Decided on January 19,1994



A. Kalyanasundharam, Accountant Member - (1.) THE assessee chit fund company has filed this appeal aggrieved by the confirmation of penalty imposed under Section 271D of the Income-tax Act, 1961 for Rs. 23,71,000, for infringement of the provisions contained in Section 269SS of the Act, by accepting loan or deposit in cash.
(2.) Shri K. Sampath the learned counsel for the appellant company, submitted that, the company which carries on the business of chit fund, had a total capital of Rs. 10,200. He drew our attention to the Balance Sheet of the company as on 31-3-1990 and submitted that, the amount received towards subscription to various chits aggregated to Rs. 45.60 lakhs and the exact amount had been granted as loans to the subscribers. The amount that was due to prized subscribers was Rs. 6.50 lakhs and the subscription in arrears was to the tune of Rs. 7.22 lakhs. He also submitted that, the cash and the bank balance was a paltry figure of Rs. 37,382 and there were hardly any asset worth the mention. Shri Sampath submitted that, the figures in the Balance Sheet gave an indication that, on almost all times whenever the subscribers were due on the prized chits, the company was always short of requisite liquid funds. The two directors of the company Shri Narinder Pal Chug and Shri Subash Chand Chug, in the interest of the company, ie., to keep it afloat and to sustain it, and to show that, the directors are genuinely interested in meeting the liabilities under the chits, brought in cash to tide over the temporary needs. The two directors felt that, it would be better to increase the paid up share capital of the company, which would ensure sufficient working capital for the company and had brought cash into the company, which they had withdrawn from their partnership firms. Subsequently, they had decided against the increase in the capital and the company, had repaid them the cash brought in.
(3.) SHRI Sampath submitted that, since, the cash being brought into the company and it being repaid to the directors was repeated every month, the department had treated the exercise as in the nature of loan or deposit. SHRI Sampath contended that, the term 'loan or deposit' had not been defined very clearly in Section 269SS, but, in normal connotation or as is understood by the common man, it means those amounts, that carry interest as part of the package, i.e., the person giving a loan or keeping his money in deposit with the company, expected a reasonable rate of interest, which is usually calculated depending upon the period for which, the money is retained by the company. He contended that, every company that is governed by the Indian Companies Act, 1956, have to necessarily conform to the provisions contained therein and it could accept deposit or a loan within the framework of the Companies Acceptance of Deposit Rules, 1975 and according to Section 58A of the Companies Act. He contended that, the Companies Act clearly prohibits companies from taking loans or deposits for a period less than a year and have also prescribed the rate of interest payable thereupon. He submitted that, it is not that every receipt of money would be in the nature of loan or deposit and it is absolutely essential to appreciate the facts in their proper perspective. He contended that, temporary accommodation as in the instant case, could never be roped within the term 'loan or deposit' because, it has no similar characteristics. The moneys were received towards share application and it was returned because, the company had decided against the increase in the share capital, perhaps on the appreciation of the fact that, it would be more prudent to emphasize on the speedy recovery of the subscription due. It was rather unfortunate for the company, that, it had to approach its directors too often in the year to tide over the company from its financial crisis, by placing a proposal of issuing further shares of the company. He contended that, the definition of the term 'deposit' is contained in Section 269T of the Act, which governs the mode of repayment of the deposits and since, the two sections, viz., Section 269SS and Section 269T are part materia identical and also govern the deposits, the definition of the term 'deposit' in Section 269T, could be borrowed for enlisting the intentions of the legislature. He pleaded that, the definition that reads "any deposit of money which is repayable after notice or repayable after a period and in the case of a person other than a company includes deposit of any nature", is clearly indicative that, Sections 269SS and 269T are intended to cover only those class of receipts of money that are repayable after a notice or after a fixed period. He contended that, the Supreme Court in BanarsiDebiv. ITO [1964] 53 ITR 100, at page 106 had observed to the effect that, a particular word or term if gives a doubtful meaning, that has received a judicial interpretation, either by subsequent statute interpreting the same word or the phrase in a similar context, then, it would be only proper that, the word or the term is construed in the manner it has been so interpreted. He contended that, since, the term 'loan or deposit' has not been defined in Section 269SS, and it is only in Section 269T that, the word 'deposit' has been given some meaning, it should be adopted as the meaning of the term 'loan or deposit'. He also made reference to the Supreme Court decision in Mehta Parikh & Co. v. CIT[1956] 30 ITR 181, with specific reference to the observations contained at page 187. He contended that, the directors had filed affidavits confirming their intention of having provided cash for further issue of shares, but, subsequently when the decision was taken not to increase the share capital of the company, the money was repaid, had not been controverted or found to be wrong. He contended that, on every occasion of introduction of the cash, it had always coincided with the date of draw and the amounts were just sufficient to meet the immediate requirements of the company. He contended that, the cash book and the ledger entries clearly show or indicate that, the moneys were received towards share application. He pleaded that, it was on such similar uncontroverted facts that, the Supreme Court in Mehta Parikh & Co.'s case (supra), had observed that, on accepted or uncontroverted facts, it is no longer open to the department to challenge the correctness of the books or other submissions. SHRI Sampath submitted that, the penalty imposable under Section 269SS is rather very heavy, because, it is always equal to the amount of the loan or deposit received otherwise than by cheques. The vires of the section was challenged before the Madras High Court in a writ in Kumari A.B.Shanthi v. Assistant Director of Inspection [1992] 197 ITR 330 and the Madras High Court considering the stringent nature of the section, had held it to be ultra vires. He contended that, the Supreme Court [1993] 204 ITR (St.) 1 had granted an interim stay on the above order of the Madras High Court and had directed that, though the criminal proceedings may go on, any substantive sentence may not be given effect to until further orders from the Supreme Court. SHRI Sampath pleaded that, broad objective of Section 269SS is to contain the influx of unaccounted money being passed on in the shape of loans or deposits. He pointed out that, there are times that, every business needs temporary accommodation from its sister concerns or may provide temporarily funds to sister concerns, and these are outside the scope of Section 269SS, for which proposition, he placed reliance on the Tribunal decision in Muthoot M. George Bankers v. Asstt. CIT [1993] 46 ITD 10 (Coch.). SHRI Sampath contended that, the copy of the share application money account as extracted from the ledger of the company clearly show that, almost each month there had been receipts of cash and each month there had been repayments too and the time gap between receipt of money and repayment had never been more than thirty days, which only shows that, the temporary accommodation by the directors, was with a view to augment the cash needs of the company, by proposing get more shares of the company, but, later withdrawing from that idea. He contended that, since this problem of cash shortage continued, the directors in fact had closed down the operation subsequently. He concluded his submission by stating that, by rejecting the genuine submissions of the directors and the facts as are on the record, a real fact cannot be transformed into an unreal one and therefore, the penalty should be quashed.;

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