CIT vs. JETLIFE INDIA LTD

The Assessing Officer had imposed penalty under Section 271E recording that the assessee had repaid amounts under the Golden Bonds Scheme in violation of Section 269T of the Act. He rejected the contention raised by the assessee that the said repayments were made by adjustment of dues outstanding in the books and, therefore, provisions of Section 269T were not attracted. It was held by the Assessing Officer that the auditor‟s report enclosed with the return clearly stated that the payments were not made by account payee instruments and, therefore, there was violation of Section 269T.

Commissioner of Income Tax (Appeals) and the tribunal have held that the payment under the Golden Bonds Scheme was not repayment of any deposit, but was repayment of a loan and there was no violation of Section 269T, as it stood at that time. Section 269T, at that time, only covered deposits and did not include repayment of loans. By an amendment introduced with effect from 1st June, 2002, repayment of loans was covered under Section 269T.

Commissioner of Income Tax (Appeals) had further held that in the present case no payment by way of cash was made but book adjustments were made, and accordingly there was no violation of 2011:DHC:6371-DB

The Commissioner of Income Tax (Appeals) has referred to the definition of term „deposit‟ in Section 2(b) of the Companies (Acceptance of Deposits) Rules, 1975, which is as under:- “2(b) “deposit” means any deposit of money with, and includes any amount borrowed by, a company, but does not include- …………………. “(x) any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of the company or with an option to convert them into shares in the company provided that in the case of such bonds or debentures secured by the mortgage of any immoveable property the amount of such bonds or debentures shall not exceed the market value of 2011:DHC:6371-DB

Reference was also made to the definition of term “debentures” given in Section 2(12) of the Companies Act, 1956, which reads as under:- “2(12) “debentures” includes debenture stock, bond and any other securities of a company, whether constituting a charge on the assets of the company or not;”

On reading of the two provisions, it has been rightly held by the Commissioner of Income Tax (Appeals) and the tribunal that debentures or bonds were not covered by the term “deposit” and was a ITO [1998] 230 ITR 522 (Delhi) and it was held that the said provision before its amendment with effect from 1st June, 2002 would apply only in cases of deposits and not in cases of loans. Madras High Court in the case of A.M. Shamsudden Vs. Union of India [2000] 244 ITR 266 (Mad.) and Rajasthan High Court in CIT Vs. Secure Meters Ltd. (2010) 321 ITR 611 have taken a similar view.

In view of the aforesaid decisions, the Legislature by Finance Act had expanded the ambit and scope of Section 269T to cover repayment of loans. This amendment, however, is with effect from 1st 2011:DHC:6371-DB