Plight of a joint holder of deposit

Q: I have deposited Rs. 50,000 in my name first and my daughter- in-law's name second `either or survivor'. Now I want to revert my money to my account. My daughter-in-law says she has a right over the money in the FD and did not sign the letter to bank asking to credit the amount to my account. Kindly clarify whether my daughter-in-law's claim is right in legality of the matter. Kindly help me to get my money.

A: A person may hold deposit either in his own name or joint names. When he holds the deposit in his own name, he may irrevocably assign the same to another party or only nominate a successor. In the case of joint holdings, it is the person who has deposited the money, who is entitled in law to the same. But the depositee (bank) may honour a request from either of the joint holders in a joint holding and may get its obligation to return the deposit discharged. An account styled `either or survivor' gives similar right of withdrawal by either holder. If the account had been opened in the name of `former or survivor' with former depositing amount, the survivor will not have any right till death of deceased. Tannan's Banking Law and Practice in India has this to say on any variation of the Instructions of a Joint Account:

``Revocation or variation of the Instructions of a Joint Account: On the view that the terms of operation of a joint account constitute a term of the contract of deposit, any variation or revocation of instructions in a joint account, whether the operation is by `either or survivor' or `former or survivor' can be effected only under the joint signatures of all persons entitled to operate the joint account. One of the joint account holders thus cannot unilaterally instruct the bank not to honour cheques signed by the others, issue duplicate deposit receipt, premature repayment or loan against fixed deposit".

But as a matter of civil law, unless the intention of the depositor was that the joint holding should amount to joint ownership, the co-holder does not get any right over the same. The intention that the right over the property should pass to the co-holder either in full or in part should be manifest. The issue raised is a matter of civil law. Probably the reader should ask the bank not to honour any request for return of the deposit and sort out the matter meanwhile with the daughter-in-law. It is possible that the bank may take a line of lesser resistance and hold on to the money till it is sorted out between the parties or by law. At any rate, Tax Forum does not deal with such matters of civil law, so that the view expressed herein need not be taken as gospel.

Loan against deposits

Q: I find from our bank that while we insist on repayment of deposits in excess of Rs. 20,000 only through savings bank, if cash is required by the deposit holder, the same rule is followed for loan against fixed deposits. Some of the depositors insist on such amount being paid directly in cash. But it is refused by a wrong understanding of the provision. Am I right?

A: The reader is certainly right because cash bar applies to acceptance of loan or deposit under Sec. 269SS with banks being excepted for the same, while repayment of deposit is governed under Sec. 269T. The conspicuous omission of loan from the scope of Sec. 269T would mean that this bar will have no application even for repayment of loan. Since borrowing has to be done by account payee cheque or account payee draft, only the borrower is liable for penalty for any violation under Sec. 269SS. Hence, when the bank gives a loan against fixed deposit or otherwise, bank will not be faulted, if it is in cash.

It is true that the definition of deposit is 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'. This definition of deposit in Sec. 269T especially in contrast to the definition of `loan or deposit' in Sec. 269SS to mean `loan or deposit of money' can create some confusion between loan and deposit for purposes of Sec. 269T.

It is rather curious that there should be two different definitions but all the same, while a bank gives loan whether against deposit or otherwise, the bank cannot be liable for any default under Sec. 269T.

Even acceptance of such loan in cash being excepted under Sec. 269SS, it can be in cash, since first proviso to Sec. 269SS makes exceptions in respect of loan taken or deposit accepted from government, bank, government corporation or bank or any notified institutions.

In view of the complexities of our law, such exceptions are often overlooked, so that trade and business are often handicapped not only by such provisions, which impose unnecessary burden on the taxpayer, but also by the excessive zeal of those who over- stretch the interpretation and impose a further totally unnecessary burden not only in matters of cash bar under Sec. 269SS and 269T, but also matters of tax deduction at source (TDS), service tax, etc.

Limit for tax rebate on savings

Q: Is there any change in the savings limit for rebate under Sec. 88 from assessment year 2001-02? The recent issue of ICICI Safety Bonds (August 2000 issue) carries the caption `Save upto Rs. 80,000 and save tax under Sec. 88'. Bonds issued in February and March were mentioning only Rs. 70,000 as eligible amount for saving tax under Sec. 88. What is the correct position?

A: Sec. 88 gives rebate, those investments which are eligible for tax rebate, at 20 per cent. The limit of Rs. 60,000 has no application for approved equity shares and debentures issued by any public financial institution or approved funds known as infrastructure bonds specified under Sec. 88(2)(xvi) and (xvii). But the over all eligibility limit for other savings and investments, ceiling is Rs. 60,000, tax benefit being Rs. 12,000, gets enhanced to Rs. 14,000 by virtue of investment in infrastructure bonds permitted additionally for Rs. 10,000 with the result the effective ceiling was Rs. 70,000 from assessment year 1997-98 to assessment year 2000-01. But tax benefit is now increased to Rs. 16,000 under Sec. 88(6)(ii) from assessment year 2001-02 thereby permitting extra tax rebate for infrastructure bonds on an amount of Rs. 20,000.

In the result, the advertisement is right that a taxpayer can avail tax rebate on investments up to Rs. 80,000 as long as the investments to the extent of, at least, Rs. 20,000 are in infrastructure bonds, some of which qualify as capital gains bonds for reinvestment benefit. But where it is so availed for capital gains, tax rebate under Sec. 88 on the same bonds will not be available.

There are sub-ceilings as for repayment of principal amount of loan for construction of residential property which is enhanced from Rs. 10,000 to Rs. 20,000 under Sec. 88(5) from AY 2001-02.

The conditions for minimum holding period, the names in which they could be invested in respect of each type of investment, the period for which an insurance contract has to be continued and the period for which the house property for which repayment of loan is availed should be retained, lock-in-period for infrastructure bonds are some of the matters on which the taxpayer should be on his guard, because every relief is riddled with conditions for relief.

The overall condition is that the amount of such savings should come out of income chargeable to tax. Such is the simplicity of our laws!

S. Rajaratnam

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