Hon'ble Aditya Nath Mittal, J.
1.This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 arises out of the order of the Income Tax Appellate Tribunal, Allahabad dated 30.6.2000 in Income Tax Appeal No. 1037 (Alld)/1998, for the assessment year 1994-95.
2.We have heard Shri S.D. Singh, learned counsel appearing for the assessee-appellant. Shri R.K. Upadhyay appears for the Income Tax Department.
3. The appellant is a HUF composed of Mr. Anirban Nath and his mother Mrs. Sushmita Nath. There is another HUF composed of one Mr. Anirdam Nath and his mother Sushmita Nath.
4. The Anirban Nath Sushmita (HUF)-the assessee-appellant was in need of money to apply for allotment of shares of two companies M/s Trimurti Fertiliser Ltd and Crown Leasing & Finance Co. Ltd. It approached Arindam Nath Sushmita HUF, and Arinban Nath (individual) for giving loan of Rs. 6, 45, 000/- and Rs. 5, 60, 000/- respectively. The loans were advanced and the money was paid by the creditors to the companies directly. There was no term fixed for repayment of these loans, however, the interest was to be paid at the market rate. The shares were allotted in favour of assessee-appellant by the companies. The investment, however, did not fetch any profitable return for the appellant. The assessee-appellant could not make payment of interest and repayment of loans and also did not earn any profit on the investments. The appellant thus sought part repayment of the loans by transferring the shares allotted to it by the companies M/s Trimurti Fertiliser Ltd and M/s Crown Leasing & Finance Co. Ltd to the creditors, who agreed for repayment in that manner. In pursuance to the agreement some of the shares allotted to the assessee appellant by M/s Trimurti Fertiliser Ltd were transferred to M/s Arindam Nath Sushmita HUF, and some others were transferred to Mr. Anirban Nath (individual). Since these shares were transferred by way of repayment of loans taken from the transferees of the shares, there was no occasion or requirement to make any payment by cash or money. The transfer of shares was the mode of repayment of the loans in part.
5. The Deputy Commissioner of Income Tax imposed penalty under Section 271-E of the Act for alleged violation of Section 269T, which provides for payment of an amount of Rs. 20, 000/- or more by account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposits.
6. The appeal against the order dated 31.7.1997 passed by the Deputy Commissioner of Income Tax, was dismissed by CIT (A)-I, Kanpur on 12.8.1998.
7. The Income Tax Appellate Tribunal dismissed the appeal of the assessee-appellant on 30.6.2000 on the ground that there were credit balance in the account of Anirban Nath (individual) of Rs. 5, 95, 560/- and in the account of Arinban Nath Sushmita (HUF) (assessee-appellant) of Rs. 7, 50, 979/-. These balances got adjusted to the extent of Rs. 9, 14, 000/- on account of sale of shares. Since the amount was not repaid by account payee cheque or account payee bank draft, the transaction falls within the mischief of Section 269-T of the Act and thus penalty is leviable under Section 271-E.
8. Shri S.D. Singh has preferred this appeal on the grounds as follows:-
"(i) Whether, in absence of a finding by the Tribunal that part repayment (of loans) of Rs. 9, 14, 000/- was against any "deposit"; penalty could be imposed, such a view being contrary to the provisions of section 269T read with Explanation (ii) to sub-section (2) thereof?
(ii)Whether, the appellant could be penalised for repayment of Rs. 9, 14, 000/- being part repayment of loans advanced by M/s Arindam Nath Sushmita HUF and Anirban Nath (individual), as these repayments clearly stand outside the mischief of provisions of Section 269T of the Act?
(iv) Whether, the money advance dby M/s Arindam Nath Sushmita HUF and Mr. Anirban nath (individual) could be held to be "deposit" within the meaning of Section 269T of the Act? There being clear evidence on record to show that the money was advanced as loans at the instance of the appellant. The Tribunal has erred in law in holding otherwise and its order is perverse on that count."
9. Shri S.D. Singh has relied upon Commissioner of Income-Tax v. Vikramajit Singh (2007) 292 ITR 274 (Delhi); K. Rajendran Pillai and others v. Union of India and others (2007) 292 ITR 277 (Ker); A.M. Shamsudden v. Union of India and others (2000) 244 ITR 266; Baidya Nath Plastic Industries (P) Ltd and others v. K.L. Anand, Income-Tax Officer (1998) 230 ITR 522 (Delhi); and Commissioner of Income-Tax v. Motilal Subhodh Kumar Jain (2005) 277 ITR 524 (MP) in support of his submission, that in the transaction, as in the present case penalty, provision under Section 271-E, is not attracted.
10. In Commissioner of Income-Tax v. Vikramajit Singh (supra) the Delhi High Court held that a deposit is different from a loan. In the Finance Bill, 2002 the Parliament clearly recognised the fact that the existing provision did not have any application to loans. The amendment was intended to extend its scope to loans also, hence, loans came within the purview of Section 269-T and the penalty provisions of Section 271-E w.e.f. June 1, 2002. In a case, where the repayment was made of the loan taken from a sister concern in the assessment year 2001-02 contrary to the provisions of Section 269-T, the penalty could not be levied under Section 271-E.
11. In A.M. Shamsudden v. Union of India and others (supra) the Madras High Court held that Section 269SS of the Act occurs in Chapter XX-B deals with two different kinds of transactions, namely, loans and deposits. Section 269T covers one of the transactions namely the deposit. There is a distinction between a loan and a deposit. In the case of a loan, it is the duty of the debtor to seek the creditor and repay the amount according to the agreement. But in the case of a deposit, it is generally the duty of the depositor to make a demand for the repayment of the same. It is impermissible to expand the scope of the term 'deposit' under Section 269-T and to take in the concept of loan transaction within the meaning of Section 269-T. The Madras High Court relied upon Baidya Nath Plastic Industries (P) Ltd v. I.L. Anand (supra) in which the distinction was drawn between the loan and deposit, and was held that where the assessee had raised a loan and a payment was made in cash, there was no justification to invoke Section 269-T.
12.In Commissioner of Income-Tax v. Motilal Subhodh Kumar Jain (supra) the Madras High Court also drew a distinction between the repayment of deposit and loan. It was held that the word "loan" has been introduced in Section 269-T for the first time in the year 2002 with effect from June 1, 2002. It is not a clarificatory amendment. The loan is distinguishable from deposit.
13. In the present case we are concerned with the transactions of the repayment by way of adjustment on account of sale of shares in the assessment year 1994-95 i.e. prior to amendment in Section 269-T in the year 2002 w.e.f. June 1, 2002.
14. The amended Section 269-T, in which the word "loan" was introduced in Section 269-T, was introduced for the first time in the year 2002 w.e.f June 1, 2002. The Statement of Objects in Clause 95 of the Budget 2002-03 reads as follows:-
"Modification of the provisions relating to mode of repayment of certain deposits.--Under the existing provisions of Section 269T of the IT Act, no branch of a banking company, co-operative bank and no other company or co-operative society or partnership firm or other person, can repay any deposit made with such entity otherwise than by an account-payee cheque or an account-payee draft drawn in the name of the person who has made the deposit, in cases where the amount of deposit or the aggregate of the deposits held, exceeds twenty thousand rupees. The Explanation below Sub-section (2) of the said section defines 'deposit' to mean any deposit of money, which is payable after notice or repayable after a period and, in the case of a person other than a company, includes deposit of any nature.
The said section, which is intended to counteract tax evasion, is applicable only to deposits. It is proposed to substitute the existing section by a new section so as to extend its scope to loans also and delete provisions contained therein, which have become obsolete.
These amendments will take effect from 1st June, 2002."
15. The fact as stated in the order under Section 271-E dated 31.7.1997 in the case of assessee-appellant for the assessment year 1994-95 shows that no repayment was made by either cash, cheque or demand draft; a debit entry was made because of sale of shares in the statement of affairs of the assessee as on 31.3.1994. It was argued that the Institute of Chartered Accountants of India had clarified that loans created/discharged by means of transfer entries do not constitute acceptance or repayment of deposits of loan in cash and thus do not contravene the provisions of Section 269-SS and 269-T. The Deputy Commissioner of Income Tax held that the transaction is covered by Section 269-T because it represents the repayment of deposits otherwise than by way of crossed account payee cheque or bank draft. The accounts of the depositors were debited by way of sale proceeds of shares. The assessee was not entitled to any of the exemptions under Section 269-T. It was not necessary that provisions of Section 269-T will be applicable only where cash was introduced to explain seizure in search cases. The scope of Section 269-T is not restricted in such cases only.
16. We find that the Assessing Officer, Appellate Authority as well as Tribunal did not consider the method of transaction, which was by way of discharge of the liability of the loan. The assessee was paying interest on the loan regularly as reflected in his statement of affairs and profit and loss account in the financial years 1992-93 and 1993-94. The repayment of loan was not made after sale of shares. The assessee appellant had debited the account being cost of shares. The transaction between Karta of HUF and the HUF could not be termed as deposits as provided under Section 269-T at the relevant time. The transactions were made between two taxable entities. The repayment was made, by debit entires. In the circumstances, the provisions of Section 269-T providing for deposits to be made over and above Rs. 20, 000/- only by account payee cheque or account payee bank draft, were not attracted.
17. We are of the opinion relying upon the reasoning given in the judgments cited as above, that the transactions in question being that of repayment of loan by debit entry did not come within the mischief of Section 269-T. We are also of the view, that the Explanation (iii) explaining the terms "loan" or "deposit" would not make any difference and is as it does not change the method of the transaction in the present case.
18. The appeal is allowed. The questions of law are decided in favour of assessee-appellant and against the revenue. The department will proceed accordingly.
Dt.20.9.2012 RKP/