>>CASH CREDIT, UNEXPLAINED
INVESTMENTS, ETC.
SECTIONS 269SS, 269T, 271D AND 271E
– A GENERAL OVERVIEW
Jignesh R. Shah
Advocate
Sections 269ss and 269T, like section 69D, prohibits receipt of loans
or repayment of deposits except in specified manner. For violation, sections 271D &
271E provide for penalty of an equivalent amount.
The article discusses the subject in detail and also whether penalty is automatic and
the circumstances in which penalty may not be levied.
1. Section 269SS
1.1 General
With a view to counter the device adopted by people of explaining
their own unaccounted money found during the search proceedings as cash loans or deposits
from various persons, section 269SS was inducted in the Income-tax Act, 1961 ("the
Act") by the Finance Act, 1984. It, in effect, prohibits taking or accepting loan or
deposit exceeding a certain amount by any person from any other person except by certain
prescribed mode after 30th June, 1984. It lays down that no person shall accept or take
from any other person ("depositor") any loan or deposit otherwise than by an
account payee cheque or account payee bank draft if –
the amount of the loan or deposit ; or
the aggregate amount of the loan or deposit outstanding together with
the amount of the loan or deposit now taken, is Rs. 20,000 or more. [This monetary limit,
up to 31st March 1989, was Rs. 10,000.]
In other words, it prohibits taking or accepting loan or deposit of Rs.
20,000 or more from any person otherwise than by way of account payee cheque, and while
calculating the limit of Rs. 20,000 the balance outstanding by way of loan or deposit from
the same person will also be taken into consideration.
Regarding the nature of the provisions, it was observed in Muthoot
M. George Bankers vs. ACIT 46 ITD 10 (Cochin) that section 269SS (and section 269T)
are prohibitive in nature; the prohibition is in respect of the manner or the mode by
which certain transactions are not to be done by persons mentioned therein whether such
person is an assessee or not, whether such person is assessable or not, and whether such
person is having income or not; and thus the scope and ambit of section 269SS (and section
269T) are very wide and the infringement of the impugned provisions need not necessarily
be confined to the case of an assessee or to the assessment of his income.
1.2 Monetary limit of Rs. 20,000: How applied
Unless and until the amount of loan or deposit, or the aggregate amount
of loan or deposit, from the same person reaches the limit of Rs. 20,000, section 269SS
cannot be invoked. If, therefore, the loan or deposit, or the aggregate amount of loan or
deposit, from a person is up to Rs. 19,999, section 269SS does not stand attracted even if
the same is in cash. Many people carry a misconception that section 269SS would apply only
when the loan or deposit amount exceeds Rs. 20,000 but not if the same is Rs. 20,000. But,
it needs to be carefully noted that the words used are "Rs. 20,000 or more" and,
therefore, section 269SS would apply even if the amount of the loan or deposit is exactly
Rs. 20,000. The safety limit, for section 269SS not to apply, is, as stated above, Rs.
19,999, and not Rs. 20,000. Practically speaking, therefore, in order that section 269SS
is kept at a safe distance, the cash loan, etc. should be less than Rs. 20,000 from a
person.
1.3 If loans or deposits are split between persons
– Section 269SS not applicable
Further, it also needs to be noted that if the loan or deposit of Rs.
20,000 or more is from the same person, section 269SS comes into play, but if there are
loans from several persons, the amount in respect of each of which is less than Rs.
20,000, section 269SS would not come into picture. The limit of Rs. 20,000 is applicable
to loan or deposit qua each person.
1.4 Exemption from applicability of section 269SS
In the first proviso to section 269SS, it is provided that this section
shall not apply to any loan or deposit taken or accepted from, or any loan or deposit
taken or accepted by, –
Government;
any banking company, post office savings bank or co-operative bank;
any corporation established by any Central, State or Provincial Act;
any Government company as defined in section 617 of the Companies
Act, 1956; and
such other institution, association or body or class of institutions,
associations or bodies which the Central Government may, for reasons to be recorded in
writing, notify in this behalf in the Official Gazette [vide notification No. SO 3607
dated 18th July, 1986, as modified by Notification No. SO 3828/4250 dated 28th October,
1986, certain schemes of HDFC Ltd. have been exempted from the purview of section 269SS].
With a view to remove hardships faced by agriculturists due to section
269SS, in the second proviso to section 269SS (inserted with effect from 1st April, 1989)
it is further provided that this section shall not apply to any loan or deposit where the
person from whom the loan or deposit is taken or accepted and the person by whom the loan
or deposit is taken or accepted are both having agricultural income and neither of them
has any income chargeable to tax under the Act [see also CBDT Circular No. 551 dated 23rd
January, 1990 – 183 ITR (St.) 7, 67-8].
1.5 "Loan" and "deposit":
Distinction
The terms "loan" and "deposit" are not defined in
section 269SS (although the term "deposit" is defined for the purposes of
section 269T). But, in clause (iii) of the Explanation below section 269SS, it is
clarified that "loan or deposit" means loan or deposit of money. Section 269SS
uses both the terms, viz. "loan" and "deposit"; and, as is also
judicially noted, the word "taken" is used in section 269SS for the term
"loan", and the word "accepted" is used with reference to the term
"deposit". [See, for instance, Sunflower Builders (P.) Ltd. vs. DCIT 61 ITD
227 (Pune).]
The terms "loan" and "deposit" are not synonymous
or analogous but distinct in meaning. This would be discussed in greater detail
hereinafter in the paragraph relating to section 269T. It is sufficient to note here that
section 269SS applies to both: loans as well as deposits.
1.6 "Loan or deposit": Connotation
Now, let us examine the connotation of the term "loan or
deposit". This is most crucial since section 269SS would be attracted to an item if
and only if the item falls within the scope of the term "loan or deposit" as
used in section 269SS. Besides, the same has to be, as stated in clause (iii) of the
Explanation below section 269SS, a loan or deposit of money.
Whether the amount received in cash towards share application money
would fall within section 269SS? If subsequently it is decided to cancel the issuing of
shares and the amount received is treated as loan, whether at that stage of conversion
into loan, would section 269SS apply? These interesting issue came up for consideration in
Jagvijay Auto Finance (P) Ltd. vs. ACIT 52 ITD 504 (Jp). In this case, the
assessee-company, a private limited company, received certain amount in cash from its
shareholder, towards the share application money in terms of a resolution passed by the
company. Later, it was decided to cancel the issue of shares, and the share application
money received from the shareholder was converted into a loan. The Jaipur Bench of the
Tribunal held in this case that the nature or character of share application money at the
time of receipt thereof is not that of loan or deposit and therefore section 269SS would
not be attracted to the same.
However, it needs to be emphasised that the amount claimed to have been
received, as share application money should, as a matter of fact, be towards the share
application money, and not a camouflage for a loan. Prabhavshali Chit Fund Pvt. Ltd.
vs. CIT 49 ITD 566 (Del) is a case on the point. In this case, in pursuance of
resolutions passed, two directors of the assessee-company brought in cash as share
application money for additional shares in order to increase its paid-up share capital.
Later, it decided against increase in share capital and repaid the same in cash. It was
claimed by the assessee-company that on all occasions when subscribers were due on prized
chits and it was short of requisite liquid funds, its directors brought in cash to tide
over temporary financial needs. Later, the amount was repaid to the directors. This they
did almost every month. The assessee claimed that since the amount was every time brought
to increase the share capital which was later not increased, the receipt did not attract
section 269SS. The Tribunal negatived the assessee-company’s plea and held that
section 269SS was violated. It observed at page 573:
"Under the normal circumstances the claim of the appellant would
be a reasonable proposition, but, in the present circumstances, when repeatedly, the
moneys were received and were repaid to the two directors, the claim advanced by the
appellant cannot be upheld. There is no doubt that normally amount received towards share
application would not be returned, unless the amount received is in excess of the amount
of the share capital that is proposed to be allotted. There is also no denial that a
company after initially proposing to issue further shares, may drop the proposal. But,
when this act of receiving money for further issue of shares and later dropping that idea
on more than one occasion is indicative of the intention of the company that it was so
brought in to tide over the tight financial situation and once the situation became
favourable, it was withdrawn is in the nature of a loan or temporary accommodation only
and therefore despite it being clothed as share application money, its true or real
nature, i.e., as loan, props out."
Whether an amount received as advance of money for supply of goods
would fall within the purview of section 269SS is another often-raised question.
Conceptually, advance for supply of goods is neither loan nor deposit and therefore it
would not fall within the mischief of section 269SS. Besides, looking at the object of
section 269SS also, advance for supply of goods would not fall within the net of section
269SS.
Many a time it may happen that due to certain unforeseen circumstances,
the contract for the supply of goods is terminated and the parties decide to treat the
advance as loan. In such a situation, would section 269SS be attracted on passing the book
entry treating the advance as loan? It is submitted that the nature or character of the
receipt of money at the time of receipt thereof is decisive. If at the time of receipt,
the money was received as advance, section 269SS would not apply as it is not, as stated
above, in the nature of loan or deposit. At the stage of converting the advance into loan
by book entry there is no receipt of money but mere passing of book entry. Therefore, at
that stage also, section 269SS would not apply. In Sunflower Builders (P.) Ltd. vs.
DCIT (supra), while holding that acknowledgement of a debt by book entry without
receiving money does not amount to taking or accepting loan or deposit under section
269SS, it was observed as follows (page 233 of 61 ITD):
"For example, a person may give the money to a vendor by way of
advance against the supply of goods. Such transaction at the time of giving money would
not come within the ambit of he words ‘deposit or loan’. But on subsequent date
the contract for supply of goods may be cancelled due to unforeseen circumstances and the
parties may agree to treat the advance of money as loan. In such a situation, if the
provisions of section 269SS are applied then the assessee cannot be penalised for no fault
of his."
Observations to the similar effect can be found in Jagvijay Auto
Finance (P) Ltd. vs. ACIT (supra), which are as follows (see page 510 of 52 ITD):
"In case of ‘advance’ received towards the price of some
goods as defined in section 2(1) of the Sale of Goods Act, 1930 and which definition
includes shares and stocks also, the ‘liability to return’ would arise when the
sale of goods is effected. That liability would not be there at the time taking or
accepting the advance by the seller. The basic character of such receipt would not be that
of ‘loan’ or deposit’… …It follows, therefore, that if the basic
character of a receipt of money in cash in the sum of Rs. 20,000 or more does not have the
character of ‘loan’ or ‘deposit’ at the time of taking or accepting
the amount of the receipt by the company, the provisions of section 269SS would not stand
attracted."
However, a caution needs to be sounded here. In order that the above
principles apply to a situation, the receipt of money, at the outset, should be a genuine
trade advance, and not a loan disguised as trade advance. This would be decided on a
consideration of all the relevant facts and circumstances of a case.
If there is no obligation to return the funds, the receipt cannot be
called a loan or deposit and section 269SS cannot applicable. In Mohan Karkare vs. DCIT
52 ITD 236 (Pune), the assessee wanted to buy a vehicle at concessional rate from a
trade fair which was ending on 14th January, 1989, and the assessee urgently needed funds
for that. The assessee’s father assisted him by giving him sums aggregating to Rs.
70,000 in cash so that the assessee, who was an unemployed son, could settle in life by
buying the Matador vehicle. On the Department invoking section 269SS, it was held that
there was no material on record to establish that there was an obligation to return funds
to the father and therefore the receipt could not be termed as loan or deposit and section
269SS cannot be applied.
Further, a constructive loan, technically speaking, would be
"otherwise than by an account payee cheque or account payee bank draft" but,
looking at the legislative intent behind section 269SS, and depending upon the facts, it
would not fall within the purview of section 269SS. Purchase consideration standing to the
account of a creditor when converted into a loan by passing a book entry would be a
constructive loan, but it is held that it would not fall within the scope of section
269SS. [See Bombay Conductors & Electricals Ltd. vs. DCIT 56 TTJ (Ahd) 580.]
Similarly, in Sunflower Builders (P) Ltd. vs. DCIT (supra), the assessee-company
purchased a plot of land and its director paid a certain amount in cash as
"on-money" to the vendors of the land, which was offered by him as undisclosed
income; the same was recorded in the books of the assessee-company by passing a book entry
debiting the land account and crediting the director’s account. On the question
whether the assessee-company can be said to have violated section 269SS, it was held that
section 269SS cannot be applied where money does not pass from one person to another but
the debt is acknowledged by passing entry in the books of account, depending upon the
facts of the case.
Yet another instance can be given and that is of a situation when a
partner retires from a partnership firm and the amount standing to his capital account is
transferred to his loan account. In such a case also, although this loan is
"otherwise than by an account payee cheque or account payee bank draft", section
269SS cannot be invoked. [See, for support, Sunflower Builders (P) Ltd. vs. DCIT
(supra) at page 234.]
This point may summed up by stating that the question whether a
particular amount falls within section 269SS or not is essentially a question of law. [Jagir
Singh Balraj Kumar & Co. vs. CIT 235 ITR 146 (P & H).]
1.7 "Any other person": Meaning and impact
The connotation of the words "any other person" used in
section 269SS is also of considerable significance. Section 269SS would be applicable to a
loan or deposit only if the same is from "any other person". "Person"
here would mean as defined in section 2(31). Thus, it would refer to an individual, a
Hindu undivided family (HUF), a company, a firm, an association of persons (AOP), etc.
A person cannot take or accept loan or deposit from himself. Therefore,
all those situations where it can be contended that the loan or deposit is not from
"any other person" would be outside the clutches of section 269SS, and while
doing so the legislative intent should also be kept in mind. Let us look at some concrete
illustrations based on decided cases.
In Shrepak Enterprises vs. DCIT 64 ITD 300 (Ahd), the
assessee-firm received during the year cash loans aggregating to Rs. 2,17,000 from its
partners. The question before the Tribunal was whether it amounted to violation of section
269SS. The Tribunal took into consideration the several decisions on the concept of a firm
and its partners. It observed that in law a firm and partners are not different persons;
that the law, ignoring the firm, looks to the partners composing it; any change amongst
them destroys the identity of the firm; that what is called the property of the firm is
their property, and what are called the debts and liabilities of the firm are their debts
and liabilities; that a partner may be a debtor or creditor of his co-partners, but he
cannot be either debtor or creditor of the firm of which he himself is a member, nor can
he be employed by the firm for a man cannot be his own employer; that, therefore, it was
obvious that in the instant case, there could not be a relationship of debtor and creditor
between the firm and the partners; that the loans were genuine and they were not made by
one person to another person; they had been made by that person to himself in the eye of
law; that, therefore, the provisions of section 269SS were not applicable.
If, however, the partner has given loan or deposit to the firm in a
different capacity, the above decision may not perhaps help. In ITO vs. Rajendra
Trading Co. 48 ITD 210 (Chd) (SMC), the firm had four partners who were partners as
kartas of their respective HUFs. One of the partners was the karta of another bigger HUF
also, and had granted loans to the firm from the bigger HUF. Although, in law, when a
person is a partner for and on behalf of the HUF, it is the individual who is recognised
as partner of the firm, the Tribunal rejected this argument, recognised the different
capacities, and held that the loans given by the bigger HUF were from "another
person" and section 269SS was applicable. But, even after that it deleted the penalty
imposed under section 271D holding that there was no intention of deliberate defiance of
law here. While doing so it again observed that the partner, in this case, had three
capacities, as a partner of the firm, as the karta of the HUF which he represented as
partner in the assessee-firm and further as acting as the karta of the bigger HUF; that in
a way then with three different capacities of the same person it could be safely said that
it was a deposit from self to self or else from one pocket to another!!
Even where the loans or deposits are from sister-concerns and all the
sister-concerns have more or less the same ownership pattern, common central office and
one person is managing and taking decisions about all the concerns, it is held that
section 269SS is inapplicable. [See Muthoot M. George Bankers vs. ACIT (supra).]
It is desirable that the CBDT issues some guidelines as to the cases in
which section should not be applicable so as to avoid day-to-day practical problems. A
similar suggestion was made by the Tribunal also in ITO vs. Narsing Ram Ashok Kumar 47
ITD 38 (Pat) in the following words (at page 42): "Before I end I must say that
it is highly desirable that the CBDT for purposive interpretation of section 269SS should
issue instructions [in absence of authority to issue prescribed circulars like section
40A(3)] in quelling situations where this section is mutable; it would result in rational
fruition of section 269SS."
2. Penalty under section 271D
Along with the introduction of section 269SS, were introduced the penal
consequences for violation thereof, which were contained in section 276DD. It provided
that a person violating section 269SS shall be punishable with imprisonment for a term
which may extend to two years and shall also be liable to fine equal to the amount of such
loan or deposit. Thus, it provided for twin punishment, which was too harsh. However,
section 276DD was omitted from the statute book with effect from 1st April, 1989.
From 1st April, 1989, the penal consequences for violation of section
269SS are embodied in section 271D. It provides that the person taking or accepting loan
or deposit in violation of section 269SS shall be liable to pay, by way of penalty, a sum
equal to the amount of the loan or deposit so taken or accepted. Thus, now there is a
provision for penalty alone and not for any imprisonment.
A fundamental question has often arisen whether the penalty provisions
of section 271D are mandatory/automatic or discretionary. Whether on contravention of
section 269SS, the penalty under section 271D follows automatically as matter of course or
whether the Assessing Officer has discretion to levy or not to levy penalty. While
analysing this question one cannot lose sight of the section 273B which provides that no
penalty, inter alia, under section 271D shall be imposed for the failure referred to in
section 269SS, if the assessee (person) proves that there was reasonable cause for the
said failure.
It is judicially held that the penalty provisions of section 271D are
discretionary/directory and not mandatory and also that penalty will not be imposed merely
because it is lawful to do so. [See, among others, Muthoot M. George Bankers vs. ACIT
(supra); ITO vs. Narsing Ram Ashok Kumar (supra); ITO vs. Rajendra Trading Co. (supra).
Also see ITO vs. Lakshmi Enterprises 185 ITR 595 (Pat); Shreenathji Corporation vs. ACIT
56 TTJ (Ahd) 611.]
It is also noteworthy that the rule of construction applicable to
section 271D, like that applicable to any other penalty provision, is strict rule of
construction and, therefore, this penalty has to be restricted to cases strictly falling
within the four corners of these provisions and cannot be expanded/extended to situations
which do not strictly fall within what the legislature intended. [Relying upon, among
others, Jagvijay Auto Finance (P.) Ltd. vs. ACIT (supra) at page 511; Sunflower
Builders (P.) Ltd. vs. DCIT (supra) at page 232.]
It is also to be noted that it is not a precondition to levy penalty
under section 271D for contravention of section 269SS that the cash loans should have been
added as the income of the assessee under section 68, as these provisions are independent,
but if the cash loans are found to be genuine for section 68, penalty under section 271D
may (though not necessarily) be dropped [ITO vs. Narsing Ram Ashok Kumar (supra)].
At the same time, however, it needs to be borne in mind that violation of section 269SS
and imposition of penalty cannot necessarily result in addition of the sum as income under
section 68 [Muthoot M. George vs. ACIT (supra)].
It may also be worthwhile to note that penalty proceedings under
section 271D are quite independent of the assessment proceedings and therefore they can be
initiated even though the assessment proceedings might not have been started or completed [Manoharlal
vs. DCIT 83 Taxman 255 (Jp) (Mag)].
Now, let us see some illustrations of what has been accepted as
"reasonable cause" in the field of penalty under section 271D by the judicial
authorities.
In ITO vs. Narsing Ram Ashok Kumar (supra), it was held that if
the cash loan is taken on a Sunday when the banks are closed, there is a reasonable cause
and therefore no penalty can be levied under section 271D.
In Harpal Singh Jaswant Singh vs. ITO 82 Taxman 81 (Asr) (SMC),
it is held that the bona fide belief of the assessee that section 269SS is not violated
coupled with genuineness of loans would constitute reasonable cause for not levying
penalty under section 271D.
In Mohan Karkare vs. DCIT (supra), the assessee bought a vehicle
in a trade fair at concessional rate; the trade fair was ending on 14 January 1989 and the
assessee urgently needed funds. The father of the assessee assisted him by giving him cash
of Rs. 70,000. On such facts, it was held that there was a reasonable cause within the
meaning of section 273B read with section 271D and therefore no penalty could be levied.
In Shreenathji Corporation vs. ACIT (supra), the assessee was in
the business of construction of buildings. In the course of business it required large
amounts in cash for making payments to labourers and to suppliers of materials in the
unorganised sector, on an urgent basis, especially on Sundays, holidays and on festival
days, in the absence of which the workers would stop the work and the suppliers would stop
supplying material which would result in the business suffering. Under such circumstances,
it was held that there was a reasonable cause for taking loans in cash; and, therefore,
the penalty levied under section 271D was dropped. In this case, the Tribunal also
accepted as reasonable cause the explanation offered by the assessee to the effect that a
circular and some advertisements issued by the CBDT created a bona fide belief in the
assessee that section 269SS is violated only when the cash loan exceeded Rs. 20,000, and
it would not be violated when the cash loan was up to Rs. 20,000.
In Bhushan Chemicals vs. DCIT 54 ITD 5 (Pune), however, the
explanation of an urgent need of funds for business purposes did not find favour with the
Tribunal.
In Dr. Deepak Muchala vs. ITO 58 TTJ (Mum) 532, the assessee, a
professional dentist, took cash loans from his relatives for buying a flat and for buying
dentist’s chair and other instruments. The penalty imposed under section 271D was
deleted by the Tribunal holding that there was a reasonable cause within the meaning of
section 273B inasmuch as (i) the assessee, being a dentist, was not expected to know the
fast-changing income-tax laws; (ii) there is no whisper about the genuineness or otherwise
of the loans taken; (iii) in the assessment for the year under consideration there was no
objection raised to the said loans; (iv) looking at the legislative intent and considering
the purpose for which the loans were taken it would not be justified to apply section 271D
to these loans. It may be particularly noted that the ignorance of law was considered to
be a relevant factor by the Tribunal in this case.
There are cases where transactions of loans between sister-concerns
under a bona fide belief that such transactions would not fall within section 269SS was
held to be a reasonable cause for not levying penalty under section 271D. [See, for
instance, Muthoot M. George vs. ACIT (supra); Vir Sales Corp. vs. ACIT 50 TTJ (Ahd) 130.]
As is obvious, it is impossible to give an exhaustive list of
situations which could constitute a reasonable cause for the purposes of section 273B; all
would depend upon the facts and circumstances of each case. However, on this issue it
would apt to conclude here by emphasising that the onus of proving the reasonable cause is
on the assessee. [See, among others, ITO vs. Narsing Ram Ashok Kumar (supra) at
page 41.]
But, penalty under section 271D can be imposed, as is so expressly
provided in sub-section (2) thereof, only by the Joint Commissioner.
It may lastly be noted that the question whether penalty under section
271D is leviable or not in a particular case is a question of law. [See National
Surgical Corporation vs. CIT 242 ITR 667 (AP). Also see Jagir Singh Balraj Kumar
& Co. vs. CIT (supra).] But, it is difficult to resist the temptation of quoting
the following words of the Andhra Pradesh High Court from the decision in National
Surgical Corporation’s case (supra), which can serve as guiding principles in the
matters of penalty under section 271D (headnotes):
"… there was non-application of mind on the part of the
Tribunal. Moreover, no earnest effort had been made to consider and test the explanation
of the assessee. A general observation that no exceptional circumstances were made out
could not be a substitute for a specific finding which was expected of the Tribunal, more
so in a case dealing with penalty which is often said to be a quasi-criminal proceeding.
The question whether, on the facts and in the circumstances of the case, the order of the
Tribunal confirming the penalty under section 271D of the Income-tax Act, 1961, was
perverse, was a question of law to be referred to the High Court."
3. Section 269T
3.1 General
Section 269T was introduced in the statute book with effect from 11
July 1981 - initially by promulgation of an Ordinance and subsequently by way of a regular
legislative amendment. Like section 269SS, this section is also prohibitive in nature, and
it prohibits repayment of any deposit by -
- a branch of a banking company or a co-operative bank;
- a company;
- a co-operative society;
- a firm; or
- any other person,
otherwise than by an account payee cheque or account payee bank draft
drawn in the name of the person who made the deposit if -
the amount of the deposit together with interest, if any, payable
thereon, or
the aggregate amount of the deposits held by such person together
with interest, if any, payable on such deposits, is Rs. 20,000 or more.
3.2 Applicable to deposits – not to loans
Section 269T, unlike section 269SS (which is applicable both to loans
as well as deposits), is applicable to deposits alone, and not to loans. As noted above,
"loans" and "deposits" are not identical in meaning: the distinction
between the two is explained in the following words by the learned authors of Chaturvedi
& Pithisaria’s Income Tax Law (Fifth Edition) (pages 8454-5):
" ‘Deposit’ and ‘Loan’ - these two are not
identical in meaning. It is true that both in the case of a loan and in the case of a
deposit there is a relationship of a debtor and a creditor between the party giving money
and the party receiving the money. But in the case of a deposit, the delivery of money is
usually at the instance of the giver and it is for the benefit of the person who deposits
the money — the benefit normally being earning of interest from a party who
customarily accepts deposits. Deposits could also be for safe-keeping or as a security for
the performance of an obligation undertaken by the depositor. In the case of a loan,
however, it is the borrower at whose instance and for whose needs the money is advanced.
The borrowing is primarily for the benefit of the borrower although the person who lends
the money may also stand to gain thereby by earning interest on the amount lent.
Ordinarily, though not always, in the case of a deposit, it is the depositor who is the
prime mover while in the case of loan, it is the borrower who is the prime mover. The
other and more important distinction is in relation to the obligation to return the amount
so received. In the case of a deposit which is payable on demand, the deposit would become
payable when a demand is made. In the case of a loan, however, the obligation to repay the
amount arises immediately on receipt of the loan. It is possible that in case of deposits
which are for a fixed period, the point of repayment may arise in a different manner. But
by and large, the transaction of a loan and the transaction of making a deposit are not
always considered identical.
‘Loan’ and ‘deposit’ are not identical in meaning
and cannot always be interchanged. Some loans may be deposits and some deposits may be
loans. But all loans are not deposits or vice versa. The dividing line between a loan and
deposit is undoubtedly thin: the two, however, are not synonymous [Pennwalt India Ltd.
vs. Registrar of Companies (1987) 62 Com cases 112 (Bom). Also see Durga Prasad
Mandelia vs. Registrar of Companies (1987) 61 Com cases 479 (Bom)].
There is a subtle distinction between a deposit and a loan. In the case
of a loan, the amount is given by the creditor to the debtor at the request of and for the
requirements of the debtor under certain terms and conditions. In the case of a deposit,
the depositee receives money at the instance of the depositor. In the case of a deposit,
the requirement of the depositee is neither relevant nor material. The depositor has to go
to the depositee for depositing the amount or the depositee may go and collect the amount.
But in case of a loan, the debtor has to request the creditor to advance certain amount
for meeting his requirement for using the amount [Sharda Talkies vs. Smt. Madhulata
Vyas AIR 1966 MP 68, 71]."
[For the distinction between "loan" and "deposit",
also see, among others, Prabhavshali Chit Fund Co. (P.) Ltd. vs. CIT (supra); Jagvijay
Auto Finance (P.) Ltd. vs. ACIT (supra).]
It is judicially also settled that the provisions of section 269T are
applicable to deposits and not to loans. [See A. M. Shahmsudeen vs Union of India 244
ITR 266 (Mad). Also see Baidya Nath Plastic Industries (P) Ltd. vs. ITO 230 ITR 522
(Del).]
The term "deposit" is defined in clause (iii) of the
Explanation below section 269T to mean any deposit of money which is repayable after
notice or repayable after a period and, in the case of a person other
than a company, includes deposit of any nature.
3.3 Applicable to all persons
The scope of applicability of section 269T initially was limited to a
few categories of persons, but the section as it now stands, particularly after the
amendment by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1st April, 1989,
by insertion of the words "any other person", the impact of section 269T is
all-pervasive, and it applies to all persons, including even an individual, firm, HUF,
AOP, etc. [Also see CBDT Circular No. 551 dated 23rd January, 1990 - 183 ITR (St.) 7,
68.]
3.4 Exemption from applicability
The first proviso to section 269T(2) grants an express exemption to
a situation from the purview of section 269T. It provides that where the repayment is by a
branch of a banking company or a co-operative bank, such repayment may also be made by
crediting the amount of such deposit to the savings bank account or the current account
(if any) with such branch of the person to whom such deposit has to be repaid.
Further, the CBDT Circular No. 556 dated 23rd February, 1990 [183 ITR
(St.) 92] also grants exemption from section 269T to the sale proceeds of agricultural
commodities left over by the agriculturists with their Kachcha Arhatiyas. The CBDT has
opined that such sale proceeds left by the agriculturists with their Kachcha Arhatiyas
cannot be regarded as deposit within the meaning of section 269T. The CBDT has, however,
stated that such unremitted sale proceeds would assume the character of a deposit if the
same is retained by the Kachcha Arhatiya in pursuance of a direction in this regard by the
agriculturist, irrespective of whether the amount is retained in the same account or
transferred to different accounts and irrespective of whether the directions are to call
it a deposit or just to retain the same for future payment.
4. Penalty under section 271E
Section 271E provides that if a person repays any deposit referred to
in section 269T otherwise than in accordance with the provisions contained therein, he
shall be liable to pay way of penalty a sum equal to the amount of deposit so repaid. Like
penalty under section 271D, discussed before, penalty under section 271E can be imposed
only by a Joint Commissioner [section 271E(2)].
Section 271E, inserted by the Direct Tax Laws (Amendment) Act, 1987
with effect from 1st April, 1989, replaced section 276E. Section 276E provided that a
person violating section 269T is punishable with imprisonment for a term which may extend
to two years and also with fine equal to the amount of the deposit. However, with the
introduction of section 271E, in place of section 276E, now there is no provision for
procecution for violation of section 269T.
The earlier discussion regarding penalty under section 271D would
apply, so far as relevant, to penalty under section 271E also.
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