The limitation period in case of a loan starts from the date of the loan, while it starts from the date of repayment in the case of deposit.
| Case name: | Commissioner Of Income Tax Versus Visisth Chay Vypapar Ltd. |
| Case number: | ITA 689 OF 2009 ITA 712 OF 2009 ITA 765 OF 2009 |
| Court: | THE HIGH COURT OF DELHI |
| Bench: | HON‟BLE MR. JUSTICE A.K. SIKRI HON‟BLE MR. JUSTICE M.L. MEHTA |
| Decided on: | 30.8.2011 |
| Relevant Act/Sections: | The Interest Tax Act |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The assessee had placed Inter-Corporate Deposits (ICD) with Shaw-Wallace & Company (SWC). Before placing these ICDs with SWC, a Resolution was passed in the meeting of Board of the Directors of the assessee Company which was held on 11-10-1994. As per this Resolution, one of the Directors of the assessee Company Shri Champa Lal Pareek, informed the Board of Directors that Shri Pareikh was taking ICDs to fund its existing programmes. He thus mooted an idea that even the assessee Company can approach SWC for giving ICDs.
- Accepting this proposal of Mr. Pareek, the Board authorized Shri Pareek to negotiate and settle such terms and conditions as may be beneficial to the company for placing ICDs for a maximum amount of Rs.22 crores. Armed with this Resolution, Shri Pareek, on behalf of the company, wrote letter dated 1.11.1994 to SWC setting out the terms and conditions, rate of interest and the time period. SWC accepted the same vide letter dated 4th November, 1994. Based on this, a binding agreement was arrived at between the parties and subsequent thereto the assessee Company placed ICDs at ` 22 crores at the disposal of SWC.
- It is also recorded by the Tribunal in the impugned order that in order to stipulate the condition that the assessee company had placed at the disposal of SWP, ICDs, the assessee also filed number of documents in the form of TDS Certificates, accounts of SWC, the letter of SWC, affidavit of the assessing company, etc. In all these documents, the transaction in question was termed as Inter-Corporate Deposit.
- The assessee also informed that since SWC failed to return back, the said deposit, for recovery of the same, the assessee was forced to file Civil Suits in the High Court of Judicature at Calcutta. The suits were decreed in favour of the Assessee by the said Court. In the judgment and decree pronounced by Calcutta High Court, the aforesaid transaction was treated as in the nature of Inter-Corporate Deposit. On the basis of all these materials, the Tribunal came to conclusion that nature of transaction was that of „deposit‟ and not „loan‟. These are the findings of facts on which there is a final determination by the Income Tax Appellate Tribunal.
- ISSUE BEFORE THE COURT:
- Whether ITAT was correct in law in holding that the interest earned by the assessee from M/s SWC was not chargeable to interest tax u/s 5 of the Interest Tax Act?
- Whether 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?
- RATIO OF THE COURT
- Only when this deposit is covered by section 2(7) of the Act, it will be chargeable interest tax under Section 5 of the Interest Tax Act. 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 test between the loan and deposit. These are:-\
- 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 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
- The limitation period in case of a loan starts from the date of the loan, while it starts from the date of repayment in the case of deposit.
- These distinctions are brought out in a judgment rendered by this Court in Baidyanath Plastic Industries (P) Ltd. (supra) in the following words:-
“Now the only question which remains to be determined is whether the repayment was towards ‘deposit’ or the same was towards ‘loan’. In order to determine this question it will be necessary to consider whether the meaning of the term ‘deposit’ ascribed by the Expln. to s. 269T includes the term ‘loan’ in its ambit. The distinction between the loan and the deposit is that in the case of the former it is ordinarily the duty of the debtor to seek out the creditor and to repay the money according to the agreement and in the case of the latter it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make a demand for it. This distinction was adopted by the Lahore High Court in the case of Gurcharan Das & Anr. vs. Ram Rakha Mal & Ors. AIR 1939 Lah 81. Similar view was expressed by a Division Bench of the Oudh High Court in the case of Chaturgun vs. Shahzady AIR 1930 Oudh 395. While drawing the distinction between the words ‘deposit’ and ‘loan’, the Court relied upon two earlier decisions of the Madras High Court in V. Balakrishnudu vs. Narayanaswamy Chetty 24 IC 852, and Kishtappa Chetty vs. Lakshmi Ammal 72 IC 842. In this regard it held as follows :
“The word “deposit” as pointed out by the Madras High Court in V. Balakrishnudu vs. Narayanaswamy Chetty 24 IC 842 is derived from the Latin depositor, a technical word used in the Roman law of bailment for a bailment of a specific thing to be kept for the bailor and returned when wanted, as opposed to commodious where a specific thing is lent to the bailee to be used by him and returned. In popular language commodious is translated by the word “loan” and the distinction between deposit and loan is this : that a deposit is to be kept by the depositee for the depositor and the loan is to be kept by the borrower for himself. Thus I deposit my hat in the cloak room. My hat is not to be used by the depositee, but is to be kept for me and returned to me on my demand; but I lend my money to a friend and he can do what he likes with it as long as he returns it to me either on demand or at some specified time. It may be, as observed by Sir Walter Schwa be when Chief Justice of the Madras High Court, in Kishtappa Chetty vs. Lakshmi Ammal, 72 IC 842 that Art. 145 covers more than the depositor 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 Art. 145 has no application”. It may also be noted that while Arts. 19 and 21 of the Limitation Act fix the period within which suit for recovery of loan can be filed, Art. 22 deals with the period of limitation for suit for money on account of deposit. The starting period of limitation under Arts. 19 and 21, on the one hand, and Art. 22, on the other, are different. Under Arts. 19 and 21 the cause of action in the case of money lent arises from the date of loan, whereas under Art. 22 the cause of action in the case of a deposit arises from the date of demand. Therefore, it is necessary to distinguish a deposit from a mere loan.”
- The aforesaid view was followed by this Court in CIT Vs. Vikramajit Singh (supra). We are of the opinion that expression “advance” occurring in Section 2 (7) alongwith the expression “loan” should take its colour from “loan” and cannot be given wider interpretation to include deposit as well. Otherwise, money deposits given in the form had been investments etc. would also qualify as “advances” and interest thereon would become exigible to Interest Tax Act.
- DECISION HELD BY COURT:
ICD given by the assessee to M/s SWC was not in the nature of loan or advances within the meaning of Section 2 (7) of the Interest Act and, therefore, not chargeable to Interest Tax Act under Section 5 of the said Act. As a consequence, both the questions are answered in favour of the assessee and this appeal is accordingly dismissed.