOR FY 07- 08 & TDS @ 22.66% DEDUCTED PAYMENT 415 10,50,820 1050,820 1,60,50,820 CR CLOSING BALANCE 150,00,000 160,50,820 160,50,820 ANNEXURE-B DATE PARTICULARS VCH TYPE VCH NO. DEBIT CREDIT 16.11.2007 DR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 756988 ON SBI TOWARDS ICD AGAINST 10% INTEREST PER ANNUM FOR 137 RECEIPT 139 10,00 ,000 I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 6 DAYS. 31.3.2008 DR. INTEREST ON ICDS BEING INTEREST FOR THE YEAR FROM 1.4.2007 TO 31.3.2008 ON ICD PROVIDED JOURNAL 24 37,432 CR CURRENT ACCOUNT UTI, CIT ROAD CH. NO. 149245 TO 149248 TOWARDS INTEREST ON ICD FOR FY 07-08 & TDS @ 22.66% DEDUCTED PAYMENT 415 37,432 37,432 1037,432 1000,000 CR CLOSING BALANCE 1037,432 10,37,432 IT IS THEREFORE CLEAR THAT ASSESSEE ITSELF HAD SHOW N THE AMOUNTS IN ITS LEDGER AS INTER-CORPORATE DEPOSITS, WITH INTEREST R ATE @ 12% IN THE CASE OF M/S. CHANDRAS CHEMICAL ENTERPRISES (P) LTD. AND INTEREST RATE OF 10% FROM M/S. D.I. JEWELS (P) LTD. THE AMOUNTS RECEIVED WERE ALL IN ROUND SUMS AND NOT IN ODD FIGURES. THESE FIGURES AS APPEA RING IN THE LEDGER PAGES HAVE NOT BEEN DISPUTED BY THE REVENUE. WHEN T HE AMOUNTS WERE SHOWN IN LEDGER AS INTER-CORPORATE DEPOSIT, JUST BE CAUSE THE ASSESSEE IN THE BALANCE-SHEET HAD PUT IT UNDER THE HEAD LOANS AND ADVANCES WOULD NOT IN OUR OPINION, CHANGE THE NATURE OF RECEIPT. P RIMARY ENTRIES ARE THERE I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 7 WHICH APPEAR IN THE LEDGER AND CASH/BANK BOOKS. BAL ANCE-SHEET AND PROFIT & LOSS A/C. ARE SECONDARY RECORDS DERIVED FR OM SUCH PRIMARY RECORDS. THEREFORE, WE ARE INCLINED TO ACCEPT THE C ONTENTION OF THE ASSESSEE THAT MONEY RECEIVED FROM M/S. CHANDRAS CH EMICAL ENTERPRISES (P) LTD. AND M/S. D.I. JEWELS (P) LTD. WERE IN THE NATURE OF INTER-CORPORATE DEPOSITS. THE VIEW TAKEN BY THE ASSESSING OFFICER T HAT ASSESSEE WAS NOT RECOGNIZED NBFC, IN OUR OPINION, MAY NOT BE RELEVAN T IN SO FAR AS ACCEPTANCE OF SUCH INTER-CORPORATE DEPOSITS IS CONC ERNED. THE TRIBUNAL IN THE CASE OF IFB AGRO INDUSTRIES LTD. HELD AS UNDER: - 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT T HE OUTSET, A PERUSAL OF THE FACTS IN THE ASSESSEES CASE CLEARLY SHOW THAT THE DISPUTE IN THE APPEAL PRIMARILY REVOLVES AROUND THE ISSUE AS TO WHETHER THE INTERCORPORATE DEPOSITS RECEIVED BY THE ASSESEE FROM M/S. IFB IS A LOAN OR ADVANCE OR IS A DEPOSIT . ADMITTEDLY, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT REFERS TO ONLY LOANS AND ADVANCES IT DOES NOT TALK OF A DEPOSIT. THE FAC T THAT THE TERM DEPOSIT CANNOT MEAN A LOAN AND THAT THE TWO TER MS LOAN AND THE TERM DEPOSIT ARE TWO DIFFERENT DISTINCT TERMS IS EVIDENT FROM THE EXPLANATION TO SECTION 269T AS ALSO SECTION 269SS O F THE ACT WHERE BOTH THE TERMS ARE USED. FURTHER, THE SECOND PROVIS O TO SECTION 269SS OF THE ACT RECOGNISES THE TERM LOAN TAKEN O R DEPOSIT ACCEPTED. ONCE IT IS AN ACCEPTED FACT THAT THE TERM S LOAN AND DEPOSIT ARE TWO DISTINCT TERMS WHICH HAS DISTINCT MEANING THEN IF ONLY THE TERM LOAN IS USED IN A PARTICULAR SECTIO N THE DEPOSIT RECEIVED BY AN ASSESSEE CANNOT BE TREATED AS A LOA N FOR THAT SECTION. HERE, WE MAY ALSO MENTION THAT IN SECTION 269T OF THE ACT, THE TERM DEPOSIT HAS BEEN EXPLAINED VIDE VARIOUS CIRCULAR ISSUED BY CBDT. THUS, THE VIEW TAKEN BY THE LD. CIT(A) THAT T HE INTERCORPORATE DEPOSIT IS SIMILAR TO THE LOAN WOULD NO LONGER HAVE LEGS TO STAND. A PERUSAL OF THE DECISION OF HONBLE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GUJARAT GAS & FINANCIAL SERVICES LTD. R EFERRED TO SUPRA, CLEARLY SHOWS THAT THE HONBLE SPECIAL BENCH HAD TA KEN INTO CONSIDERATION THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF HOUSING & URBAN DEVELOPMENT CORPORATION LTD. REPORTED IN 102 TTJ (DEL.)(SB) 936 TO COME TO THE CONCLUSION THAT LOANS AND DEPOSITS ARE TO BE TAKEN DIFFERENT AND DISTINCT. FU RTHER, IN VIEW OF THE DECISION OF HONBLE COORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF BOMBAY OIL INDUSTRIES LTD., REFERRED TO SUPRA, WHER EIN THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS FOLLOWS: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE AUTHORITIES BELOW HAVE NOT CONTROVERTED THE CLAIM OF THE ASSESSEE COMPANY THAT THE AMOUNT RECEIVED FROM ABOVE THREE COMPANIES IS ICDS. THE I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 8 AO HELD AGAINST THE ASSESSEE ONLY ON ACCOUNT THAT I T HAD FAILED TO EXPLAIN, THE INVESTMENT IS NEITHER LOAN O R ADVANCE. IT IS A SETTLED POSITION THAT DEPOSITS CANNOT BE EQ UATED WITH LOANS OR ADVANCES. THE JURISDICTIONAL HIGH COURT IN THE DURGA PRASAD MANDELIAS CASE (SUPRA) HAS NOTICED TH E DISTINCTION BETWEEN DEPOSITS AND LOANS IN THE CONTE XT OF S. 370 OF THE COMPANIES ACT. THE COURT HELD AS UNDER: THERE CAN BE NO CONTROVERSY THAT IN A TRANSACTION OF A DEPOSIT OF MONEY OR A LOAN, A RELATIONSHIP OF A DEBTOR AND CREDITOR MUST COME INTO EXISTENCE. THE TERMS DEPOSIT AND LOAN MAY NOT BE MUTUALLY EXCLUSIVE, BUT NONETHELESS IN EACH CASE WHAT MUST BE CONSIDERED IS THE INTENTON OF THE PARTIES AND T HE CIRCUMSTANCES. IN THE PRESENT CASE, BARRING THE ASSERTION OF THE RESPONDENT THAT THE MONEYS ADVANCED BY THE COMPANY TO THE ASSOCIATED CEMENT COMPANIES CONSTITUTE A LOAN AND OFFEND S. 370 OF THE COMPANIES ACT, THERE IS NOTHING ELSE TO SHOW THAT MONEYS HAVE BEEN ADVANCED AS A LOAN. IN THE CONTEXT OF THE STATUTORY PROVISIONS, THE WORD LOAN MAY BE USED IN THE SENSE OF A LOAN NOT AMOUNTING TO A DEPOSIT. THE WORD LOAN IN S. 370 MUST NOW BE CONSTRUED AS DEALING WITH LOANS NOT AMOUNTING TO DEPOSITS, BECAUSE, OTHERWSE, IF DEPOST OF MONEYS WITH CORPORATE BODIES WERE TO BE TREATED AS LOANS, THEN DEPOSITS WITH SCHEDULED BANKS WOULD ALSO FALL WITHIN THE AMBIT OF S. 370 OF THE COMPANIES ACT. THEREFORE, MONEYS GIVEN BY THE COMPANY TO THE OTHER BODIES CORPORATE IS A LOAN WITHIN THE MEANING OF S. 370 OF THE COMPANIES ACT MUST BE NEGATIVED. THEREFORE, THE PETITIONERS WOULD WELL BE ENTITLED TO THE RELIEF. SEC. 370 OF THE COMPANIES ACT, 1956 WAS SUBSEQUENTL Y AMENDED TO INCLUDE DEPOSITS NTO ITS AMBIT THEREBY INDICATING THE DISTINCTION BETWEEN DEPOSITS AND LOANS/ADVANCES . THE RECENT DECISION OF THE TRIBUNAL IN THE CASE OF GUJA RAT GAS FINANCIAL SERVICES LTD.S CASE (SUPRA) HAS ELABORAT ELY CONSIDERED THE ISSUE WHETHER INTEREST ON ICDS IS IN TEREST ON LOANS OR ADVANCES AND WHETHER THE SAME IS EXIGIBLE TO CHARGEABLE INTEREST UNDER INTEREST-TAX ACT. THE TRI BUNAL AFTER CONSIDERING THE ENTIRE PRECEDENT ON THE ISSUE THOUG H IN THE CONTEXT OF THE INTEREST-TAX ACT HAD CATEGORICALLY H ELD THAT INTEREST ON ICDS IS NOT AKIN TO INTEREST ON LOANS O R ADVANCES. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL C ITED SUPRA WHICH RUNS FROM PARAS 68 TO 74 IS REPRODUCED BELOW: I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 9 68. BEFORE THE AO THE ASSESSEE AS REGARDS INCOME F ROM ICD THE ASSESSEE COMPANY ACCEPTED THIS INTEREST OF RS. 1,21,54,153 ALONG WITH INTEREST ON BILL DISCOUNTNG RS. 1,48,74,208 AND OTHER INTEREST OF RS. 3,66,184 CAN BE BOUGHT UNDER THE PURVIEW OF THE INTEREST-TAX ACT, 1974. HO WEVER BEFORE CIT(A) IT WAS SUBMITTED THAT THESE ARE NTER EST ON DEPOSITS AND THE NATURE IS THAT OF THE INVESTMENT A ND SO INTEREST-TAX BEING LEVIABLE ON LOANS AND ADVANCES A ND NOT ON FIXED DEPOSITS, THE AMOUNT WAS NOT TO BE INCLUDED. THE CIT(A) HELD: I HAVE CAREFULLY CONSIDERED THE MATTER AND FIND TH AT THE DEFINITION OF INTEREST DOES NOT SPEAK OF EXCLUD ING THIS AMOUNT IN ITS DEFINITION. ACCORDINGLY THEREFOR E, THE INCLUSION BY THE AO OF THESE ITEMS IS FOUND JUSTIFI ED AND IS UPHELD. 69. THE SUBMISSION OF THE ASSESSEE IS THAT THESE IC DS BEING NEITHER LOANS OR ADVANCES, INTEREST EARNED ON THESE IS NOT EXIGIBTE TO INTEREST TAX IN VIEW OF THE DECISION OF AHMEDABAD T RIBUNAL IN THE CASE OF UTKARSH FINCAP (P) LTD. VS. ITO (2006) 101 TTJ (AHD) 210. RELIANCE IS ALSO PLACED ON THE DECISION OF HOUSING & URBAN DEVELOPMENT CORPORATION LTD. VS. JT. CIT (2006) 102 TTJ (DEL) (SB) 936 : (2006) 5 SOT 918 (DEL)(SB), STANROSE HOLDING LTD. (ITA NO. 25/MUM/1966) AND PERSEPOLIS INVESTMENT CO. (P) LTD. (ITA NO. 51/MUM/1997). THE LEARNED DEPARTMENTAL REPRESENTATI VE ON THE OTHER HAND SUPPORTED THE DECISION OF THE CIT(A) AND SUBMITTED THAT WHEN ASSESSEE ITSELF HAD OFFERED IT TO TAX WHERE TH E QUESTION OF ALLOWING IT AS NOT TAXABLE. HE ALSO SUBMITTED THAT IT IS TAXABLE AS HETD IN BAJAJ AUTO HOLDINGS LTD. VS. DY. CIT (2005) 96 TTJ (MUMBAI) 856 : (2005) 95 ITD 356 (MUMBAI). 70. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RI VA SUBMISSIONS. IT MIGHT BE TRUE THAT ASSESSEE HAD OFFERED IT TO TA X INITIALLY BUT HE CLAIMED IT AS NOT TAXABLE AND THEREFORE THE MATTER HAS TO BE EXAMINED ON MERITS AND TO DETERMINE AS TO WHETHER I T IS TAXABLE UNDER THE ACT. WE FIND IT IS NOT TAXABLE IN THE LIG HT OF THE DECISION IN THE CASE OF UTKARSH FNCAP (P) LTD. (SUPRA) WHEREIN AHMEDABAD BENCH OF THE TRIBUNAT AFTER CONSIDERING THE DECISIO N IN THE CASE OF FEDERATION OF ANDHRA PRADESH CHAMBERS OF COMMERCE & INDUSTRY & ORS. VS. STATE OF ANDHRA PRADESH & ORS. (2001) 165 CTR (SC) 672 : (2001) 247 ITR 36 (SC), CIT VS. SAHARA INDIA SAVING S & INVESTMENT CORPORATION LTD. (2003) 185 CTR (ALL) 136 : (2003) 264 ITR 646 (ALL) AND FOLLOWING THE DECISIONS IN THE CASE OF GUJARAT INDUSTRIAL INVESTMENT CORPN. LTD. (SIC), ORIENTAL INSURANCE CO , LTD. VS. DY. CIT (2004) 82 TTJ (DEL) 1084 : (2004) 89 ITD 520 (DEL) HELD THAT INTEREST I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 10 ON ICDS ARE NOT CHARGEABLE TO INTEREST-TAX, AS THE DEPOSITS ARE NOT IN THE NATURE OF LOANS OR ADVANCES. IT HELD AS UNDER: THE WORDS LOANS AND ADVANCES SHOULD BE UNDERSTOO D CONJOINTLY AND NOT IN ISOLATION. IF SO READ, THE AD VANCES WHICH ARE IN THE NATURE OF LOAN ALONE SHOULD BE COV ERED IN THE TERM. ORDINARILY AN ADVANCE IS A PAYMENT BEFORE HAND AND IT DOES NOT CONNOTE, THE IDEA OF REPAYMENT. IT IS ADJUSTED WHEN THE ACTION FOR WHICH THE MONEY IS ADV ANCED IS COMPLETED AND IF NOT REPAID ON EXPIRY OF THE LOA N LIKE A DEPOSIT. THE COMPANY IS NOT BOUND TO ACCEPT THE DEP OSIT MADE, IF PROCEEDINGS ON THE BASIS OF THE PROSPECTUS A PERSON INTEREST TO MAKE A DEPOSIT. BY ISSUING PROSP ECTUS OF A COMPANY INVITES OFFER FOR MAKING DEPOSIT AND THAT IS NOT OFFER TO RECEIVE DEPOSIT WHEREAS IN CASE OF LOAN TH E ASSESSEE PRAYS FOR A LOAN. IT OFFERS TO BORROW MONE Y 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 CO NSTRUED AND THE SUBJECT CANNOT BE TAXED UNLESS COMES WITHIN THE LETTER OF LAW. THE ARGUMENT THAT A PARTICULAR INCOM E FALLS WITHIN THE SPIRIT OF THE LAW CANNOT BE AVAILED OF B Y 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 C ONSIDERED STRICTLY. IN VIEW OF THE ABOVE, THE INTEREST IN ICD S UNLESS THEY CLEARLY FALL WITHIN THE MEANING OF INTEREST ON LOANS AND ADVANCES WOULD NOT BE TAXABLE. ICD CAN NEITHER BE A LOAN NOT AN ADVANCE. THEREFORE, THE AO IS DIRECTED TO EX CLUDE THE INTEREST ON ICD FROM THE ASSESSMENT OF THE ASSESSEE . CONSEQUENTLY, THE LEVY OF PENALTY MADE WOULD ALSO N OT STAND. THEY ARE, ACCORDINGLY DELETED. 71. IT HAS CONSIDERED THE DECISION OF BAJAJ AUTO HO LDINGS LTD.S CASE (SUPRA) REFERRED TO BY THE CIT(A) AND DISTINGU ISHED BY STATING THAT MUMBAI BENCH HAS PROCEEDED ON A FOOTIN G THAT DEPOSIT WOULD BE AN ADVANCE. AND WOULD BE INCLUDIBL E N THE TERM WITH INTEREST ON DEPOSIT AND ADVANCE. THE BOMBAY BE NCH IS MORE PERSUADED BY THE REASON THAT THE INTEREST ON DEPOSI T WAS NOT EXCLUDED FROM THE DEFINITION OF INTEREST AND THE TE RM INTEREST ON LOANS AND ADVANCES WAS WIDE ENOUGH TO INCLUDE THE S AME. IT HAD NOT CONSIDERED THAT WHETHER IT WAS NOT A LOAN NOR A N ADVANCE AND AS TO WHETHER THE AMENDED DEFINITION OF INTERES T UNDER THE ACT WAS EXHAUSTIVE OR INCLUSIVE. IN HOLDING THAT TH E ICD IS NOT AN ADVANCE THE AHMEDABAD TRIBUNAL ALSO NOTICED THAT TH E MEANING I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 11 OF THE TERM ADVANCE AS UNDERSTOOD IN THE COMMERCIAL WORDS AND AS STATED UNDER THE TITLE WHAT IS ADVANCE IN THE FO LLOWING WORDS : IT WAS HELD IN KM. MOHAMMED ABDUL KADIR ROWTHER VS . S. MUTHIA CHETTIAR (1960) 2 MAD. LJ 13 AT 15 THAT ADVANCE MEANS LITERA LLY A PAYMENT BEFOREHAND; IN CERTAIN CASES IT MAY BE A LOAN BUT I T CANNOT BE SAID THAT A SUM PAID BY WAY OF ADVANCE IS NECESSARILY A LOAN. I N RAJA OF VENKATAGIRI VS. KRISHNAYYA RAO BAHADUR AIR 1948 PC 150 AT P. 155, I T WAS OBSERVED THAT ORDINARILY AND ADVANCE DOES NOT CONNOTE ANY IDEA OF REPAYMENT. IT IS, THEREFORE, CLEAR THAT THE WORD ADVANCED USED IN S. 296 MEANS AN ADVANCE IN THE NATURE OF A LOAN AND NOT MERELY AN ADVANCE A S IS UNDERSTOOD IN THE COMMON PARLANCE IN THE SENSE OF PAYMENT OF MONEY BE FOREHAND AND WHICH IS LIKELY TO BECOME DUE AT SOME FUTURE TIME. 72. IT HAS ALSO REFERRED TO S. 296 OF COMPANIES ACT REGULATING LOANS TO DIRECTORS FOR BOOK DEBT WHICH WAS IN THE NATURE OF LOANS OR ADVANCES FROM ITS INCEPTION. 73. IN THE CASE OF HOUSING & URBAN D EVELOPMENT CORPORATION LTD. (SUPRA), THE SPECIAL BENCH AFTER CONSIDERING V ARIOUS DECISIONS AND CIRCULARS OF CBDT HELD THAT DEPOSITS IN THE FORM OF SECURITIES AND BONDS CANNOT BE CONSIDERED AS LOANS AND ADVANCES AND AS S UCH INTEREST THEREON SHALL BE OUTSIDE THE SCOPE OF INTEREST DEFINED UNDE R S. 2(7) OF THE INTEREST TAX ACT. PARA 22 OF THE ORDER READS AS UNDER: 22. FROM THE FOREGOING DISCUSSION WE ARE OF THE CO NSIDERED VIEW THAT DESPITE SIMILARITIES, THE TWO EXPRESSIONS LOAN S AND DEPOSITS ARE TO BE TAKEN DIFFERENT AND THE DISTINCTION CAN BE SU MMED UP BY STATING THAT IN THE CASE OF LOAN, THE NEEDY PERSON APPROACHES THE LENDER FOR OBTAINING THE LOAN THEREFROM. THE LOAN I S CLEARLY LENT AT THE TERMS STATED BY THE LENDER. IN THE CASE OF DEPO SIT, HOWEVER, THE DEPOSITOR GOES TO THE DEPOSITEE FOR INVESTING HIS M ONEY PRIMARILY WITH THE INTENTION OF EARNING INTEREST. IN VIEW OF THIS LEGAL POSITION, IT HAS TO BE HELD THAT INTEREST ON DEPOSITS REPRESENTI NG INVESTMENT OF SURPLUS FUNDS WOULD ALSO NOT FALL UNDER THE DEFINIT ION OF INTEREST AS GIVEN IN S. 2(7) OF THE ACT AND AS SUCH WOULD NOT B E LIABLE TO INTEREST TAX. THE ANSWER TO THE QUESTION UNDER REFERENCE IN OUR HUMBLE OPINION IS THAT INVESTMENTS MADE BY WAY OF SHORT-TE RM DEPOSITS AND ALSO IN THE FORM OF SECURITIES AND BONDS CANNOT BE CONSIDERED AS LOANS AND ADVANCES AND AS SUCH INTEREST THEREON SHA LL BE OUTSIDE THE SCOPE OF INTEREST DEFINED UNDER S. 2(7) OF TH E ACT. 74. IN THESE CIRCUMSTANCES WE HOLD THAT INTEREST ON ICDS IS NOT AN INTEREST ON LOAN OR ADVANCE THEREFORE WOULD NOT BE INCLUDIBL E IN THE CHARGEABLE INTEREST UNDER THE INTEREST TAX ACT. FROM THE ABOVE IT IS CLEAR THERE IS DISTINCTION BET WEEN DEPOSITS VIS-A-VIS LOANS/ADVANCES. S. 2(22)(E) ENACTS A DEEMING FICTIO N WHEREBY THE SCOPE AND AMBIT OF THE WORD DIVIDEND HAS BEEN ENLARGED TO BRING WITHIN ITS SWEEP CERTAIN PAYMENTS MADE BY A COMPANY AS PER THE SITUA TIONS ENUMERATED IN I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 12 THE SECTION. SUCH A DEEMING FICTION WOULD NOT BE GI VEN A WIDER MEANING THAN WHAT IT PURPORTS TO DO. THE PROVISIONS WOULD N ECESSARILY BE ACCORDED STRICT INTERPRETATION AND THE AMBIT OF THE FCTION WOULD NOT BE PRESSED BEYOND ITS TRUE LIMITS. THE REQUISITE CONDITION FOR INVOKING S. 2(22)(E) OF THE ACT IS THAT PAYMENT MUST BE BY WAY OF LOAN OR ADVAN CES. SINCE THERE IS A CLEAR DISTINCTION BETWEEN THE ICDS VIS--VIS LOANS/ ADVANCES, ACCORDING TO US THE AUTHORITIES BELOW WERE NOT RIGHT IN TREATING THE SAME AS DEEMED DIVIDEND UNDER S. 2(22)(E) OF THE ACT. SINCE WE HOL D THAT ICDS DO NOT COME WITHIN THE PURVIEW OF DEEMED DIVIDEND UNDER S. 2(22 )(E) OF THE ACT, THE ALTERNATIVE CONTENTION OF THE ASSESSEE NAMELY BY VI RTUE OF S. 2(22)(E)(II) OF THE ACT, THE UNSECURED LOANS RECEIVED BY THE ASSESS EE IS NOT DIVIDEND IS NOT ADJUDICATED. WE ARE OF THE VIEW THAT THE INTER-CORPORATE DEPOSIT S CANNOT BE TREATED AS A LOAN FALLING WITHIN THE PURVIEW OF SECTION 2(22)(E) OF THE ACT. IN VIEW OF THE DECISION TAKEN BY THE COORDINATE BEN CH THAT INTER- CORPORATE DEPOSITS RECEIVED CANNOT BE CONSIDERED AS A LOAN OR ADVANCE SO AS TO VISIT AN ASSESSEE WITH THE HAZARDS OF SECTION 2(22)(E) OF THE ACT, LD. CIT(APPEALS) WAS IN OUR OPINION JUSTIFIED IN DELETI NG THE ADDITION. GROUNDS NO. 1 & 2 OF THE REVENUE STAND DISMISSED. 8. VIDE ITS GROUND NO. 3, REVENUE IS AGGRIEVED THAT DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO DIVIDEND WAS RESTRICTED TO % OF AVERAGE VALUE OF INVESTMENT BY LD. CIT(APPEALS). 9. ASSESSING OFFICER FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT HAD APPLIED RULE 8D OF THE INCOME TAX RU LES. ASSESSEE MOVED IN APPEAL BEFORE LD. CIT(APPEALS) SINCE ACCORDING T O IT INTEREST EARNED DURING THE RELEVANT PREVIOUS YEAR WAS NOT AT ALL AT TRIBUTABLE TO INVESTMENTS RESULTING IN DIVIDEND INCOME, CLAIMED A S EXEMPT. LD. CIT(APPEALS) AFTER VERIFYING THE CASH FLOW STATEMEN T CAME TO A CONCLUSION THAT LOANS RAISED WERE NOT USED BY THE ASSESSEE FOR THE PURPOSE OF ANY INVESTMENT EARNING DIVIDEND INCOME CLAIMED AS EXEMP T. DISALLOWANCE OF INTEREST AS STIPULATED IN SUB-CLAUSE (II) OF CLAUSE (2) OF RULE 8D CAN BE DONE ONLY WHEN AN ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT. LD. I.T.A. NO.: 1600/KOL./2011 AS SESSMENT YEAR : 2008-09 PAGE 1 TO 13 13 CIT(APPEALS) HAD GIVEN A CLEAR FINDING AFTER VERIFY ING THE CASH-SHOW THAT THE LOAN AMOUNTS WERE NOT USED FOR ANY INVESTMENT R ESULTING IN THE DIVIDEND INCOME. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE FINDING OF LD. CIT(APPEALS) IS NOT AC CORDING TO FACTS. WE ARE THEREFORE NOT INCLINED TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS) IN THIS REGARD. GROUND NO. 3 OF THE REVENUE STANDS DIS MISSED. 10. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF DECEMBER, 2013. SD/- SD/- MAHAVIR SINGH ABRAHAM P. GEORGE (JUDICIAL MEMBER) (ACC OUNTANT MEMBER) KOLKATA, THE 19 TH DAY OF DECEMBER, 2013 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.