Share Application Money is Neither Loan Nor Deposit | Provisions of Sec. 269SS and 269T Not Attracted | HC

Case Details: CIT vs. Vamshi Chemicals Ltd - [2024] 162 taxmann.com 906 (Calcutta)

Judiciary and Counsel Details

• Surya Prakash Kesarwani & Rajarshi Bharadwaj, JJ.
• Om Narayan Rai & Prithu Dudheria, Advs. for the Appellant.

Facts of the Case

During the relevant assessment year, the assessee-company received share application money for preference shares amounting to Rs.20,000 or more from persons otherwise than by an account payee cheque or by account payee bank draft. The Assessing Officer (AO) issued a show cause notice for penalty under section 271D/271E on the ground that the assessee had violated the provisions of section 269SS.

On appeal, the CIT(A) upheld the penalty order. Aggrieved by the order, an appeal was filed to the Tribunal. The Tribunal deleted the penalty and the matter reached the Calcutta High Court.

High Court Held

The High Court held that the words’ loan or deposit’ have been defined in Explanation (iii) to section 269T, which is not an expansive definition. It provides that “loan or deposit” means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, including a loan or deposit of any nature.

In the case of a loan, it is ordinarily the debtor’s duty to seek the creditor and repay the money according to the agreement. In other words, a loan grants temporary use of money or temporary accommodation on certain conditions. Thus, a loan is an act of advancing money by one person to another under an agreement by which the recipient of money agrees to repay the amount on agreed terms.

In case of a deposit, it is generally the duty of the depositor to go to the banker or the deposittee, as the case may be, and demand it. The essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf the deposit has been accepted on fulfilment of certain conditions.

Share application money is neither repayable after notice nor repayable after a period. It is for participation in the capital of the company. Therefore, neither as per the definition of the words “loan or deposit” given in Explanation (iii) to section 269T nor in the ordinary sense, share application money can be said to be a loan or deposit.

Once share application money is neither loan nor deposit, neither section 269SS nor 269T shall attract. Consequently, no penalty either under section 271D or under section 271E could be imposed.

List of Cases Reviewed

• Order of ITAT, Kolkata in ITA Nos.1940/Kol/2009, 1941 /Kol/2009,1942/Kol/2009, 1943/Kol/2009,1952/Kol/2009, 1953/Kol/2009, 1954/Kol/2009, 1955/Kol/2009, dated 12-1-2012 [para 13] affirmed.

List of Cases Referred to

• Investigation v. A. B. Shanthi 6 SCC 259 (paragraphs 8 and 10) (para 6)
• Income Tax v. Bazpur Cooperative Sugar Factory Ltd. 3 SCC 553 (para 15) (para 11).