The Calcutta High Court has ruled that if share application money is neither considered a loan nor a deposit, then neither Section 269SS nor 269T of the Income Tax Act, 1961 applies. Consequently, no penalties under Section 271D or Section 271E of the Income Tax Act, 1961 can be imposed.
Justices Surya Prakash Kesarwani and Rajarshi Bharadwaj noted that in cases of loans, it’s typically the debtor’s responsibility to seek out the creditor for repayment according to the agreed terms. Similarly, in deposits, it’s the duty of the depositor to request repayment from the banker or depositee under specific conditions. Share application money, however, is intended for participation in a company’s capital and doesn’t fall under the definitions of a loan or deposit.
The case involved an assessee company that received share application money for preference shares amounting to Rs. 20,000 or more during assessment years, without using account payee instruments. The assessing officer imposed penalties under Section 271D and Section 271E for alleged violations of Section 269SS. The Income Tax Appellate Tribunal later allowed the assessee’s appeals.
Section 269SS prohibits accepting loans or deposits above Rs. 20,000 without using account payee instruments, while Section 269T mandates repayments of loans or deposits exceeding this amount also via account payee methods.
The court concluded that share application money, not being a loan or deposit, doesn’t fall under the purview of Sections 269SS or 269T, and thus, penalties under Sections 271D or 271E are inapplicable in such cases.
