P.K Balasubramanyan, C.J:— At the instance of the assessee, the Income Tax Appellate Tribunal. Patna Bench has referred the following question for our opinion under Section 256(1) of the Income tax Act.
“Whether the acceptance of share acceptance of share application money in cash amounting to Rs. 20,000/- or more violates the provisions of Section 269-SS”.
2. During the course of the assessment proceedings for the assessment year 1990–91, it was found by the assessing officer that the assessee, a private limited company, had accepted amounts of Rs. 20,000/- and more in cash from ten persons as entered in its books. The assessments were completed on that basis. But the order of assessment is not before us. Thus, the receipt by the assessee of sums in cash exceeding Rs. 20,000/- (rupees twenty thousand) during the relevant assessment year is not in dispute before us. Holding that the amounts were received in cash in violation of Sec. 269-SS of the Incometax Act, the assessing officer initiated a penalty proceedings under section 271-D of the Act. Section 271-D reads as under.
“(1). If a person takes or accepts any loan or deposit in contravention of the provisions of Sec. 269-SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of loan or deposit so taken or accepted.”
(2). Any penalty imposable under sub-section (1) shall be Imposed by the Joint Commissioner”
3. Section 269-SS of the Act to the extent it is relevant for our purpose reads.
“No person shall after the 30th day of June, 1984 take or accept from any other person (hereafter in this section referred to as the depositor, any loan or deposit otherwise than by an account payee cheque or an account payee bank draft if.-
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit.
(b) …………………
(c) ………………………
is twenty thousand rupees or more”.
4. We are not concerned with clauses (b) and (c) of this Section or the proviso to the section. The only other relevant limb of the section is explanation (Hi). That part of the explanation reads.
“Explanation-For the purpose of this Section,-
“loan or deposit” means loan or deposit of money”.
5. Section 269-T provides for the mode of repayment of certain deposit and in Explanation (ii) to that section, it is provided:—
““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”
6. The assessee sought to explain that these amounts were received by it as share application money from 10 persons and subsequently shares were allotted to those persons and consequently, the amounts received from the ten persons in cash were not loans or deposits. The Commissioner concerned took the view that going by the language of section 269-SS of the Act and the explanation relating to loan or deposit, these sums received as share application money had to be held to be deposits within the meaning of that section and consequently”, the assessee must be held to have violated section 269-SS of the Act. Thus holding, the Commissioner imposed the penalty as contemplated by Sec. 271-D of the Act. The assessee challenged the order of the assessing officer before the Commissioner of Income Tax, Appeals. The Commissioner of Income Tax, Appeals accepted the contention of the assessee that it had not transgressed section 269-SS of the Act. The Revenue challenged the decision of the Commissioner of Income Tax before the Income Tax Appellate Tribunal, Patna Bench. The Tribunal, on a consideration of the relevant aspects, look the view that the accounts partook the character of deposits and they having been received in cash in violation of the mandate of section 269-SS of the Act, the penalty was rightly imposed on the assessee by the Commissioner. Thus, the appeal of the Revenue was allowed by the Tribunal. Thereafter, at the instance of the assessee, the question above referred to has been referred to us for our opinion. The amounts were received in cash. According to the assessee, the amounts were received as share application money in support of the claims for allotment of shares in the company. These amounts had either to be re turned to the applicants or shares for these amounts had to be issued to the applicants. The question for our decision is as to the nature of the payment by the applicants into the hands of the assessee while making applications for shares. In other words, until the applications for the issue of shares are processed and shares allotted or the amounts refunded to the applicants, what is the character of the amounts paid into the company by the applicants for share allotments. The amounts are clearly not loans repayable even with out a demand by the lenders. But they are liable to be refunded to the applicants once it is decided that shares were not to be allotted to them. In a sense, it is a bailment though not necessarily to return it in specie, and might be returnable in the form of shares.
7. In Md. Akbar Khan v. Attar Singh (AIR 1936 PC 171), the Privy Council held that a deposit of money is not confined to bailment of specific currency to be returned in specie. As in the case of a deposit with a banker, it does not necessarily involve the creation of a trust, but may involve only the creation of the relation of debtor and creditor, a loan under conditions. A deposit is not for a fixed term, but it does not seem to mean an immediate obligation on the depositee to seek out the depositor and repay him. He is to keep the money till asked for it. In Ram Janki Devi v. Juggilal Kamlapat ((1971) 1 SCC 477 : AIR 1971 SC 2551), the Supreme Court stated that a deposit is something more than a mere loan of money. It will depend on the facts of each case, whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which the parties treated the transaction, will throw light on the true form of the transaction. It has also been explained by decisions that the terms loan and deposits are not mutually exclusive, though there are a number of common factors between the two.
8. If we take recourse to the explanation in Section 269-T of the Act, deposit means a deposit of money which is repayable after notice or repayable after a period. Money paid to a Company in support of an application for shares is a deposit of money in the Company which is repayable by the Company after the period for allotment of shares comes to an end, or a decision is taken regarding the allotment of shares. Thereafter, the amount is repayable to the person who paid the money, even without a demand in that behalf. In case of refusal of shares the amount has to be returned in specie. In that context, it appears to us that there cannot be much difficulty in holding that the amount paid in support of an application for shares must be considered to be a deposit till the allotment of shares or refund of the money on rejection of the application.
9. What will happen if shares are ultimately allotted to the applicant? What is the nature of the amount in the hands of the Company until the shares are allotted? The amount cannot be a loan. But at the same time, there is an obligation on the Company to return the money to the applicant or for allot ting the shares applied for. Until either of these happens, the amount cannot be considered to be a loan in the hands of the Company. But it appears to us that it will partake the character of a deposit in the hands of the Company attracting the prohibition contained in Sec. 269-SS of the Act.
10. The question has to be considered in the context of purpose sought to be achieved by the insertion of section 269-SS in the Act. Obviously, it was done with a view to prevent transactions in black money and to ensure the payments of Rs. 20.000/- and above, are traceable to transactions through a Bank.
11. If the mischief that is sought to be averted is kept in mind, it will be appropriate to hold that any payment of Rs, 20,000/- or above, made to a Company as share application money, should be as provided in Sec. 269-SS of the Act.
12. Therefore, even if share application money cannot be considered as a loan within the meaning of Sec, 269-SS of the Act, we are of the view that it partakes the character of a deposit since it is repayable in specie on refusal to allot shares and Is repayable if recalled by the applicant, before allotment of shares and the conclusion of the contract.
13. In this situation, we answer the question referred to us in the affirmative, in favour of the Revenue and against the assessee.
14. Reference answered in affirmative.