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TMI Blog2013 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... r not the debentures are loans covered u/s 269-SS of the Act. 4. The facts, as per the relevant documents available on record are that the assessee, i.e., M/s Sahara India Commercial Corporation Ltd. filed its return of income for Assessment Year 2005-06 on 31.10.2008 declaring loss of Rs. 164,76,44,352/-. The assessment was completed u/s 143 (3) at a loss of Rs. 138,58,88,630/- on 18.07.2008. The assessment was completed after carrying out Special Audit u/s 142 (2A). The Assessing Officer, after examination of the return of income and the Special Audit Report, has given a finding that the assessee company accepted deposits in contravention of Section 269SS during the F.Y. 2004-05 relevant to the A.Y. under consideration. It was noticed by the Assessing Officer that deposits under the nomenclature "Optionally Fully Convertible Debentures" (OFCDs) were arranged on a significant scale for the assessee company by M/s Sahara India, a firm. 5. During the financial year 2004-05, the assessee company has shown Rs. 5171.40 crores under the head as "Optionally Fully Convertible Debentures" (OFCDs). The same is shown as 'Unsecured Loans' in the Balance Sheet (Schedule-3 of Balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FCDs were loans/deposits and fell within the purview of Section 269SS of the Act. For the reasons discussed above, the amount of deposits accepted, which comes to Rs. 35,56,79,900/- and amounts redeemed, which comes to Rs. 28,35,52,822/- were treated by the Assessing Officer to be in the nature of 'Loans and deposits' covered under Sections 269SS and 269T of Income Tax Act, 1961. 7. In the penalty proceedings, a show cause notice dated 13.03.2009 for levy of penalty u/s 271D of the Act was issued. In response, the assessee filed written submissions dated 06.04.2009 and 19.06.2009, wherein, inter alia, the assessee made the following submissions, as summarized by the Assessing Officer at page 23 of the penalty order, to contend that the OFCDs are not loans or deposits, as contemplated u/s 269SS of the IT Act and so, no penalty u/s 271D of the Act can be levied:- i. The Assessing Officer directed the Special Auditor to report all particulars regarding all the deposits including OFCDs of Rs. 20,000/- or above accepted by the company. Thus, the Special Auditor was directed to give comments on OFCDs and not in respect of loans or deposit as contemplated u/s 269SS of IT Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid' or c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b) is twenty thousand rupees or more: Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,- (a) Government; (b) any banking company, post office saving bank or co-operative bank; (c) any corporation established by a Central, State or Provincial Act; (d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956); (e) 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: [Provided further that the provisions of 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 deposits taken or accepted are both having agriculture income and neither of them has any income chargeable to tax under this Act.]" 2.8.2 Thus, the section is applicable to loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes debentures but not deposits. 2.8.5 The various enactments relied on by the assessee have given certain definitions to securities, debentures and deposits which are specific to those Acts and given within the context of the objects of such enactments. Such definitions can not be imported into the fiscal domain to restrict the sweep of taxation statutes. Thus when the Companies Act states that debentures convertible into equity are not deposits, the objective is to differentiate between two different instruments of fund mobilization with different characteristics such as the risk they carry to the Company, to the depositor as also other legal obligations. The fact that the definition of Security in the Securities Act does not include deposits also does not help the assessee's case. 2.8.6 The assessee has claimed that OFCDs issued by the Company are debentures convertible into equity at the option of the debenture holder as borne out by the Red Herring Prospectus. But the fact remains that these debentures were in the nature of a deposit at the time of the subscription. They would retain their character as a deposit until the option is exercised by the depositor to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Companies Act and the Securities Act. But as discussed above, these are specious arguments as such restrictive interpretations given in different statutes have a specific purpose in the context of those statutes and they can not be imported in to the Income Tax Act 1961. Such an exercise would have the effect of reading into the taxing statute a restrictive meaning which is not intended by the legislature in the first place. 2.8.9 Therefore, I would without any hesitation reject the contention of the assessee that the subscriptions collected under the OFCD scheme are not deposits. I hold that the transactions in which the assessee collected the amounts as OFCDs come within the ambit of section 269SS and since the legal provisions have been contravened, the penalty proceedings u/s 271D are clearly applicable in the facts of the case." 9. Holding that the assessee company had violated the provisions of Section 269SS of the Act, the Assessing Officer imposed a penalty of Rs. 35,56,79,900/- on the assessee. 10. While deleting the penalty on this issue, the Ld. CIT (A), by virtue of the impugned order, observed as follows:- "I have carefully considered the arguments of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntent of the legislature is absolutely clear that interest on security is different from interest on loan or deposit. In the same parlance the securities are different from "Loans" and "Deposits" and debentures is in the nature of a "Security" and is not in the nature of any loan or deposit as envisaged by the provisions of section 269SS of the Income Tax Act. This difference is further strengthened from the fact that TDS provisions are also separate for interest on securities (section 193) and other than interest on securities (Section 194A). Different treatment and different rates have been prescribed in both these sections for deduction of tax at source on the interest. It is also well settled law that interpretation of taxing statues- same expression in different enactments must be given same meaning. C.IT. Vs. Bhaskar Metter 202 ITR 612 (Col.) Shankar Const. Co. Vs. CIT 189 ITR 463 (Kar) In view of the aforesaid I am of the opinion that debenture issued by a company is a "Security" and not a "Loan" or "Deposit" and, therefore, the subscription received for issue of debenture cannot be equated with receipt of "Loan" or "Deposit" within the meaning of section 269SS of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined in the IT Act. Therefore, recourse has to be taken to the definition of these terms in cognate Acts. For the purposes of the Income Tax Act, as such, in various decisions, reference has been made, inter alia, to the Companies Act, 1956, the Companies (Acceptance of Deposit) Rules, 1975, the SEBI Act, the Securities & Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000, the Securities Contracts (Regulation) Act, 1956, etc. In 'Sahara India Real Estate Corpn. Ltd. & Others' (supra), inter alia, the assessee had contended that OFCDs issued by it were convertible bonds falling within the scope of Section 28(1)(b) of the SCR Act and that they were not 'securities'; and that at any rate, the provisions of the SEBI Act and Section 67 of the SCR Act were not applicable to such OFCDs, which had been found to be 'hybrid' (in para 106 of the judgement). It was observed by the Hon'ble Supreme Court (in para 112) that the OFCDs issued had the characteristics of shares and debentures and fell within the definition of Section 2 (h) of the SCR Act, such OFCDs continuing to remain debentures till they were converted; that in other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, but defined in the SC(R) Act or in the Depositories Act, 1996 would be attributed the meaning given to them in the said Acts. But the term "hybrid" has also not been defined in either of the aforesaid enactments. The term "hybrid" as defined in the Companies Act means "any security" having "the character of more than one type of security" and "includes their derivatives". For the purposes of the SEBI Act, the term "securities" is accepted as it is defined in section 2(h) of the SC(R) Act. Section 2(h) of the SC(R) Act does not define the term "securities" exhaustively, because clauses (i) to (iia) thereof, only demonstrate what may be treated as included in the definition of the term "securities". And, clause (i) of section 2(h) of the SC(R) Act, includes within the definition of the term "securities" inter alia, "bonds", "debentures" and "other marketable securities of a like nature". For the present controversy it is sufficient to notice, that the appellant-companies through their respective RHPs had invited subscription to, Optionally Fully Convertible "Debentures" (OFCDs). On receipt of subscription amounts from investors, the appellant-companies had issued different kind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction even over "hybrids", even under the provisions of the SEBI Act." 15. Thus, it has been held that 'hybrids', i.e., hybrid securities, i.e., OFCDs are 'securities' under the Companies Act as well as under the SEBI Act. 16. Now, undisputedly, the OFCDs of the assessee before us are no different from those of 'Sahara India Real Estate Corpn. Ltd. & Others' (supra), i.e., the assessee before the Hon'ble Supreme Court in the aforesaid case, and once such OFCDs are securities, they are neither 'loans', nor 'deposits'. Further, it is seen that as per Explanation 2 to Section 2 (42A) of the Income Tax Act, the expression 'security' shall have the meaning assigned to it in Section 2 (h) of the Securities Contracts (Regulation) Act, 1956. Section 2 (h) (i) of the Securities Contracts (Regulation) Act, 1956 defines 'securities' to include, inter alia, debentures or other marketable securities of a like nature in or of any incorporated company or other body corporate. 17. Hence, in keeping with the decision of the Hon'ble Supreme Court in 'Sahara India Real Estate Corpn. Ltd. & Others' (supra), the OFCDs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes money placed with a person as an earnest or security for the performance of some contract. Thus, the word "Deposit' also does not have a semblance to the subscription received for issue of debentures. The word 'Debenture' has been defined as a long term unsecured debt instrument, issued pursuance to an indenture. Thus, on reading of the above definition, it is clear that all the three different words have separate meanings. Similarly, the definition of debenture under the Companies Act and that of a loan or deposit are different. The Companies Deposit Rules provide in clause 2(b) that deposit means any deposit of money and includes any money borrowed by a company but does not include money received by company in certain cases. Clause X of the exception contained in Rule 2(b) rules of the deposit excludes any amount raised by issue of bonds or debentures secured to mortgage by any immovable property of the company or with an option to convert them into shares in the company meaning thereby that the monies raised on issue of 'bonds' or 'debentures' are not in the nature of receipt of a deposit. Section 2(b) of the securities Act defines the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall under and cannot be equated with receipt of 'loan' or 'deposit' under the provisions of Section 269SS of the IT Act, evidently, no violation of the said Section can be said to have been committed by the assessee. Hence, penalty u/s 271D of the IT Act is entirely not attracted. As such, the order of the Ld. CIT (A) does not contain any error or infirmity in this regard. The same is upheld. 22. For the above reasons, respectfully following the Hon'ble Supreme Court decision in 'Sahara Real Estate Corpn. Ltd. & Others' (supra), we hold that the OFCDs of the assessee, Sahara India Commercial Corporation Ltd. are neither 'loans', nor 'deposits'. 23. Now, when the issue as to whether or not the OFCDs of the assessee are 'loans' covered u/s 269SS of the IT Act has been decided in favour of the assessee as above, the question of the assessee having been prevented by reasonable cause within the meaning of Section 273B of the IT Act for not complying with the provisions of Section 269SS of the Act, no longer survives. For the preceding discussion, the grievance sought to be raised by the department by way of its Ground No.2, is rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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