Allahabad High Court
Chaubey Overseas Corporation vs The Commissioner Of Income Tax on 9 October, 2007
Bench: Prakash Krishna, Bharati Sapru
JUDGMENT
1. The present appeal is under Section 260-A of the Income Tax Act. 1961 (hereinafter referred to as 'the Act') and is directed against the order dated 8-4-1999 passed by the Income Tax Appellate Tribunal 'A' Bench. Allahabad in I.T.A. No. 941/Alld./1993 for the Assessment Year 1990-91.
2. The facts of the case lie in a narrow compass. The appellant is carrying on the business of silk fabric. One Sanjay Kumar Agrawal asked Shree Narain and Gopal Das, brokers of silk fabrics for the supply of special kind of silk fabrics. These brokers placed order with the appellant for the supply of required quantity of silk fabrics which was otherwise not easily available in the market. The assessee demanded a sum of Rs. 25,000/- from both the brokers towards advance for the supply of required quantity of silk fabrics. Likewise, other brokers Jai Kishan and Krishna Kumar deposited a sum of Rs. 25,000/- towards advance for supply of required quantity of silk fabrics. The appellant could not arrange the required silk fabrics and, therefore, returned the deposit by making cash payment. In the assessment proceedings, the Assessing Officer noted the following trade deposits found in the assessee's books of account:
Name of Brokers Amount Date of Date of return
Receipt Return
(i) Gopal Das 25,000/- 11-7-89 20-2-90
Bhaironath
(ii) Kishan Kumar
Rani Bhawani Gali, 25,000/- 11-7-89 2-3-90
Varanasi
(iii)Narayan Das 25,000/- 10-7-89 20-2-90
Prahlad Ghat
Varanasi
(iv)Jai Kishan 25,000/- 10-7-89 2-3-90
Chowk, Varanasi
The explanation furnished by the assessee that the brokers have not deposited the money on their accounts but on behalf of the other traders was not accepted and the Assessing Officer concluded that the advances cannot be treated as sale with reference to their capacity also and the entire sum of Rs. one lac was added to the income, by the order dated 29-5-1992. A penalty under Section 271E read with Section 269 T of the Act by the Deputy Commissioner of Income Tax, Varanasi Range, Varanasi to the tune of Rs. one lac, equal to the amount of deposit so repaid was imposed, by the order dated 25-3-1992. On appeal at the instance of the assessee, the Commissioner of Income Tax (Appeals), by the order dated 19-2-1993, allowed the appeal on the ground that the word 'deposit' stipulates that a person keeps his money for earning interest with a person or a Bank and the words 'deposit of any nature' does not cover up normal transaction of trade, as in the case of the appellant was. It was held that the provisions of Section 269T were not attracted and consequently the penalty could not be levied. The said order was challenged successfully by the Department before the Income Tax Appellate Tribunal in further appeal. The Tribunal took the view that Section 269T is applicable to every kind of deposit and there is no difference between a 'trade deposit' or 'business deposit' or 'deposit', by the order under appeal. It allowed the Revenue reappeal. Hence, the present appeal is at the instance of the assessee.
The appeal was admitted on the following questions of law:
1. Whether on the facts and in the circumstances of the case, the Tribunal is legally justified in confirming the penalty Under Section 271-E at Rs. 1,00,000/-?
2. Whether the view of the Tribunal is legally correct that the provision of Section 269-T is applicable to the trade advance also?
3. Whether the Tribunal is legally correct in disputing the nature of deposit as trade advance while there was no dispute in this regard?
3. Sri V.B. Upadhyay, learned Senior Counsel for the appellant submits that the word 'deposit' contemplated under Section 269T does not include 'trade deposit', therefore, the said Section is not attracted and consequently, the levy of penalty under Section 271-E of the Act for violation of provisions of Section 269T is invalid. The words 'deposit of any nature' in the definition of 'deposit' occurring in Clause (ii) of Explanation to Section 269T of the Act as amended by Direct tax Laws (Amendment) Act, 1987, relevant to the assessment year in question, should be interpreted in a narrow sense. The doctrine of "ejusdem generis" shall be applicable while giving a meaning to word 'deposit'. 'Deposit' and 'loan' are two different connotations in legal parlance as has also been judicially held by various pronouncements beginning with (Nawab Major Sir) Mohd. Akbar Khan v. Attar Singh and Ors. AIR 1936 PC 171; Ram Janki Devi and Anr. v. Juggilal Kamlapat . Reliance was also placed on few decisions under the Income Tax Act pointing out the marked difference in between 'loan' and 'deposit'. The sum and substance of the argument is that the 'deposit' as contemplated under Section 269T will not include 'trade deposit', like the assessee's case. It was submitted that the finding recorded by the Tribunal with regard to the nature of deposit is vitiated as the Tribunal has failed to take into account the fact that the additions made by the Assessing Officer under Section 68 of the Income Tax was not sustained and was deleted. The penalty proceeding initiated under Section 269SS against the persons (sic) who made the deposit has also been set aside. If all these facts are taken into account, the Tribunal was not correct in holding that the nature of deposit, in the case on hand, was not a 'trade deposit)
4. Sri Bharatji Agrawal, learned Senior Counsel and also Senior Standing Counsel for the Department along with Sri A.N. Mahajan learned Standing Counsel for the Department, submits that Section 2691 provides a specific mode of repayment of certain deposit either through Bank Draft or cheque for the amount above the ceiling limit prescribed therein. The violation of the said provision will attract the penalty. The fact that the transaction was bonafide, genuine or was of doubtful nature or otherwise is not at all germane so far as the applicability of Section 269T is concerned. The word 'any' in the Explanation to Section 269 is wide enough to cover all kinds of deposit within its sweep. It is not the case of the Department nor of the assessee that the transaction in question was in the nature of 'loan', therefore, the distinction in between 'loan transaction' and 'deposit' is not at all material for the purpose of the present case, submits the learned Senior Counsel. Referring to para-3 of the memo of appeal, he submits that the assessee himself treated the transaction in question as 'deposit'. The findings recorded by the Tribunal are findings of fact and they are not vitiated and are binding on this court as the Tribunal is the last fact finding authority. An appeal under Section 260A of the Act lies on a substantial question of law and in the present case no substantial question of law is involved. Considered the respective submissions of the learned Senior Counsel for the parties and perused the record. It is apt to consider questions No. 1 and 2 simultaneously as they are interlinked and interwoven.
5. Before considering respective submissions of the learned Counsel for the parties, the legislative history of Section 269T may be considered, in brief. Chapter XXB containing Section 269T was inserted by Income Tax (Second Amendment) Act, 1981 w.e.f. 11-7-1981. Its heading was amended subsequently by Finance Act, 1984 and for the words 'mode of repayment', the words 'mode of acceptance, payment or repayment' were introduced. The heading of the said Chapter now reads as follows: "Requirement as to mode of acceptance, payment or repayment in certain cases to counteract evasion of tax." The heading of the said Chapter, if it is on any importance, is suggestive of the fact that the said Chapter was introduced by the Legislature keeping in view to check the evasion of tax.
Prior to Direct Tax Laws (Amendment) Act, 1987 the Explanation to Section 269T was as follows:
Explanation-For the purposes of this section-
(i) ...
(ia) ...
(ii) "deposit" means any deposit of money which is repayable after notice or repayable after a period
6. Direct Tax Laws (Amendment) Act, 1987 by enacting Section 104 amended Section 269T of the Income Tax Act and substituted the Explanation, in Clause (ii), the following clause, namely: "'Deposit' means 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'. It also included "any person" in Sub-section (2) of 269 of the Act." The controversy centres round the interpretation of the above clause in the Explanation (in the present appeal). 'Deposit of any nature' in the aforesaid clause shall draw its colour from the words 'trade deposit', submits the learned Senior Counsel for the assessee. The theory of "ejusdem generis" has been pressed in service to support his contention that phrase includes 'deposit of any nature' though widely worded should be interpreted in a narrow sense as was also done by the First Appellate Authority. Reliance was placed on the following two decisions of the Apex Court:
(1) Kamlesh Kumar Sharma v. Yogesh Kumar Gupta .
(2) Collector of Central Excise Bombay v. Maharshtra Fur Fabrics Limited .
The question involved in the case of Kamlesh Kumar Sharma (Supra) was with regard to the meaning of the word 'otherwise' used in Section 13(4) of U.P. Higher Education Services Commission Act, 1980 in the group of words 'occurring due to death, resignation or otherwise'. One line of the argument was that the word 'otherwise' be not read as "ejusdem generis" but in a wider connotation covering all vacancies including such vacancies occurring prior to the intimation by the Management, may be for the subsequent academic year. Not agreeing with that line of reasoning, the Apex Court held that word 'otherwise' may draw its colour from the other words used in Section 13(4) i.e. occurring due to death, resignation. Invoking the principle of "ejusdem generis" it was held that the word 'otherwise' if interpreted so wide as I the appellant's contention was, it would thwart the very object of that Act. In other words, it would permit the filling of vacancies occurring which were never advertised and a person in the select list panel, who even though had not applied for any vacancy, would be absorbed. The word 'otherwise' has to be read as "ejusdem generis", i.e. to say in the group similar to death, resignation, long leave vacancies, invalidation, (sic) person not joining after being duly selected, it was held therein will he included in the word 'otherwise'. The word 'otherwise' cannot be given wide and liberal interpretation which would exclude large number of expected applicants. The other case relied upon is Maharashtra Fur Fabrics Ltd. (Supra), wherein it has been held as follows:
6...It is well-established principle that general terms following particular expressions take their colour and meaning as that of the preceding expressions, applying the principle of ejusdem generis rule, therefore, in construing the words "or any other process", the import of the specific expressions will have to be kept in mind. It follows that the words "or any other process" would have to be understood. Thus understood, a process akin to stentering/tentering would fall within the meaning of the proviso and, consequently, the benefit of the notification cannot be availed by the respondent.
The rule of "ejusdem generis" is applicable when a particular word pertaining to a class, category or genus are followed by general words. The general words are construed as limited to things of same kind as those specified. This rule reflects an attempt to reconcile incompatibility between specific and general words in view of other rules of interpretation that all words in statute are given effect if possible, that of the statute is to be construed as a whole and no words in a statute are presumed to be superfluous.
7. As has been judicially laid down, the rule applies when (i) the statute contains an enumeration of specific words (ii) the subject of enumeration construe a class of category (iii) that class of category is not exhausted by the enumeration (iv) the general terms following the enumeration and (v) there is no indication of a different legislative intent. See Amar Chand v. Collector of Excise and Grasim Industries Ltd. v. Collector of Customs, Bombay AIR 2002 SC 1766. Clause (ii) of the Explanation, which is under consideration, does not use particular words pertaining to a class, category or genus followed by general words. The only word used therein is 'deposit'. We are of the firm opinion that the doctrine of ejusdem generis has no application to the interpretation of Clause (ii) of the Explanation to Section 269T of the Act. Then, it was submitted that originally the word 'loan' was not there in Section 269T although the same word was found in Section 269 SS of the Act. Reliance was placed on a decision of the Privy Council on Mohd. Akbar Khan case (supra) wherein the Privy Council has noticed the marked difference in between 'deposit' and 'loan' with reference to various Articles of the Limitation Act. The learned Senior Counsel invited attention of the Court towards first column of page No. 173 of the report wherein it has been held that 'loan' and 'deposit' are not mutually exclusive. A deposit of money is not confined to a bailment of specific currency to be returned in specie. The distinction is that a deposit not for a fixed term does not seem to impose an immediate obligation on the depositee to seek out the depositor and repay him. He is to keep the money till asked for it. A demand by the depositor would, therefore, seem to be a normal condition of the obligation on the depositee to repay. However, in the case of loan, the obligation to repay the loan does not depend on demand but comes into existence as soon as the loan is given. The aforesaid pronouncement has been followed in Ram Janki Devi case (supra), again with reference to the Limitation Act, 1908.
8. With reference to Section 269T of the Act, a decision of Delhi High Court in Baidyanath Plastic Industries Pvt. Ltd. and Ors. v. K.L. Anand ITO , noticing the distinction between 'loan' and 'deposit', held that a loan transaction is not covered within the definition of 'deposit' under Section 269T as it then was, (sic). It was case prior to the commencement of Direct Tax Laws (Amendment) Act, 1987. At the material time Clause (ii) to the Explanation to Section 269T reads as follows:
'deposit' means any deposit of money which is repayable after notice or repayable after a period.
Obviously, at that time word 'loan' was not there in the definition of 'deposit'. The same view as of Delhi High Court mentioned above has been reiterated by the Madras High Court in A.M. Shamsuddin v. Union of India . Reference to the above case laws, in our opinion, does not in any manner advance the case of the appellant assessee. It was rightly pointed out by Sri Bharatji Agrawal, learned Senior Standing Counsel for the Department that the present is not a case of loan. It was neither the case of the assessee at any stage that it was a loan transaction nor the Department contends that the transaction in question is a loan. The entry of deposit finds place in the account books of the assessee, admittedly in the name of four persons, mentioned above. In para-3 of the Memo of Appeal, though drafted by the counsel, it has been stated that the appellant later on when could not arrange the required silk fabrics, on the insistence of the brokers, returned the payment in cash. At this juncture, Sri Upadhyay, learned Senior Counsel contends that it was a business transaction and not the deposit as commonly understood. The submission is that it was in the nature of a 'business advance' to supply the silk fabrics and if the silk fabrics had been supplied, there would have been no question of its repayment. Non-supply of the material, casts an obligation to repay the money to the persons who placed the supply order for the material. This is not a deposit as contemplated under Section 269T of the Act, submits the Senior Counsel for the appellant.
9. Assuming for a moment that the transaction in question was a trade deposit, though it has not been found so by the Tribunal even then it is nonetheless a deposit which is clearly borne out from the language of Section 269T and Explanation thereof, for the reasons more than one. The opening sentence of the Explanation, in no uncertain terms, provides that the term 'Banking Company, Cooperative Bank and Deposit' shall have the meaning defined therein for the purpose of the Section. As a corollary it naturally follows that whatever meaning of these terms in the common parlance be assigned, these terms would be understood in the manner as provided for in the said Explanation. If it is so, to which we concur, on plain reading of the Section, the decision relied upon by the learned Senior Counsel for the assessee with regard to the meaning of the word 'deposit' as understood under the Limitation Act or otherwise has little or no application so far as Section 269T is concerned. Secondly, Clause (ii) of the Explanation is in two parts. It uses the word 'means' in the first part and in the last part it uses the word 'includes'. Not only this, the use of word 'any' is also of much significance. A plain reading of Clause (ii) leaves no doubt that the word 'deposit' has been used by the Legislature in its widest connotation. This view further finds support from the use of word 'includes' as well as of 'any'. The Apex Court in Lucknow Development Authority v. M.K. Gupta has held that the word 'any' is a word of wide amplitude. Its dictionary meaning is 'one or some or all'. Referring to Black's Law Dictionary it has been stated as follows:
In Black's Law dictionary it is explained thus, the word 'any' has a diversity of meaning and may be employed to indicate 'all' or 'every' as well as 'some' or 'one' and its meaning in a given statute depends upon the context and the subject-matter of the statute.
10. It was held therein that the word 'any' was used in the statute which was under consideration before the Apex Court in wider sense extending from one to all. Keeping the above principle in mind, reverting back to Clause (ii) to the Explanation, it is evident that here also the word 'any' has been used in a wider sense. The said conclusion can be supported from the fact that the object of Section 269T is not to tax any income. In other words, it is not a charging Section. Its object, on the other hand, is to counteract the evasion of tax in certain cases. The said object finds place in the long title of Chapter XXB itself. The said Section only provides a mode of repayment of certain deposit either by Bank Draft or Account Payee Cheque with a view to plug the leakage of revenue. In this regard the Circular issued by the Board clarifying its object may also be taken into consideration to understand the motivating force for the interpretation of Section 269T. Section 269T as it originally enacted was found by the Department being circumvented in various ways including the following one, as explained by the Departmental Circular No. 551 dated 23-1-1999:
The limited meaning given to the term 'deposit' had been instrumental in the circumvention of the provision by many shroff brokers and many money lenders who maintain running account in the nature of current account and claim non-applicability of the provisions of Section 269T on the pleas that the amount credited in such account of customers were payable on demand and were not deposit. This problem did not arise in the case of a Company, because they were prohibited by the Companies (Acceptance of deposits) Rules, 1975, from accepting any deposits which are repayable on demand or on notice, except where such deposit is repayable after a minimum period of six months or other entities like Firm, Individual, Association of persons, etc. could, however, circumvent the provisions of the Section.
11. Consideration of public policy, it has been held, may also be relevant in interpreting and applying a Taxing Act. In this regard reference can be made to Maddi Venkataraman & Co. Pvt. Ltd. v. CIT AIR 1998 SC 563 and Commissioner of Central Excise, Pondicherry v. ACER India Ltd. wherein it has been held that an interpretation of a Taxing Statute leading to wide scale evasion of duty (tax) should be avoided. It was a case under the Excise Act. The provisions of Taxing statute should be read reasonably. The following extract is relevant:
39. The statute, however, should not be interpreted in such a manner which may lead to wide-scale evasion of duty. The court should adopt an interpretation which would be user-friendly. If any-other interpretation is made, the same would encourage the manufacturers to sell the operational computer separately as a result of which the buyers may have to incur extra charges. The customers, thus, may not be able to get the benefit of the information contained in the operational computer loaded in the factory. Furthermore, it may encourage in loading of pirated softwares in the computer.
In Hansraj and Sons v. State of J & K Rule of strict construction of a taxing statute was recommended. We are also not oblivious of the fact that when the statutory provision is reasonably akin to only one meaning, the principle of strict construction may not be adhered to. Artificial rules to give the taxpayer the "breaks" are not out of place for taxations is now not an "impertinent intrusion into sacred rights of private property." See Oxford University Press v. CIT . Furthermore, for the purpose of interpretation of a taxing statute the fiscal philosophy, a feel of which is necessary to gather the intent and effect of its different clauses, should be applied. See K.P. Varghese v. ITO .
12. It is also an acknowledged legal position that while construing taxing provision, if the object is to prevent tax evasion and the Legislature uses the word capable of comprehensive import, the court cannot proceed on an assumption that the words used in a restricted sense so as to defeat the avowed object of the Legislature. In C.A. Abraham v. ITO Kattayam and Anr. , it was held as follows:
In interpreting a fiscal statute a court cannot proceed to make good the deficiencies if there being any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the taxpayer. But where by the use of words capable of comprehensive import, the provision is made for imposing liability for penalty upon lax payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.
The English meaning of the word 'deposit' as per Black's Law Dictionary 8th Edition page 471 column 1 is: "the act of giving money or other property to another who promises to preserve it or to use it and return it in kind; specially an act of placing money in a Bank for safety and convenience...money or property so given." Sri Upadhyay, learned Senior Counsel for the assessee submits that the intention of the parties to the transaction on trade deposit should be the guiding factor. He submits that had the goods been supplied against the advance money received by an assessee, Section 269T would have no application. If for some reason or the other the goods could not be supplied, there is an obligation to return the money. Therefore, he submits that such a deposit is not covered within the meaning of word 'deposit'. The said argument is not borne out of the English meaning of the word 'deposit', as already reproduced above. The money was given to the assessee for the supply of silk fabrics, as per the case of the assessee himself, but as soon as the supply could not be made, whatever may be the nature of deposit earlier, the person who had the advance is under a legal obligation to return it. It becomes "deposit" at that very moment if not earlier to it. The obligation to return is very much included in the word deposit, as noted above. It is not in dispute that the assessee has shown these deposits in his account books as deposit. We are conscious that it is true that nature and quality of receipt and not the head under which it is entered in the account books would prove decisive. If a receipt is a trading receipt, the fact that is not so shown in the account books of the assessee would not prevent the taxing authority from treating it as a trading receipt. See Chaurangi Sales Private Ltd. CIT and Punjab Distilling Industries Ltd. v. CIT (1959) 35 ITR 591 (SC). But the fact remains that the so far as the assessee is concerned, the said entry may be regarded as admission in the account books unless explained otherwise, which is not a case here.
13. In CIT v. BajPur Cooperative Sugar Factory Ltd. (1998) 172 ITR 321 the Apex Court has held though in a slightly different context which reads as follows:
The essence of deposit is that there would be a liability to return it to the party by whom or on whose behalf it is made on the fulfillment of certain condition.
Viewed as above, the use of word 'any deposit', in our opinion, has been used to cover all sorts of deposits and 'trade deposit' also. A restricted meaning, as suggested by the learned Senior Counsel for the assessee, if given to exclude the trade deposit, if any within the purview of the words 'any deposit' the very object of the enactment of Section 269T would be frustrated. Not only this, every time a vexed question as to whether the deposit in question is a 'trade deposit' or is a 'deposit' simpliciter would arise and will have to be adjudicated upon by the authorities concerned which will lead to uncertainty as well as it will amount colossal wastage of time and energy both of the assessee as well as of the taxing authorities. Section 269T provides a definite mode of repayment which is also otherwise very convenient in day to day transaction as the payment/repayment by a crossed cheque or Bank Draft evidences the payment itself. It is easy to establish if payment/repayment is made through a Bank Draft or by crossed account payee cheque. In view of the above discussion, we do not find any error in the order of the Tribunal. The Tribunal has rightly interpreted Section 269T and we answer questions No. 1 and 2 in affirmative i.e. in favour of the Department and against the assessee.
14. Now we take up the third question. The contention of the appellant As that the order of the Tribunal holding that it was not a trade deposit/advance is factually incorrect. We do not find so. We have carefully perused the order of the CIT (A) which was in favour of the assessee. The said order of CIT (A) does not discuss ingredients of Section 269 T and it proceeds on the assumption that the additions made under Section 68 of the Income Tax Act having been set aside, no case of penalty has been made out as it was a trade advance. The applicability of Section 269T is not dependent on facts as to whether the transaction is genuine or of doubtful character. Even the genuine deposits are also covered under Section 269T. The source of deposit, capacity of the depositors etc. are wholly irrelevant so far as the applicability of Section 269T is concerned. No evidence could be referred or pointed out which has been omitted to be considered by the Tribunal in holding that the said deposit is not a trade advance. The finding of the Tribunal holding that the deposit in question is not a trade deposit is basically a finding of fact and was rightly arrived at by it. We therefore decides the said question against the assessee and in favour of the Department. In the result, we are of the opinion that no substantial question of law is involved in the appeal. There is no merit in the appeal. The appeal is dismissed, but no order as to costs.