DCIT, Circle - 8, Kolkata, Kolkata V. M/s. Ernst & Young Pvt. Ltd., Kolkata

ITA 978/KOL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7869 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 26-08-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 05-07-2011
• Court: TRIBUNAL
• Department Lawyers: R P NAG
• Assessee Lawyers: R N BAJORIA; DEBABRA
• Keywords: Deemed dividend
• Section: 143(3); 147; 148

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 978 /KOL/20 1 1 / ASSESSMENT YEAR : 200 4 - 0 5 DEPUTY COMMISSIONER OF INCOME - TAX, VS. M/S. ERNST & YOUNG PVT. LTD. CIRCLE - 8, KOLKATA. (PAN: AAACE2442B) ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 2 0 . 1 1 .201 4 DATE OF PRONOUNCEMENT: 18 . 1 2 .201 4 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 /0 9 - 1 0 DATED 1 1 . 0 4 .20 1 1 . ASSESSMENT W AS FRAMED BY DCIT, CIRCLE - 8, KOLKATA , U/S. 147/ 1 4 3 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 4 - 0 5 VIDE HIS ORDER DATED 29 . 12 .20 0 9 . 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A ) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF LOAN TREATED AS DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING TWO GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.69,60,262/ - IN THE HAND OF THE ASSESSEE COMPANY AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE INCOME - TAX ACT, 1961 ON ACCOUNT OF THE LOAN OF RS.5,45,00,000/ - PAID BY M/S. ERNST & YOUNG MERCHANT BANKING SERVICES PVT. LTD. (PREVIOUSLY KNOWN AS M/S. IND GLOBAL CORPORATE FINANCE PVT. LTD.) TO THE ASSESSEE COMPANY. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN COMING TO THE CONCLUSION THAT THE SUBSTANTIAL PART OF THE BUSINESS OF THE LENDING COMPANY IS THAT OF MONEY LENDING. 3 . BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR THE RELEVANT AY 2004 - 05 ON 01.11.2004. ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT DATED 29.12.2006 MAKING CERTAIN ADDITIONS/DISALLOWANCES, WHICH WERE CONTESTED IN APPEAL BEFORE CIT(A) AND TRIBUNAL AS WELL. SUBSEQUENTLY, PROCEEDINGS U/S. 147 READ WITH SECTION 148 OF THE ACT WERE INITIATED VIDE NOTICE DATED 18.11.2008. IN RESPONSE TO THIS NOTICE , ASSESSEE FILED ITS RETURN OF INCOME AND CONTESTED THE ISSUE THAT NO INCOME ON ACCOUNT OF DEEMED DIVIDEND WAS ATTRACTED IN THE INSTANT CASE SINCE THERE IS A CLEAR DISTINCTION BET WEEN THE INTER - CORPORATE DEPOSITS VIS - - VIS LOAN/ADVANCE. ACCORDING TO 2 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 ASSESSEE, ALL SUCH PRIMARY AND MATERIAL FACTS WERE DULY CONSIDERED BY THE AO WHILE FRAMING ORIGINAL ASSESSMENT U/S. 143(3) OF THE ACT. ON MERITS ALSO, ASSESSEE CONTESTED THAT NO ADDIT ION IS WARRANTED BUT THE AO COMPLETED ASSESSMENT U/S. 147 READ WITH SECTION 143(3) OF THE ACT BY MAKING AN ADDITION OF RS.69,60,262/ - ON ACCOUNT OF DEEMED DIVIDEND BY INVOKING THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. AGGRIEVED, ASSESSEE PREFERRED AP PEAL BEFORE CIT(A), WHO DELETED THE ADDITION BY OBSERVING AS UNDER: AFTER CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER, THE ABOVE GROUNDS OF APPEAL ARE DISPOSED OF AS UNDER: (A) I AM FIRST TAKING UP GROUND NO. 3 FOR ADJUDICATION FOR THE SAKE OF CONVENIENCE. THE ASSESSEE HAD TAKEN AN INTER CORPORATE DEPOSIT AMOUNTING TO RS.5,45,00,000 FROM ITS SUBSIDIARY COMPANY ERNST & YOUNG MERCHANT BANKING SERVICES PRIVATE LIMITED (THE COMPANY, EYMB SPL) (PREVIOUSLY KNOWN AS IND GLOBAL CORPORATE FINANCE PRIVATE LIMITED). CLOSING BALANCE AS ON 31 ST MARCH 04 WAS RS.5,42,52,477. M/S. IND GLOBAL CORPORATE FINANCE PVT. LTD. EYMBSPL HAD ACCUMULATED PROFITS AGGREGATING TO RS.55,70,808 AS ON 31.03.2003 WHICH INCREASED TO RS.69,60,262 AS ON 31.3.2004. THE AO HAS TREATED RS.69,60,262 AS DEEMED DIVIDEND BY ALLEGEDLY CONSIDERING THE ABOVE AMOUNT GIVEN AS INTER CORPORATE DEPOSITS AS LOAN/ADVANCE AND THE AMOUNT OF RS.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 ADVAN CE, 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 NOT INCLUDE A NY ADVANCE OR LOAN MADE TO A SHAREHOLDER OR THE SAID CONCERN BY A COMPANY IN THE ORDINARY COURSE OF ITS BUSINESS, WHERE LENDING OF MONEY IS A SUBSTANTIAL PART OF BUSINESS OF THE COMPANY . I AGREE THAT THE WORD SUBSTANTIAL PART OF BUSINESS IS NOT DEFINED IN SECTION 2(22) OR ELSEWHERE IN THE ACT. LEGISLATURE HAS CONSCIOUSLY NOT USED THE WORD MAIN BUSINESS OR PRINCIPAL BUSINESS . THE EXPRESSION USED BY THE LEGISLATURE IN SECTION 2(22)(II) IS SUBSTANTIAL PART OF THE BUSINESS . IN ORDER TO FALL WITHIN TH E EXCEPTION OF SEC. 2(22)(II), IT IS NOT NECESSARY TO SHOW THAT MAIN OR PRINCIPAL BUSINESS OF THE LENDING COMPANY IS GRANTING OF LOANS. LENDING OF MONEY SHOULD FORM SUBSTANTIAL PART OF THE BUSINESS OF THE LENDER. IF BUSINESS OF GRANTING OF LOANS, C ONTRIBUTES MORE THAN 20% OF THE INCOME OR WHERE MORE THAN 20% OF THE INVESTIBLE FUNDS ARE UTILIZED IN GRANTING OF LOANS THEN IT CAN BE SAID THAT LENDING OF MONEY IS SUBSTANTIAL PART OF THE COMPANY S BUSINESS AS HAS BEEN HELD BY A BENCH OF ITAT, KOLKATA I N THE CASE OF ITO VS. SHREE BALAJEE GLASS MANUFACTURING (P) LTD. ITA NO. 73/KOL/2008 DATED 08.08.2008. THE ASSESSEE EARNED 45.45% OF ITS TOTAL INCOME DURING THE CURRENT YEAR FROM INTEREST INCOME. EVEN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS IT EARN ED 25.84% AND 40.71% OF ITS TOTAL INCOME FROM INTEREST. THUS, SUBSTANTIAL PART OF THE TOTAL REVENUE OF THE ASSESSEE IS FROM THE INTEREST INCOME. THIS INTEREST INCOME HAS BEEN ASSESSED AS PROFITS & GAINS FROM BUSINESS OR PROFESSION AND NOT UNDER THE HEA D INTEREST INCOME . FURTHER, 82% OF THE FUNDS OF THE COMPANY AS ON 31 ST MARCH 2004 WERE UTILIZED IN THE MONEY LENDING ACTIVITY. THUS SUBSTANTIAL PARTS OF THE ASSESSEE S FUNDS ARE USED IN MONEY LENDING BUSINESS, KOLKATA ITAT IN THE CASE OF R D FAN LTD. V S. DCIT, ITA NO. 553(KOL)2009 DATED 27.11.2009 IN PARA 17 HAS OBSERVED 3 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 THAT FUNDS INVESTED IN LOANS TOGETHER WITH ACCRUED INTEREST WERE MORE IN ALMOST IN ALL THE YEARS IN COMPARISON TO FUNDS INVESTED IN STOCK IN TRADE AND SUNDRY DEBTORS AND IN EACH YEAR M /S. DBPL EARNED SUBSTANTIAL PROFITS FROM ITS FINANCING BUSINESS WHERE THE PROFITS FROM TRADING OF THE FANS WAS A LOSS. THE ACCUMULATED PROFITS APPEARING IN THE BALANCE SHEET IN REALITY REPRESENTED ACCUMULATION OF PROFITS DERIVED FROM FINANCING BUSINESS. IN THE INSTANT CASE ALSO IF INTEREST INCOME IS REDUCED FROM THE TOTAL 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. CONS IDERING 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 IDENTIC AL 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 THEREF ORE THE ADDITION MADE OF RS.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 THAT THE ASSESSEE TOOK INTER CORPORATE DEPOSITS AMOUNTING TO RS.5.45 CR. FROM ITS SUBSIDIARY COMPANY ERNST & YOUNG MERCHANT BANKING SERVICES PVT. LTD. (IN SHORT EYMBSPL). THE ASSESSEE HAS GIVEN DETAILS OF INTER CORPORATE DEPOSITS, WHICH ARE AS UNDER: DATE PARTICULARS AMOUNT IN RS. 01.04.2003 OPENING BALANCE NIL 25.04.2003 DEPOSIT RECEIVED FROM IND GLOBAL CORPORATE FINANCE LTD. VIDE CH. NO. 982251 DEPOSITED IN STANDARD CHARTERED BANK, MUMBAI 22,500,000 10.06.2003 DEPOSIT RECEIVED FROM IND GLOBAL CORPORATE FINANCE LTD. VIDE CH. NO. 982252 DEPOSITED IN STANDARD CHARTERED BANK, MUMBAI 22,000,000 10.03.2004 DEPOSIT RECEIVED FROM IND GLOBAL CORPORATE FINANCE LTD. VIDE CH. NO. 207252 DEPOSITED IN STANDARD CHARTERED BANK, MUMBAI 10,000,000 TOTAL : 54,500,000 HOWEVER, A SUM OF RS.2,47,523/ - WAS DEBITED TO THEIR ACCOUNT TOWARDS AMOUNT RECOVERABLE ON ACCOUNT OF TDS AND BALANCE WAS RS.5,42,52,477/ - AS ON 31.03.2004. THE AO TREATED A SUM OF RS.69,60,262/ - AS DEEMED DIVIDEND BY OBSERVING THAT THE ABOV E AMOUNTS GIVEN AS INTER CORPORATE DEPOSITS ARE LOANS AND ADVANCES AND EYMBSPL HAS ACCUMULATED PROFIT OF RS.55,70,808/ - AS ON 31.03.2003, THEREBY AN AMOUNT OF RS.69,60,262/ - AS ACCUMULATED AS PROFIT ON THE DATE OF DISTRIBUTION. ON TH IS ASPECTS LD. COUNSEL FOR THE ASSESSEE SHRI R. N. BAJORIA, SR. ADVOCATE ARGUED 4 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 THAT, FIRST OF ALL, THE PROVISIONS OF SECTION 2(22)(E) DOES NOT APPLY TO INTER CORPORATE DEPOSITS BECAUSE THESE ARE NEITHER LOANS NOR ADVANCES . ACCORDING TO HIM, THERE IS A CLEAR DISTINCTION BETWEE N DEPOSITS VIS - - VIS LOANS OR ADVANCES. THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ANNEXED A DEEMING FICTION, 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 SIT UATION ENUMERATED IN THE SECTION. ACCORDING TO HIM, SUCH A DEEMING FICTION SHOULD NOT BE GIVEN A WIDER MEANING THAN WHAT IT PURPORTS TO DO. FOR THIS, HE RELIED ON THE CASE LAW OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES LTD. VS. ACIT (2008) 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 DEP OSITS 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 EAR NING 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 CO RPORATE DEPOSITS. SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES LTD.(SUPRA) HAS CONSIDERED TH E ISSUE OF INTER CORPORATE DEPOSITS VIS - - VIS THE DEFINITION OF INTEREST AS DEFINED U/S. 2(7) OF THE INTEREST TAX ACT AND HELD AS UN DER: - 69. THE SUBMISSION OF THE ASSESSEE IS THAT THESE ICD'S BEING NEITHER LOANS OR ADVANCES, INTEREST EARNED ON THESE IS NOT EXIGIBLE TO INTEREST TAX IN VIEW OF THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF UTKARSH FINANCE (P) LIMITED REPORTED IN 10 1 ITJ 210. RELIANCE IS ALSO PLACED ON THE DECISION OF HUDCO 102 ITJ 936 (DEL) (58), STANROSE HOLDING LTD. - ITA NO. 25/M/96 AND PERSEPOLIS INVESTMENT CO. PVT. LTD. - ITA NO. 51/M/97. THE ID. DR ON THE OTHER HAND SUPPORTED THE DECISION OF THE CIT(A) AND SUB MITTED THAT WHEN ASSESSEE ITSELF HAD OFFERED IT TO TAX WHERE THE QUESTION OF ALLOWING IT AS NOT TAXABLE. - 'HE ALSO SUBMITTED THAT1TTSTAXABLE AS HELD IN BAJAJ AUTO HOLDINGS LTD. VS. DCIT, 9 - 5 ITD 356 (MUM). 70. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. IT MIGHT BE TRUE THAT ASSESSES HAD OFFERED IT TO TAX INITIALLY BUT HE CLAIMED IT AS NOT TAXABLE AND THEREFORE THE MATTER HAS TO EXAMINED ON MERITS AND TO DETERMINE AS TO WHETHER IT IS TAXABLE UNDER THE ACT. WE FIND IT IS NOT TAXABLE IN THE LIGHT OF THE DECISION IN THE CASE OF UTKARSH FINANCE (P) LIMITED REPORTED IN 101 TIJ 210 WHEREIN AHMEDABAD BENCH OF THE TRIBUNAL AFTER CONSIDERING THE DECISION IN THE CASE OF ANDHRA PRADESH CHAMBERS OF COMMERCE & INDUSTRY VS. STATE OF AP, 247 ITR 36 (S C), CIT VS. SAHARA INDIA SAVINGS & INV. CORPN. LTD., 264 ITR 646 (ALL) AND FOLLOWING THE DECISIONS IN THE CASE OF GUJARAT INDUSTRIAL INVESTMENT CORPN, LTD., 89 ITD 520 (DEL) HELD THAT INTEREST ON INTER - CORPORATE DEPOSITS ARE NOT CHARGEABLE TO INTEREST TAX, AS THE DEPOSITS ARE IN THE NATURE OF LOAN OR ADVANCES. IT HELD AS UNDER: '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. ORDINARILY AN ADVANCE IS A PAYMENT BEFORE HAND AND IT DOES NOT CONNOTE THE ID EA OF 5 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 REPAYMENT. IT IS ADJUSTED WHEN THE ACTION FOR WHICH THE MONEY IS ADVANCED IS COMPLETED AND IF NOT REPAID ON EXPIRY OF THE LOAN LIKE A DEPOSIT. THE COMPANY IS NOT BOUND TO ACCEPT THE DEPOSIT MADE, IF PROCEEDINGS ON THE BASIS OF THE PROSPECTUS A PERSON INTERESTED TO MAKE A DEPOSIT. BY ISSUING PROSPECTUS THE COMPANY INVITES OFFER FOR MAKING DEPOSIT AND THAT IS NOT OFFER TO RECEIVE DEPOSIT WHEREAS IN CASE OF LOAN THE ASSESSEE PRAYS FOR A LOAN. IT OFFERS 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 FA LLS 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 DISTINGUISHED BY STATING THAT MUMBAI BENCH HAS PROCEEDED ON A FOOTING THAT DEPOSIT WOULD BE AN ADVANCE AND WOULD BE INCLUDIBLE IN THE TERM 'INTERES T ON DEPOSIT AND ADVANCE . THE BOMBAY BENCH IS MORE PERSUADED BY THE REASON THAT THE INTEREST ON DEPOSIT WAS NOT EXCLUDED FROM THE DEFINITION OF INTEREST AND THE TERM 'INTEREST ON LOANS AND ADVANCES WAS WIDE ENOUGH TO INCLUDE THE SAME. IT HAD NOT CONSIDER ED THE WHETHER IT WAS NOT A LOAN NOR AN ADVANCE AND AS TO WHETHER THE AMENDED DEFINITION OF 'INTEREST' UNDER THE ACT WAS EXHAUSTIVE OR INCLUSIVE. IN HOLDING THAT THE ICD IS NOT AN ADVANCE THE AHMEDABAD TRIBUNAL ALSO NOTICED THAT THE MEANING OF TERM ADVANCE AS UNDERSTOOD IN THE COMMERCIAL WORDS AND AS STATED UNDER THE TITLE 'WHAT IS ADVANCE' IN THE FOLLOWING WORDS: 'IT WAS HELD IN K.M. MOHAMMED ABDUL KADIR ROWTHER VS. S. MUTHIAH CHETTIAR (1960) 2 MAD. LJ 13 AT 15 THAT 'ADVANCE' MEANS LITERALLY A PAYMENT BEF ORE HAND; 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 VS. KRISHNAYYA ROA BAHADUR, AIR 1948 PC 150 AT P. 155, IT WAS OBSERVED THAT ORDINARILY AN ADVANCE DOES NOT CON NOTE ANY IDEA OF REPAYMENT. IT IS, THEREFORE, CLEAR THAT THE WORD 'ADVANCE' USED IN S. 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 LIKEL Y TO BECOME DUE AT SOME FUTURE TIME.' 72. IT HAS ALSO REFERRED TO SECTION 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 DEVELOPMENT COR PORATION LTD. VS. JCIT, 102 ITJ (DEL) (SB) (936), THE SPECIAL BENCH AFTER CONSIDERING VARIOUS DECISIONS AND CIRCULARS OF CBDT HELD THAT DEPOSITS 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 SECTION 2(7) OF THE INTEREST - TAX ACT. PARAGRAPHER - 22 OF TL1E ORDER READS AS UNDER: '22. FROM THE FOREGOING DISCUSSION WE ARE OF THE CONSIDERED VIEW THAT DESPITE SIMILARITIES, THE TWO EXPRESSIONS 'LOANS' AN D 'DEPOSITS' ARE TO BE TAKEN DIFFERENT AND THE DISTINCTION CAN BE SUMMED UP BY STATING THAT IN THE CASE OF LOAN, THE NEEDY PERSON APPROACHES THE LENDER FOR OBTAINING THE LOAN THEREFROM. THE LOAN IS CLEARLY LENT AT THE TERMS STATED BY THE LENDER. IN THE CAS E 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 6 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 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 D EPOSITS 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 IS IN THE BUSINESS OF FINANCING AND ONCE ASSESSEE IS IN THE BUSINESS OF FINANCING, THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WILL NOT APPLY TO INTE R CORPORATE DEPOSITS. THE RELEVANT CLAUSE OF OBJECT OF MEMORANDUM O F ASSOCIATION, OBJECTS FOR WHICH THE COMPANY IS ESTABLISHED READS AS UNDER: - (A) MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION: 1. TO CARRY ON THE BUSINESS OF MERCHANT BANKING IN ALL ITS ASPECTS, TO ACT AS MANAGERS TO ISSUES AND OFFERS, WHETHER BY WAY OF PUBLIC OFFER OR OTHERWISE, OF SHARES, STOCKS, DEBENTURES, BONDS, UNITS, PARTICIPATION CERTIFICATES, DEPOSIT, CERTIFICATES NOTES, BILLS, WARRANTS OR ANY OTHER INSTRUMENTS WHETHER OR NOT TRANSFERABLE OR NEGOTIABLE, COMMERCIAL OR OTHER PAPER OR SCRIPTS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE SECURITIES ), TO ACT AS AGENTS OF AND OR DEALERS IN THE SECURITIES IN THE COURSE OF MERCHANT BANKING BUSINES S, TO ACT AS DISCOUNT HOUSE FOR ANY OF THE SECURITIES, TO ACT AS FINANCIAL CONSULTANTS, ADVISERS AND COUNSELORS IN INVESTMENT AND CAPITAL MARKETS, TO UNDERWRITE, SUB - UNDERWRITE OR TO PROVIDE SAND - BY OR PROCUREMENT ARRANGEMENTS, TO ISSUE GUARANTEES OR TO GI VE ANY OTHER COMMITMENTS FOR SUBSCRIBING OR AGREEING TO SUBSCRIBE OR PROCURE OR AGREE TO MANAGE PORTFOLIO INVESTMENTS, TO PROVIDE FINANCIAL AND INVESTMENT ASSISTANCE FOR THE PURPOSE HEREIN, TO ACT AS ISSUE HOUSE, REGISTRAR TO ISSUE, TRANSFER AGENTS, FOR TH E SECURITIES, TO MANAGE AND ADMINISTER COMPUTER CENTRES AND CLEARING HOUSES FOR THE SECURITIES, TO FORM SYNDICATES OR CONSORTIA OF MANAGERS, AGENTS AND PURCHASERS, FOR OR OF ANY OF THE SECURITIES, TO ACT AS BROKERS, DEALERS AND AGENTS OF OR IN CONNECTION W ITH THE SECURITIES, BULLIONS AND PRECIOUS METALS, TO SYNDICATE ANY FINANCIAL ARRANGEMENTS WHETHER IN DOMESTIC MARKET OR ON INTERNATIONAL MARKET AND WHETHER BY WAY OF LOANS, GUARANTEES, EXPORT AND YARD CREDITS; TO UNDERTAKE THE WORK OF FACTORING OF BILLS AN D OTHER COMMERCIAL PAPERS, AND TO ARRANGE AND/OR CO - ORDINATE DOCUMENTATION AND NEGOTIATION IN THIS REGARD. 2. TO FINANCE INDUSTRIAL ENTERPRISES AND TO PROVIDE VENTURE CAPITAL, SE E D CAPITAL, LOAN CAPITAL AND PARTICIPATE IN EQUITY/PREFERENCE/DEFERRED/PARTI CIPATING SHARE CAPITAL, MORTGAGED BACKED SECURITIES OR BONDS, OR TO GIVE GUARANTEES ON BEHALF OF THE COMPANY IN THE MATTER AND TO PROMOTE COMPANI E S ENGAGED IN INDUSTR I AL AND TRADING BUSINESS AND TO ACT AS FINANCIAL CONSULTANTS, MANAGEMENT CONSULTANTS, BROK ERS, DEALERS, AGENTS AND TO CARRY ON THE BUS I NESS OF SHARE BROKING, MONEY BROKING, EXCHANGE BILL BROKING, FACTORING AND GENERAL BROKERS, SHARES, DEBENTURES, DEBENTURE STOCK, BONDS, UNITS, OBLIGAT I ONS, SECURITIES, COMMODITIES, BULLION, CURRENCIES AND TO M A N AGE 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 PL A NNING, 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, DAT A PROCESSING BY ACQUIRING, PURCHASING SOPHISTICATED OFFICE MACHINERIES SUCH AS COMPUTERS, TABULATORS, ADDRESSING MACHINES AND TO CARRY ON THE BU SINESS OF HAVING SCHEMES FOR ARRANGING CRED ITS AND LOANS ON 7 ITA NO.978 K/2011 M/S. ERNST & YOUNG PVT. LTD.. AY 2004 - 05 NATIONAL AND INTERNATIONAL LEVEL INCLUDING INTEROPERATE FINANCE, BRIDGE FINANCE, HIRE PURCHASE CONSULTANCY, MERCHANT BANKING, PORTFOLIO MANAGEMENT AND NON - RESIDENT INDIAN INVESTMENT MANAGEMENT. IN VIEW OF ABOVE FACT S , THAT THE ASSESSEE H AS 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 FAC TS 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. ACCORDINGLY, THE APPEAL OF REVENUE IS DISMISSED. 6 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. 7 . ORDER PRONOUNCED IN OPEN COURT ON 1 8 . 1 2 . 2 0 1 4 S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 8 T H DECEMBER , 201 4 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT DCIT, CIRCLE - 8, KOLKATA. 2 / RESPONDENT M/S. ERNST & YOUNG PVT. LTD., 22, CAMAC STREET, KOLKATA - 700 016 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .