TMI Blog2011 (8) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon. The appeals are admitted on the following substantial questions of law : "(i) Whether the Income-tax Appellate Tribunal was correct in law in holding that the interest earned by the assessee from M/s. SWC was not chargeable to interest-tax under section 5 of the Interest-tax Act ? (ii) Whether the amount given to M/s. SWC were in the nature of loans and advances within the meaning of section 2(7) of the Interest-tax Act ?" 2. The aforesaid questions have arisen for consideration under the following factual backdrop. The assessee had placed intercorporate deposits (ICD) with Shaw-Wallace and Co. (SWC). Before placing these intercorporate deposits with SWC, a resolution was passed in the meeting of the board of the directors of the assessee-company which was held on October 11, 1994. As per this resolution, one of the directors of the assessee-company, Shri Champa Lal Pareek, informed the board of directors that Shri Pareek was taking intercorporate deposits to fund its existing programmes. He thus mooted an idea that even the assessee-company can approach SWC for giving intercorporate deposits. Accepting this proposal of Mr.Pareek, the board authorized Shri Pareek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India ; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934) ; (ii) discount on treasury bills " Section 5 of the Interest-tax Act states as under : "Scope of chargeable interest.-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 loan and advances made to other credit institutions) accruing or arising to the credit institution in that previous year :" 6. According to Ms. Suruchi Aggarwal, learned counsel appearing for the Revenue, the chargeable interest is one which accrues or arises to the credit institution in the previous year and that is liable for tax. The only exception that carved out is when the interest is earned on loan or advance made to other credit institutions or to any co-operative society engaged in carrying out the business of bank. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and SWC, the term "intercorporate deposit" had been used ornamentally. The Commissioner of Income-tax (Appeals) formed the opinion that from the correspondences it was clear that the assessee had lent money to M/s. SWC for helping the borrower to tide over its short-term liquidity crunch. The needy person in this transaction was definitely M/s. Shaw Wallace and Co. Ltd. The terms of the contract was decided by the lender. The nomenclature of "intercorporate deposit" was used ornamentally in various correspondences without taking into account the substance of the term. Therefore, the cumulative effect of the evidence confirmed the fact that the transaction between the appellant-company and M/s. Shaw Wallace and Co. Ltd. is not deposit but a loan. 7. Mrs. Aggarwal strongly relied upon the aforesaid reasoning of the Commissioner of Income-tax (Appeals). She also referred to the decision of the Tribunal in Bajaj Auto Holdings Ltd. v. Deputy CIT [2006] 281 ITR (AT) 154 (Mumbai). 8. Mr. Vohra, learned counsel for the assessee, countered the aforesaid submissions. In addition to relying upon the impugned decision of the Income-tax Appellate Tribunal wherein it is held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest earned on the said loan would be covered by the provisions of section 2(7) of the Interest-tax Act. Once we find that it was a deposit and loan, in fact, no further discussion, is even required. 15. In any case, we would like to point out that there is a settled distinction between the loan and deposit. It is rightly held by the Tribunal, on the analysis of various judgments of our courts which are referred to by Mr. Vohra as well and already noticed above, there are three main tests between the loan and deposit. These are : (i) a loan is payable immediately on receipt thereof as per the directions of the lender, while a deposit has a term for repayment, which may be a fixed date or it may be as per the terms and conditions of the agreement ; (ii) the loan is obtained at the request of the borrower while a deposit is made at the instance of the depositor ; and (iii) The limitation period in the case of a loan starts from the date of the loan, while it starts from the date of repayment in the case of deposit. 16. These distinctions are brought out in a judgment rendered by this court in Baidya Nath Plastic Industries (P) Ltd. [1998] 230 ITR 522 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mad 578 ; [1923] 72 IC 842 that article 145 covers more than the depositum of Roman law, and his Lordship observed that the framers of the Indian Limitation Act "meant to use simple and plain language," but I take this to mean that the word "deposit" is used in the ordinary sense of the word in the English language, and as far as I am aware the word "deposit" does not cover a transaction of the nature of a loan. The transaction that we have to consider is a loan. The plaintiff lent the defendant these ornaments to be used by the latter in a religious procession. There was no question of trust or quasi trust. It was a mere loan for the benefit of the borrower and, in my opinion, article 145 has no application'. It may also be noted that while articles 19 and 21 of the Limitation Act fix the period within which suits for recovery of loans can be filed, article 22 deals with the period of limitation for suits for money on account of deposit. The starting period of limitation under articles 19 and 21, on the one hand, and article 22, on the other, are different. Under articles 19 and 21, the cause of action in the case of money lent arises from the date of loan, whereas under articl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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