TMI Blog2004 (1) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16,42,34,600, Rs. 19,99,50,713 and Rs. 22,90,13,766 for assessment years 1993-94, 1995-96 and 1996-97 respectively. However, the assessee had not declared interest received on the following investments and deposits: Interest on : 1. Deposits, bonds and securities 2. Special deposits with RBI 3. Deposit with IDBI 4. Fixed deposits with banks 5. Certificate deposits with banks 6. Stock invested with banks 7. Call money 8. Loan to DDA 9. Bills discounting schemes with banks 10. Loans to UTI According to the assessee, such interest did not fall within the ambit of 'loans' and 'advances' which is chargeable to tax under section 5 read with sections 2(5) and 2(7) of the Act. However, the Assessing Officer was of the view that interest was chargeable to tax. Hence, he included the above interest in the interest chargeable to tax and thus, assessed the assessee on the total interest of Rs. 1,00,62,97,800 for assessment year 1993-94, Rs. 1,30,65,84,140 for assessment year 1995-96 and Rs. 1,73,73,60,660 for assessment year 1996-97. The assessments made by Assessing Officer have been confirmed by the first appellate authority. Hence, the present appeals have been prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Hence, following the decision of the Tribunal in the case of Punjab National Bank, it is held that interest on debentures, bonds and securities is not chargeable to tax under the Act and consequently, the same shall be excluded from the computation of chargeable interest. 6. The real controversy to be resolved in the present appeals is whether the interest on deposits with Reserve Bank of India (RBI) and other banks is exempt from taxation under the Act. No case law has been cited by either party on this aspect of the issue except by submitting to the effect that reasonings given by the Tribunal in the cases mentioned above would also apply to the interest on deposits. Faced with such a situation, we have made our study in depth on this issue by referring to various case laws and provisions of other enactments. 7. First, we will refer to the relevant provisions of the Act. Section 5, which is a charging section, reads as under: "Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars from the date when the demand is made. Even the Income-tax Act, 1961 has made distinction between these two terms. Section 269SS prohibits acceptance of loan or deposit in cash exceeding the prescribed limit. Section 269T prohibits the repayment of deposit in cash exceeding the prescribed limit. It is apparent from these provisions that repayment of loan in cash is not prohibited. Consequently, no penalty is leviable under section 271E where repayment of loan is made in cash. On the other hand, penalty is leviable under section 271E if deposit is repaid in cash exceeding the prescribed limit.Thus, it is apparent from these provisions that even the Legislature recognizes the distinction between the loan and the deposit. 8. The above view is fortified by the various decisions of Privy Council, Supreme Court and High Courts. The Hon'ble Privy Council in a case reported as Mohd. Akbar Khan v. Attar Singh AIR 1936 PC 171 held as under: "It should be remembered that the two terms ('deposit' and 'loan') are not mutually exclusive. A deposit of money is not confined to a bailment of specific currency to be returned in specie. As in the case of a deposit with a banker, it does not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the debtor has to request the creditor to advance certain amount for meeting his requirement for using the amount. However, the question in a given case whether the debit is deposit or a loan will be one of fact which will have to be decided on the facts and circumstances of each case. The use of the term 'loan' or 'deposit' may not itself be conclusive, though, of course, it is a circumstance which would be taken into account. What should be regarded is the cumulative effect of the evidence which bears on the character of the debt as a loan or a deposit. Where certain amount are paid or given by a particular person to other without there being a requirement of the person receiving the same, without applying the above test, it would certainly be a deposit. This is the only distinction." 11. The Hon'ble Supreme Court in the case of Ram Janki Devi v. Juggilal Kamlapat AIR 1971 SC 2551 held as under: "12. The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earn interest. That is why the Hon'ble Supreme Court held in the case of Ram Ratan Gupta that deposit even in current account with the bank did not amount to loan. In view of such distinction, we are of the view that the interest on deposits would not fall within the ambit of the expression 'chargeable interest' appearing in section 5 of the Act. 14. Considering the above legal position, it is held that interest on special deposits with Reserve Bank of India (RBI) is not taxable under the Act. RBI is the principal bank ofIndiaand, therefore, the question of lending any money to such bank simply does not arise. It is only the RBI which lend money to banks and other institutions to meet their requirements and not the vice versa. Such deposit was made under a special scheme approved under the provisions of section 27B of Insurance Act. Hence, such interest would be excluded from the chargeable interest. 15. Similarly, it is further held that interest on fixed deposits, certificate deposits as well as interest on deposits with IDBI are not chargeable to tax under the Act since such deposits cannot be considered as loans inasmuch as the money is given at the instance of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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