TMI Blog1999 (6) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ious parties. Since the total of that sum was Rs. 12,50,000 penalty of Rs. 12,50,000 was imposed. It is stated by learned counsel for the petitioner that the borrowings have been found to be genuine and have not been treated as income of the petitioner. Neither the provisions of section 68 were invoked nor any action to bring the said amount to tax was taken. The advances were made by three directors, namely, Sri K. R. Somashekar, S. Rajashekar, S. Chandrashekar, to the extent of Rs. 7.40 lakhs, Rs. 4.70 lakhs, and Rs. 40,000, respectively. Section 269SS was inserted by the Finance Act, 1984, with effect from April 1, 1984, and was made operative from July 1, 1984. The circular dated July 6, 1984, was issued by the Central Board of Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their shareholders with the object of evading the payment of tax, it can step in to meet this mischief and in that connection it has created a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. The provisions were held not violative of fundamental rights guaranteed under article 19(1)(g). The shareholder's right to borrow money from his own company cannot be said to be a fundamental right, the right to borrow from other sources was not affected. No element of unfairness in the fiction was considered. It is stated that section 269SS does not treat a cash loan as income. There is no exclusion of honest/bona fide transactions fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 of the Constitution. Making the proviso against the borrower is arbitrary, unjust and illegal. Reliance is placed on the judgment given by the Madras High Court in K. R. M. V. Ponnuswamy Nadar Sons (Firm) v. Union of India [1992] 196 ITR 431. If a loan is taken, and repaid and then again taken and it is for the number of the transactions undergone penalty is provided for each of them resulting in confiscatory provisions. It is also stated that the penalty amount could not be mandatory but could only be maximum as held in State of Madhya Pradesh v. Bharat Heavy Electricals [1998] 99 ELT 33. I have considered over the matter. At the time of moving the amendment in the Income-tax Act by the Finance Act, 1984, the following notes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on will, however, not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by, the following, namely : (a) Government ; (b) any banking company, post office savings bank or any 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 ; (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. 25. For the purposes of the proposed provision, the expression 'banking company' shall have the meaning assigned to it in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation or making false entries or by obtaining confirmatory letters is found evading payment of tax. Thus, the borrower as a class is found to be indulging in such practices, By making such false entries or by giving false explanations or by creating false evidence, it is the borrower who was found to be evading payment of tax. In the case of a lender, we fail to appreciate how while lending money by not making payment by a cheque or a draft, he would evade payment of income-tax, Therefore, though the transaction of loan can be regarded as a single transaction, and the borrower and the lender can be said to be equal integral parts, when we view them from the angle of tax evasion, we find that they cannot be regarded as equals or simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t business relating to taxable goods in Tripura to obtain certificate of registration from the Commissioner of Taxes was held as within the legislative competence. It was observed that if such an obligation is not cast on such transporters then any dealer under a false name, can despatch his taxable goods to another person through a transporter escaping his sales tax liability on such goods. It cannot be denied that some such dealers and transporters do indulge in such illegal practices. The judgments relied on by learned counsel for the petitioner have no relevance. Section 269SS has placed restriction in not taking any loans or deposits otherwise than by way of an account payee cheque. It is only reasonable restriction and does not take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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