4/12/22, 11:03 AM BAIDYA NATH PLASTIC INDUSTRIES PRIVATE LIMITED VS INCOME TAX OFFICER

This product is Licensed to : Rajendra Daundkar; Advocate

1998 1 AD(Del) 593; 1997 4 CCR 658; 1998 1 CCrC 475; 1998 146 CTR 421; 1998 71 DLT 312; 1998 44
DRJ 40; 1998 230 ITR 522; 1998 1 JCC(Del) 102; 1998 1 RCR(Cri) 716; 1998 0 RLR 75; 1997 0
Supreme(Del) 947;

High Court Of Delhi

BAIDYA NATH PLASTIC INDUSTRIES PRIVATE LIMITED - Appellant
Versus
INCOME TAX OFFICER - Respondent
CRIMINAL APPEAL 162 of 1997
Decided On : 11/25/1997

Income Tax Act, 1961 - Section 269T r/w 276E — Mode of repayment — Contravention of provisions of
— Scope and ambit-Applicability-Income Tax (IInd Amendment) Act, 1981 — Effect of — Prosecution —
Repayment in cash — Violation of — Criminal complaint against respondent Under Section 276E —
Acquitted — Revision — Reversed by ASJ and held repayment was towards deposit contemplated Under
Section 269T — Repayment towards "loan" and "deposit" — Determination of — Petitioner pleaded
second amendment not applicable towards deposit under proviso to Section 269T — Distinction between
"loan" and "deposit" — Transaction was in the nature of loan — Prosecution not warranted.

       Held:

       The above said section shows that the aggregate amount of deposits held by a company shall not be
repaid to any person otherwise than by an account payee cheque or account payee bank draft where the
amount of deposit, or where the amount of deposit is to be repaid together with any interest, the aggregate
of the amount of the deposit and such interest, is ten thousand rupees or above, after the Income-tax
(Second Amendment) Act, 1981, received the assent of the President of India . The President of India
assented to the Amendment Act on September 19, 1981. It is not disputed that the repayment was made
after the Amendment Act was assented to by the President of India. Learned counsel for the petitioner
submitted that Section 269T(2) of the Act will not be applicable if the repayment was towards deposit as
under second proviso to Section 269T(1) nothing in the said sub-section will apply to or in relation to any
repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act, 1981,
received the assent of the President of India. It does appear to me that this sub-section is not applicable as
the assent of the President of India was received earlier to the repayment, but Clauses (a) and (b) of Sub-
section (2) of Section 269T would undoubtedly be applicable if the repayment in the instant case was made
in relation to deposits as the repayment was made after September 19, 1981 when the President of India
assented to the Amendment Act. 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 Explanationn to Section
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.

              The provisions of Section 269T read with Section 276E are penal in nature and must be strictly
construed. Since the legislature specifically used the word "deposit" in contradistinction to the term
"loan", the provisions would only be attracted if the repayment has been made in respect of a deposit. The
meaning of the word deposit" occurring in Section 269T cannot be stretched to include loan. An assessed
must know as to which of his acts would violate a penal provision of astatine, as otherwise unwittingly he
may fall in the net cast by a penal provision. In case two interpretations are possible, an interpretation
which takes out an assessed from the clutches of a penal provision must be preferred.
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              It is, thereforee, obvious that the complainant itself conceded in me above said notice that the
transactions for receipt was in the nature of a loan. This being the situation, there was no justification for
the complainant to invoke Sections 269T read with Section 269E of the Income-tax Act. The prosecution
of the petitioners, thereforee, was not warranted.

       Head Note:

              INCOME TAX Repayment of certain deposit — APPLICABILITY OF S. 269T — Repayment of

``loan in contravention of s.269T.

              There was no justification for the complaintant to invoke section 269T r/w section 276E in the
circumstances of the case as there was repayment of `loan and not ``deposit.

       Held : (i) It does appear that sub-section (1) of 269T is not applicable as the assent of the President of
India was received earlier to the repayment, but clauses (a) and (b) of sub-section (2) of section 269T
would undoubtedly be applicable if the repayment in the instant case was made in relation to deposits as
the repayment was made after 19-9-1981 when the President of India assented to the Amendment Act. (ii)
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 v. Ram Rakha Mal AIR 1939 Lahore 81. Similar view was expressed by a Division Bench
of the Oudh High Court in the case of Chaturgun v. 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. Balakrishnadu v. Narayanswamy Chetty 24 IC 852 (Mad) and Kishtappa Chetty v.
Lakshmi Ammal, 72 IC 842 (Mad). It may also be noted that while articles 19 and 21 of the Limitation
Act fix the period within which suit for recovery of loan can be filed, article 22 deals with the period of
limitation for suit for money on account of deposit. The starting period of limitation under articles 19 and
21, on the one hand, and article 22, on the other, are different. Under articles 19 and 21 the cause of action
in the case of money lent arises from the date of loan, whereas under article 22 the cause of action in the
case of a deposit arises from the date of demand. thereforee, it is necessary to distinguish a deposit from a
mere loan. The provisions of section 269T read with section 276E are penal in nature and must be strictly
construed. Since the Legislature specifically used the word "deposit" in contra- distinction to the term
"loan", the provisions would only be attracted if the repayment has been made in respect of a deposit. The
meaning of the word Deposit occurring in section 269T cannot be stretched to include loan. An assessed
must know as to which of his acts would violate a penal provision of a statute, as otherwise unwillingly he
may fall in the net cast by a penal provision. In case two interpretations are possible, an interpretation
which takes out an assessed from the clutches of a penal provision must be preferred. (iii) The
complainant in the show cause notice dated 2-3-1987 clearly stated that the petitioners raised a loan and a
payment was made in cash with reference to the same. It is, thereforee, obvious that the complainant itself
conceded in the said notice that the transactions for receipt were in the nature of a loan. This being the
situation, there was no justification for the complainant to invoke sections 269T read with section 276E.
The prosecution of the petitioners, thereforee, was not warranted.

       Income Tax Act 1961 s.269T

       Income Tax Act 1961 s.276E

Acts Referred:
INCOME TAX ACT : S.269(t), S.276(e)

Cases Referred:
REFERRED TO : Gurcharan Das v. Ram Rakha Mal, AIR 1939 Lah 81Referred
V. Balakrishnudu v. Narayanaswamy Chett
Kishtappa Chetty v. Lakshmi Amma
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Advocates Appeared : A.K.JHA, Dhanbir Singh, R.D.Jolly

`( 1 ) THIS is a revision petition against the order of the learned Additional Sessions Judge dated January 24,
1997 whereby the order of the learned Additional Chief Metropolitan Magistrate dated July 28, 1995 was set
aside. The facts giving rise to this petition are as follows :-

       A criminal complaint No. 901 of 1987 for the alleged commission of the offences under section 276e of the
Income Act, 1961 (for short the Act ), was filed by Shri R. Prasad, Income Tax Officer, Company Circle XXV,
New Delhi, against the petitioners as per the following allegations:

       PETITIONER No. 1 is a company registered under the Companies Act, 1956. Petitioners 2 to 4 were the
Directors of the petitioner No. 1 during the period relevant to the assessment year 1984-85 and they were
incharge of and responsible to the company for the conduct of its business at the time when the offence is said to
have been committed. During the course of the assessment proceedings for the period relevant to the assessment
year 1984-85 the complainant found that the company had shown deposits in its books of accounts in the name
of M/s. Summan Steel and Rolling Mills Pvt. Ltd. and M/s. Universal Properties Limited. Repayment of deposits
amounting to Rs. 1,00,000. 00 and Rs. 3,50,000. 00 were made to M/s. Summan Steel and Rolling Mills Pvt.
Ltd. in cash by the petitioner company on January 28, 1984 and February 12, 1984 respectively. Similarly,
repayment of deposit of Rs. 10,000. 00 was made by the petitioner company to M/s. Universal Properties Ltd. on
September 12, 1983. The case of the complainant is that the repayments were made in contravention of section
269t of the Act inasmuch as the were made in cash instead of by cheques resuling in commission of offence
punishable under section 276e of the Act. Petitioner No. 1 was issued a notice by the complainant on March 2,
1987 requiring it to show cause why action under section 276e of the Act be not initiated against it. The
company as well as its directors (petitioners 2 to 4), however, failed to give any reply to the notice.

       ( 2 ) THE learned trial court by its order dated July 28, 1995 acquitted the petitioners on the ground that the
provisions of section 269t of the Act were not attracted as it was not a case of repayment in connection with the
deposits, but it was a case of repayment of loans. It was held that the repayment of loan by cash payment will
not constitute contravention of section 269t of the Act. The complainant being aggrieved of the order of the
Additional Chief Metropolitan Magistrate filed a revision petition before the Additional Sessions Judge, Delhi.
The Additional Sessions Judge by his order January 24, 1997 reversed the order of the learned Additional Chief
Metropolitan Magistrate holding that the repayment was towards deposits as contemplated by section 269t of the
Act. It further came to the conclusion that the term "deposit" means any deposit of money which is repayable
after notice and repayable after a fixed period of time. It also observed that it was too early for the trial court to
jump to the conclusion that the loans repaid by the petitioner company were not deposits as contemplated by
section 269t of the Income-tax Act.

              ( 3 ) I have heard learned counsel for the parties. In order to appreciate the question as to whether the
petitioners have violated the provisions of the Act it would be necessary and convenient to extract section 269t
thereof :-

              MODE of repayment of certain deposits. (1) No company (including a banking company), co-operative
society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account
payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together
with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees of more :
Provided that where the repayment is by a banking company or co-operative bank, such repayment may also be
made by crediting the amount of such deposit to the account (if any) with such company or bank of the person to
whom such deposit has to be repaid : Provided further that nothing in this sub-section shall apply to or in
relation to the repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act,
1981, receives the assent of the President.

       (2) No branch of a banking company or a co-operative bank and no other company or co-operative society
and no firm or other person shall repay any deposit made with it otherwise than by an account payee cheque or
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account payee bank draft drawn in the name of the person who has made the deposit if -

       (A) the amount of the deposit together with interest, if any, payable thereon, or

       (B) the aggregate amount of the deposits held by such person with the branch of the banking company or
co-operative bank, or as the case may be, the other company or co-operative society or the firm, either in his
own name or jointly with any other person on the date of such repayment together with the interest, if any,
payable on such deposits, is twenty thousand rupees or more :

       ( 3 ) PROVIDED that where the repayment is by a branch of a banking company or co-operative bank, such
repayment may also be made by crediting the amount of such deposit to the savings bank account or the current
account (if any) with such branch of the person to whom such deposit has to be repaid :

       PROVIDED further that nothing in this sub-section shall apply to or in relation to the repayment of any
deposit before the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the
President.

              EXPLANATION - For the purposes of this section, - (i) "banking company" shall have the meaning
assigned to it in clause (i) of the Explanation to section 269ss;

       (II) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949
(10 of 1949);

       (III) "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. "

       ( 4 ) THE above said section shows that the aggregate amount of deposits held by a company shall not be
repaid to any person otherwise than by an account payee cheque or account payee bank draft where the amount
of deposit, or where the amount of deposit is to be repaid together with any interest, the aggregate of the amount
of the deposit and such interest, is ten thousand rupees or above, after the Income-tax (Second Amendment) Act,
1981, received the assent of the President of India. The President of India assented to the Amendment Act on
September 19, 1981. It is not disputed that the repayment was made after the Amendment Act was assented to
by the President of India. Learned counsel for the petitioner submitted that section 269t (1) of the Act will not be
applicable if the repayment was towards deposit as under second proviso to section 269t (1) nothing in the said
sub-section will apply to or in relation to any repayment of any deposit on or after the date on which the Income-
tax (Second Amendment) Act, 1981, received the assent of the President of India. It does appear to me that this
sub-section is not applicable as the assent of the President of India was received earlier to the repayment, but
clauses (a) and (b) of sub-section (2) of Section 269t would undoubtedly be applicable if the repayment in the
instant case was made in relation to deposits as the repayment was made after September 19, 1981 when the
President of India assented to the Amendment Act. 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 explanation to section
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 and another v. Ram Rakha Mal and others, AIR 1939 Lah 81. Similar view was
expressed by a Division Bench of the Oudh High Court in the case of Chaturgun v. 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 v. Narayanaswamy Chetty, 24 I. C. 852, and Kishtappa
Chetty v. Lakshmi Ammal, 72 I. C. 842. In this regard it held as follows:-

              " The word "deposit" as pointed out by the Madras High Court in V. Balakrishnudu v. Narayanaswamy
Chetty is derived from the Latin depositum, 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 commodatum where a
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specific thing is lent to the bailee to be used by him and returned. In popular language commodatum 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 Schwabe when Chief Justice of the
Madras High Court, in "kishtappa Chetty v. Lakshmi Ammal, that Art. 145 covers more than the depositum 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.

       ( 5 ) IT may also be noted that while Articles 19 and 21 of the Limitation Act fix the period within which
suit for recovery of loan can be filed, Article 22 deals with the period of limitation for suit for money on account
of deposit. The starting period of limitation under Articles 19 and 21, on the one hand, and Article 22, on the
other, are different. Under Articles 19 and 21 the cause of action in the case of money lent arises from the date of
loan, whereas under Article 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.

              ( 6 ) THE provisions of section 269t read with section 276e are penal in nature and must be strictly
construed. Since the legislature specifically used the word "deposit" in contradistinction to the term "loan", the
provisions would only be attracted if the repayment has been made in respect of a deposit. The meaning of the
word "deposit" occuring in section 269t cannot be stretched to include loan. An assessee must know as to which
of his acts would violate a penal provision of a statute, as otherwise unwittingly he may fall in the net cast by a
penal provision. In case two interpretations are possible, an interpretation which takes out an assessee from the
clutches of a penal provision must be preferred TO.

       ( 7 ) THE complainant in the show cause notice dated March 2, 1987 clearly stated that the petitioners raised
a loan and a payment was made in cash with reference to the same. This is what the show cause notice states :-

       "during the course of assessment proceedings for the assessment year 1984-85 in your case it is found that
you have raised a loan from M/s. Summan Steel and Rolling Mills and made payment for the said loan in the
previous year relevant to the assessment year 1984-85. Copy of the account appearing in your account books is
reproduced below :

       IT is noticed that the transactions for receipt as well as for the payment of the loan have been made in cash
exceeding Rs. 10,000. 00. Provision of Section 269t of the I. T. Act, 1961 prohibits the payment in cash for the
deposit received by you if the amount repaid exceeded to Rs. 10,000. 00 other than Bank cross cheques and
drafts. xx xx xx "

              ( 8 ) IT is, therefore, obvious that the complainant itself conceded in the above said notice that the
transactions for receipt was in the nature of a loan. This being the situation, there was no justification for the
complainant to invoke sections 269t read with section 269e of the Income-tax Act. The prosecution of the
petitioners, therefore, was not warranted. Accordingly, the order of the learned Additional Sessions Judge dated
January 24, 1997 is set aside and the order of the learned Additional Chief Metropolitan Magistrate dated July
28, 1995 is restored.

       

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