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TMI Blog2013 (12) TMI 1577X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter. Assessing Officer was of the opinion that Section 2(22)(e) of the Act was attracted. M/s. Chandra's Chemical Enterprises (P) Ltd. was having accumulated profits of Rs. 6,59,82,622/- as on 31.03.2008 and M/s. D.I. Jewels (P) Ltd. was having accumulated profit of Rs. 17,98,965/- as on 31.03.2008. When put on notice, assessee stated that these were term deposits received by it from the said two companies and was shown as unsecured loan in the Balance-sheet for complying with Schedule VI of the Companies Act, 1956. As per the assessee, deposits were taken in the ordinary course of business. Assessee also produced a legal opinion taken by it from Dr. Debi Prosad Pal, stating that deposits received from the said two companies would come within the exceptions provided on Section 2(22)(e) of the Act. However, Assessing Officer did not accept these contentions. According to him, assessee was not a Banking or non- Banking Financial Institution. It had not taken any permission from RBI to receive any term deposit. Confirmations given by the respective parties reflected that what were received were only unsecured loans. The loans were taken on different dates and hence, could not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(22)(e) could not be roped in, to tax on inter-corporate deposits as deemed dividend. 7. We have heard the rival contentions and perused the material available on record. During the course of hearing, assessee produced copies of ledger accounts of M/s. Chandra's Chemical Enterprises (P) Ltd. as well as M/s. D.I. Jewels (P) Ltd. as appearing in its books. Entries in these ledger marked as Annexure-A & Annexure-B are reproduced hereunder :- Date Particulars Vch Type Vch No. Debi t Credi t 26.4.2007 Dr Current Account UTI, CIT Road Ch. No. 162667 on Stan-Chart for Rs. 20,00,000/- & 412611 on UBI for Rs. 30,00,000/- towards ICDS at an interest @ 12% p.a. for 700 days Receipt 8 50,00,000 23.6.2007 Dr Current Account UTI, CIT Road Ch. No. 224888 on Stan-Chart & Ch. No. 412951 on UBI as ICD at an interest @ 12% p.a. for 900 days Receipt 48 50,00,000 15.3.2008 Dr Current Account UTI, CIT Road Ch. No. 052511 on Stan-Chart for Rs. 40,00,000/- & Ch. No. 335097 on State Bank of India for Rs. 10,00,000/- towards ICDS at an interest @ 12% p.a. for 650 days Receipt 196 50,00,000 31.3.2008 Dr Interest on ICDs Being interest for the year from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have considered the rival submissions. At the outset, a perusal of the facts in the assessee's case clearly show that the dispute in the appeal primarily revolves around the issue as to whether the Intercorporate Deposits received by the assesee from M/s. IFB is a 'loan' or 'advance' or is a 'deposit'. Admittedly, the provisions of section 2(22)(e) of the Act refers to only 'loans' and 'advances' it does not talk of a 'deposit'. The fact that the term 'deposit' cannot mean a 'loan' and that the two terms 'loan' and the term 'deposit' are two different distinct terms is evident from the explanation to section 269T as also section 269SS of the Act where both the terms are used. Further, the second proviso to section 269SS of the Act recognises the term 'loan' taken or 'deposit' accepted. Once it is an accepted fact that the terms 'loan' and 'deposit' are two distinct terms which has distinct meaning then if only the term 'loan' is used in a particular section the deposit received by an assessee cannot be treated as a 'loan' for that section. Here, we may also mention that in section 269T of the Act, the term 'deposit' has been explained vide various circular issued by CBDT. Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 of the Companies Act. Therefore, moneys given by the company to the other bodies corporate is a loan within the meaning of s. 370 of the Companies Act must be negatived. Therefore, the petitioners would well be entitled to the relief." Sec. 370 of the Companies Act, 1956 was subsequently amended to include deposits ínto its ambit thereby indicating the distinction between deposits and loans/advances. The recent decision of the Tribunal in the case of Gujarat Gas Financial Services Ltd.'s case (supra) has elaborately considered the issue whether interest on ICDs is interest on loans or advances and whether the same is exigible to chargeable interest under Interest-tax Act. The Tribunal after considering the entire precedent on the issue though in the context of the Interest-tax Act had categorically held that interest on ICDs is not akin to interest on loans or advances. The relevant portion of the order of the Tribunal cited supra which runs from paras 68 to 74 is reproduced below: "68. Before the AO the assessee as regards income from ICD the assessee company accepted this interest of Rs. 1,21,54,153 along with interest on bill discountìng Rs. 1,48,74,208 and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest on ICDS are not chargeable to interest-tax, as the deposits are not in the nature of loans or advances. It held as under: "The words 'loans and advances' should be understood conjointly and not in isolation. If so read, the advances which are in the nature of loan alone should be covered in the term. Ordinarily an advance is a payment beforehand and it does not connote, the idea of repayment. It is adjusted when the action for which the money is advanced is completed and if not repaid on expiry of the loan like a deposit. The company is not bound to accept the deposit made, if proceedings on the basis of the prospectus a person interest to make a deposit. By issuing prospectus of a company invites offer for making deposit and that is not offer to receive deposit whereas in case of loan the assessee prays for a loan. It offers to borrow money and once that offer is accepted, the lender is bound to give money to the borrower on terms settled. It is also to be noticed that a taxing statute has to be strictly construed and the subject cannot be taxed unless comes within the letter of law. The argument that a particular income falls within the spirit of the law cannot be av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousing & Urban Development Corporation Ltd. (supra), the Special Bench after considering various decisions and circulars of CBDT held that deposits in the form of securities and bonds cannot be considered as loans and advances and as such interest thereon shall be outside the scope of interest defined under s. 2(7) of the Interest tax Act. Para 22 of the order reads as under: "22. From the foregoing discussion we are of the considered view that despite similarities, the two expressions loans and deposits are to be taken different and the distinction can be summed up by stating that in the case of loan, the needy person approaches the lender for obtaining the loan therefrom. The loan is clearly lent at the terms stated by the lender. In the case of deposit, however, the depositor goes to the depositee for investing his money primarily with the intention of earning interest. In view of this legal position, it has to be held that interest on deposits representing investment of surplus funds would also not fall under the definition of interest as given in s. 2(7) of the Act and as such would not be liable to interest tax. The answer to the question under reference in our humble opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) since according to it interest earned during the relevant previous year was not at all attributable to investments resulting in dividend income, claimed as exempt. Ld. CIT(Appeals) after verifying the cash flow statement came to a conclusion that loans raised were not used by the assessee for the purpose of any investment earning dividend income claimed as exempt. Disallowance of interest as stipulated in sub-clause (ii) of clause (2) of Rule 8D can be done only when an assessee has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt. Ld. CIT(Appeals) had given a clear finding after verifying the cash-show that the loan amounts were not used for any investment resulting in the dividend income. Nothing has been brought on record by the Revenue to show that the finding of ld. CIT(Appeals) is not according to facts. We are therefore not inclined to interfere with the order of ld. CIT(Appeals) in this regard. Ground No. 3 of the revenue stands dismissed.
10. In the result, appeal filed by Revenue is dismissed.
Order pronounced in the open court on 19th day of December, 2013. X X X X Extracts X X X X X X X X Extracts X X X X
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