Investment and deposits

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 April 2013 respected sir,
please discuss the difference between investment and deposits from the point view of taxation.
whetherincome earned from investment shown in balance become income from business or becomes other souce of income .please discuss

Ajay Mishra

Ajay Mishra (Expert)
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29 April 2013 Hi

Distinction between Loan and Deposit
1. In the case of a deposit, the delivery of money is usually at the instance of the giver and it is for the benefit of the person who deposits the money. Deposits could be for safe keeping or as a security for the performance of an obligation undertaken by the depositor. In the case of a loan, however, it is the borrower at whose instance and for whose needs the money is advanced.
2. The borrowing is primarily for the benefit of the borrower although the person who tends the money may also stand to gain thereby by earning interest on the amount lent ordinarily, though not always, in the case of a deposit, it is the depositor who is the prime mover while in the case of a loan, it is the borrower who is the prime mover.
3. The other and more important distinction is in relation to the obligation to return the amount so received. In the case of a deposit which is payable on demand, the deposit would become payable when a demand is made. In the case of a loan, however, the obligation to repay the amount arises immediately on receipt of the loan.
In the case of Ram Ratan Gupta v Director of Enforcement, Foreign Exchange Regulation (1966) 36 Comp Cas 49: AIR 1966 SC 495, the Supreme Court made a distinction between a loan and a deposit. It said:
"It is settled law that the relationship between a banker and a customer qua moneys deposited in the bank is that of a debtor and creditor. Though, ordinarily a deposit of an amount in the current account of a bank creates a debt, it does not necessarily involve a contract of loan. The question whether a deposit amounts to a loan depends upon the terms of the contract under which the deposit is made."
The Supreme Court considered even Bank deposit as distinct from a loan. It is therefore clear that "loan" and "deposit" are not identical in meaning and cannot always be interchanged. Some loans may be deposits and some deposits may be loans. But all loans are not deposits or vice versa.

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