Meaning of “Deposit”

The meaning of deposit under sections 269T, 269SS, 80l, 40A of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court and Income Tax Appellate Tribunal tried to explain the meaning of deposit.

Meaning of deposit

The phrase ‘deposit’ used in section 269T, 269SS, 80l, 40A of the Income Tax Act came up before various high courts as detailed under :

1.Hon’ble Madras High Court explained the meaning of ‘deposit’ while delivering judgment in A.M. Shamsudden vs. Union of India [1999] 103 taxman 286 (Mad.) as under :

Section : 269T

Meaning : The expression ‘deposit’ is defined to include an amount which is repayable after notice and includes the deposit of any nature, but there is no express provision to include the loan obtained by a person within the meaning of the term ‘deposit’. All deposits may take the form of loan and it is not necessary that all loans should take form of deposits. It may be true that the loan transaction may have some of the attributes, qualities and characteristics of the deposit. The loan may be repayable on notice or may be repayable after a fixed period. But, the intention of the party making the deposit and the intention of the person taking the loan are quite different.

2. Hon’ble Chandigarh High Court explained the meaning of ‘deposit’ while delivering judgment in Eqbal Inn & Hotels Ltd. Vs. JCIT [2014] 49 taxmann.Com 74/161 ttj 359 (Chd.) as under :

Section : 269SS

Meaning : The word ‘deposit’ connotes a transaction in which the depositor gives to another person generally a bank or some other person a deposit of his belongings which may be money also on certain terms and conditions, e.G., In case of a bank the depositor would deposit the money to be refunded after certain period along with pre-defined interest.

Deposits can also be made by person for assuring the other of the performance of a contract, e.G., In case of bailment contracts. The jharkhand high court in the case of bhalotia engg. Works (p.) Ltd. V. Cit [2005] 275 itr 399 has opined that even share application money would amount to deposit. However, the delhi high court in the case of cit v. I.P. India (p.) Ltd. [2012] 343 Itr 353/204 taxman 368/[2011] 16 taxmann.Com 407 differed from this view.

The high court in this case observed that in case of baidya nath plastic industries (p.) Ltd. V. K.L. Anand, ito [1998] 230 itr 522/[2000] 113 taxman 412 (delhi), the single judge of this court pointed out that the distinction between a loan and a 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, while as in the case of a deposit it is generally the duty of the depositor to go to the banker or to the depositee, as the case may be, and make the demand for it.

The high court further noted that this observation was approved later on by division bench in the case of dit v. Acme educational society [2010] 326 itr 146 (delhi). The high court further observed that if these tests were applied then share application money for allotment of shares in a company cannot be treated as a receipt of loan or deposit.

3. Hon’ble Chandigarh High Court explained the meaning of ‘deposit’ while delivering judgment in K.K. Enterprises Vs. JCIT [2014] 41 taxmann.Com 235 (Mum. – Trib.) as under :

Section : 269SS

Meaning : While a loan or deposit stands defined to mean ‘loan or deposit of money’ in section 269ss, i.E., Providing for a conditionality on its acceptance from its very inception, the said words are defined in section 269t to mean ‘any loan or deposit of money which is repayable after a notice or repayable after a period.’

The enhancement in the scope of section 269t, so as to include loan or deposit of any nature, i.E., In case of a person other than a company, is only by the finance act, 2002, with effect from 1-6-2002. Clearly the cash received by the assessee from its sister concern cannot be said to be repayable after a notice or after a period, i.E., In terms of the definition obtaining at the time of its acceptance or repayment. Its repayment would, thus, stand to be ousted and, thus, not hit by section 269t.

4. Hon’ble Delhi High Court explained the meaning of ‘deposit’ while delivering judgment in Baidaya Nath Plastic Industries (P.) Ltd. vs. K.L. Anand, ITO [1998] 230 ITR 522 (Delhi) as under :

Section : 269T

Meaning: The meaning of the word ‘deposit’ occurring in section 269t cannot be stretched to include loans.

5. Hon’ble Delhi High Court explained the meaning of ‘deposit’ while delivering judgment in Ram Charan Vs. ACIT [1996] 58 ITD 131 (Delhi-Trib.) as under :

Section : 80l

Meaning: The word ‘deposit’ normally implies to ‘put or set down’ ‘to place, to lay down things’. Keeping in view the text and context of section 80l, the word ‘deposit’ has to be taken to mean ‘deposit of money to gain interest’. It must be a voluntary payment.

6. Hon’ble ITAT-Kolkata explained the meaning of ‘deposit’ while delivering judgment in Boyd Smiths (P.) Ltd. Vs. ITO [1985] 13 ITD 610 (Cal. – Trib.) as under :

Section : 40A

Meaning: There is nothing in the language used in defining the word ‘deposit’ which could go to suggest even faintly that it includes only such deposits which are long-term deposits or only those deposits which are long-term deposits with the non-banking companies which were obtained from the public. The definition of the word ‘deposit’ as given in explanation (b) to section 40a(8) is wide enough to include any money deposited with a company irrespective of the fact that it is deposited in a current account by the directors or shareholders of a company or the deposit is for a period or there is some restriction on withdrawal of such deposit.

Section 269T of Income Tax Act

Mode of repayment of certain loans or deposits.

269T. 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 loan or deposit made with it or any specified advance received by it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit or paid the specified advance, or by use of electronic clearing system through a bank account 88[or through such other electronic mode as may be prescribed89] if—

(a) the amount of the loan or deposit or specified advance together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or 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, or other person 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 loans or deposits, or

(c) the aggregate amount of the specified advances received by such person 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 specified advances, is twenty thousand rupees or more:

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 loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid :

Provided further that nothing contained in this section shall apply to repayment of any loan or deposit or specified advance taken or accepted from—

(i) Government;

(ii) any banking company, post office savings bank or co-operative bank;

(iii) any corporation established by a Central, State or Provincial Act;

(iv) any Government company90 as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.

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) “loan or deposit” means any loan or 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 loan or deposit of any nature;

(iv) “specified advance” means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.

Updated up to Finance Act 2021