T.V. RAJAGOPALA RAO, J.M.: ITA No. 481/Bang/82/83 is registration appeal whereas ITA Nos. 165/Bang/83 is quantum appeal. Now, let us take registration appeal in first instance. assessee filed Form No. 11A on 23rd June, 1980 along with fresh partnership deed dt. 21st Oct., 1979. assessee claimed that it was partnership firm which continued right from 1973 onwards. It is its case that it was first formed with six partners under terms and conditions of partnership deed dt. 29th Oct., 1973. Under said partnership deed, one M.A. Lakshmana, who was minor and who was born on 9th May, 1956, was admitted to benefits of partnership and he was given 12.50 per cent share in partnership. Subsequently, there was change in constitution of firm. As per subsequent partnership deed dt. 9th May, 1974 erstwhile partner M.A. Lakshmana was admitted as fullfledged partner on his becoming major. Subsequently, another reconstitution took place under deed dt. 13th June, 1980 which took effect from 21st Oct., 1979. That registration was sought for on strength of partnership deed dt. 13th June, 1980. In enquiry for registration Shri M.A. Lakshmana Heggade, one of partners, affirmed that t h e firm was not having any money lending business. firm came into existence for asst. yr. 1975-76 with intention to carry on money lending licence to carry on money lending business. However, due to death of M.R. Apanna Heggade and M.B. Manjappa, senior partners, and also due to enactment of Debt Relief Act by State Government, assessee firm did not do any money lending business, but had invested capital contributions of all partners of firm in firm M/s M.R. Appanna Heggade & M.B. Manjappa who had agreed to give interest at rate of 18 per cent annum. Accordingly, entire amount was deposited with above firm. This so-called affirmation was recorded by ITO in docket. ITO held that assessee did not carry on any business and income returned, according to him, represented only interest received on deposits made. Therefore, according to him it should be assessed as income from other sources as against claim of assessee that it should be assessed as income from business. He wanted to treat status of assessee as AOP and addressed letter dt. 25th Sept., 1981 calling upon assessee to explain as to why registration should not be refused. assessee submitted its reply dt. 19th Sept., 1981, copy of which is filed at p. 12 of paper compilation Inter alia it was submitted that as per cl. 3 of partnership deed that as per cl. 3 of partnership deed dt. 13th June, 1980 business of firm is that of banking business and during accounting year in question interest is paid on deposits received and assessee advanced said deposits to M/s M.R. Appanna Heggade & M.B. Manjappa and said activity amounted to carrying on business. amount advanced to M/s M.R. Appanna Heggade & M.B. Manjappa does not amount to mere deposit. During course of hearing of this appeal it was submitted before us that Rs. 48,000 and Rs. 1,25,000 were two amounts lent in cash to M/s M.R. Appanna Heggade & M.B. Manjapa and rest of amount due from them represented accumulated interest. assessee filed its balance- sheet as on 7th Nov., 1980 which is relevant for assessment year in question, namely, 1981-82. It discloses that there is capital investment of Rs. 21,000. It also discloses that assessee had borrowed amount of Rs. 3,10,428.97 from partners themselves in order to carry on its business. So also it discloses that amount of Rs. 96,311.12 was borrowed for purposes of business from its own creditors to whom they had paid interest. copy of balance-sheet and P&L a/c as on 7th Nov., 1980 were furnished at pages 5 and 6 respectively of paper compilation filed before us. It is submitted before us that Shri M. Chidambara and Shri M. Ramachandra, who are shown under head 'sundry creditors in balance-sheet were ex-partners. They have lent amounts of Rs. 52,314.49 and Rs. 12,937.60 respectively. Shri M. Mahabaleswara, though partner of firm, as Karta of his JUF lent amount of Rs. 29,829.03 in his individual capacity. amounts under capital account, current accounts and sundry creditors were all lent to M/s M.R. Appanna Heggade & M.B. Manjappa. It is assessee s case that it had derived gross interest of Rs. 1,01,698 and net profit of Rs. 60,519.32. According to Department no business is carried on by assessee and even according to affirmation of one of partners assessee simply deposited all its capital contributions, borrowings, etc. with M/s M.R. Appanna Heggade & Manjappa and therefore assessee did not carry on any business. Mere deposit of monies does not amount to doing money lending business and on this premise ITO holds that assessee earned income only under head other sources and it should be assessed in status of AOP. Further, one of k grounds on which Revenue seeks to justify refusal of registration to assessee-firm was that it did not obtain money lending licence under Karnataka Money Lenders Act, 1961. According to ld. Departmental Representative, under Karnataka Money Lenders Rules, 1965, money lender has to obtain licence from requisite authority before carrying on money lending business. In absence of any such licence being obtained, ld. Departmental Representative contended that money lending business would become illegal and activity carried on by assessee would be opposed to public policy and illegal under s. 23 of Contract Act. This argument was countered by ld. counsel for assessee by drawing our attention to wording of s. 11 of 'the Karnataka Money Lenders Act (hereinafter called Money Lenders Act) and Explanation thereunder, purport of which is that money lender, even without obtaining licence, can institute suit for realisation of money from his debtor. But, Court can give time for obtaining licence from requisite authority and make it condition to obtain it before numbering of suit. Therefore, in view of wording of said section lending money or doing money lending business without obtaining licence in first instance does not amount to carrying on illegal business and on that ground registration to firm cannot be refused. ld. counsel for assessee also admitted that there is distinction between deposit and loan. He admits that if assessee merely deposits amount with M/s M.R. Appanna Heggade & M.B. Manjappa (hereinafter called debtor firm) it does not amount to assessee doing any business. But, however, by lending amounts assessee should be considered to have given loan to debtor firm and then assessee should be deemed to have carried on business. ld. counsel for assessee submitted that whether assessee merely deposited amount or gave loan to debtor firm should be determined taking all facts and circumstances obtaining on record instead of taking isolated facts and judging each of circumstances of arriving at conclusion. He submitted that firstly there was partnership deed dt. 13th June, 1980. Clause 3 of said partnership deed provided that business of assessee is that of banking business and any other business as may be decided upon by partners. According to him this clause bears out intention of partners of firm. Secondly, capital contributed by partners and borrowings made by partners for purposes of firm would also amply bear out that they were all made with view to lend money and with view to earn interest income. ld. counsel also argued that purpose of borrowing monies from creditors and paying interest to them is proof positive that intention of assessee is only to earn interest income. ld. counsel further argued that so-called affirmation said to have been made by Shri M.A. Lakshmana Heggade before ITO that due to death of Shri M.R. Appanna Heggade and M.B. Manjappa they were not able to carry on any money lending business and therefore, they had decided to keep money in deposit with debtor firm was wrong. As can be seen even from deed dt. 9th May, 1974, Shri M.R. Appanna Heggade and Sh. M.B. Manjappa who were fabber of Shri M.A. Lakshmana and Shri M. Ramachanra respectively passed away long back. Shri M.R. Appanna Heggade died on 8th Feb., 1972 whereas M.B. Manjappa died on 23rd June, 1973. Their estate duty assessment was also filed before us. He further argued that assuming that Shri M.A. Lakshmana Heggade under wrong impression of law presumed that assessee could not carry on money lending business in absence of obtaining money lending licence from requisite authority under Money Lenders Act, said admission which was made under wrong impression of law does not bind either assessee or person who made it. Therefore, even on that ground refusal of registration to assessee is not supportable. We heard both parties wholly and fully. We have considered all documents and records. We are of opinion that assessee should be held to have carried on business for asst. yr. 1981-82 whose previous year ended on 7th Nov., 1980 and therefore it should have been granted registration under s. 185(1)(a) of IT Act. Firstly we have to hold that so-called affirmation of Shri M.A. Lakshmana that due to death of Shri M.R. Appanna Heggade and Shri M.B. Manjappa they decided to deposit amounts with debtor firm and they did not want to carry on money lending business is wrong inasmuch as said persons passed away long prior to 13th June, 1980 under which date of partnership deed there was reconstitution. Further, we have to hold that assessee lent amount of Rs. 48,000 and Rs. 1,25,000 in cash to debtor firm and rest of amount due from debtor firm represented interest accumulated. It is, no doubt, true that there is difference and distinction between deposit and loan. It is also true that if assessee merely deposits monies with debtor firm it would not amount to carrying on of business. But, if it had lent monies, then activity of assessee can be called business. Before deciding whether it is deposit or loan, we are of opinion that intention of parties should be gathered taking into consideration all facts and circumstances in case and we should not attempt to give our finding taking into consideration only facts and circumstances obtaining in isolation. In Venkataramaiya s Law Lexicon, 2nd Edn., at p. 653 on strength of decision of Supreme Court in Annamalai vs Veerappa AIR 1956 SC 12, at page 14 it is stated that whether transaction is transaction of loan or deposit does not depend merely on terms of document but has got to be judged from intention of parties and all circumstances of case. same author at same page on strength of Madras High Court decision in Abdul Hamid Sahib vs. Rahmati Bi AIR 1965 Mad 427 has stated that terms "loans" and "deposits" are not mutually exclusive terms. There are number of common features between two. In sense deposit is also loan with this difference that it is loan with something more. Both are debts repayable. But, when repayment is to be furnished is real point of distinction between two concepts. loan is repayable minute it is incurred. But this is not so with deposit. Either repayment will depend upon maturity date fixed therefor or terms of agreement relating to demand, on making of which deposit will become repayable. In other words, unlike loan there is no immediate obligation to repay in case of deposit. We have ascertained in this case that assessee had advanced Karta debt to debtor firm. It is debt repayable on demand with interest. Simply because whole money of assessee together with borrowed money was lent to debtor firm only and not to several debtors, it does not make activity of assessee anytheless business. Suppose contractor gets big contract for lakhs of rupees from government and he obtains contractual profit, we are still calling this profit as business profits. case of assessee is in no way different from illustration given above. assessee gets its business income (interest income) from one party. In Venkataramaiya s Law Lexicon, 2nd Edn., p. 653 already adverted to above, ld. author took view that in banking, sums paid to bank for credit in account of customer do not constitute deposit in sense usually understood but such sum is in reality loan advanced to banker. Having regard to all above, we are of opinion that assessee carried on business of money lending. Coming next no question whether business carried on by assessee is legal or illegal, we are of view that it is legal business even in absence of obtaining money lending licence under Karntaka Money Lenders Act, 1961. Sec. 11 of Karnataka Money Lenders Act is appropriate in this connection and it reads as follows: Sec. 11. "After expiry of six months from date on which this Act come into force, no Court shall pass decree in favour of money lender in any suit to which this Act applies, filed by money lender, unless Court is satisfied that at time when loan or any part thereof to which suit relates was advanced and on date such suit was filed money lender held valid licence. (5) Nothing in this section shall effect (a) suits in respect of loans advanced by money-lender before date on which this Act comes into force. (b) power of official receiver, administrator or Court under provisions of Karnataka Insolvency Act, 1925, or other corresponding law in force in any area of State of liquidator under Companies Act, 1956, to realise property of money lender. Note: Under this section money-lending carrying on business of lending money without valid licence, could file suit for recovery of his money in Court of law. Court may grant him stay of proceeding for period of 3 months in order to facilitate him to produce licence, this provision was removed by amending Act No. 77 of 1976. As per amended section no money-lender can file suit in any Court of law without holding valid licence on date of advancing loan." So, from above provision, it is clear that money-lender who carried on business of money lending without valid licence could file suit for money and after filing such suit, suit should be stayed for three months within which time money-lender should be granted opportunity to obtain such licence. Therefore, it is clear that order of ITO that assessee cannot carry on business without obtaining licence under Karnataka High Money Lenders Act is not wholly correct. So also argument that in absence of obtaining licence, business carried on by assessee would become per se illegal also does not appear to be correct. On other hand, true legal position appears to be that money lender can lend monies without obtaining money lending licence. Lending monies without licence is not illegal. Realisation of money without going to Court of law is also not illegal business. Even in absence of realisation of debts, money-lender can validly file suit and Court affords him opportunity for three months to obtain licence. In face of those enabling provisions, it is very difficult for us to hold that money lending business carried on by assessee would be illegal and assessee is not entitled for registration because it has carried on such illegal business. We, therefore, set aside orders of lower authorities and hold that assessee is entitled for registration as it did legal business. We direct ITO to grant registration to assessee-firm. In view of our finding that assessee is entitled for registration as firm under s. 185(1)(b) of IT Act, we hold in I.T.A. No. 165/Bang/83 that status of assessee as AOP cannot be sustained and therefore, both assessment order as well as AAC s order thereon are hereby set aside and matter is sent back to ITO with direction to determine taxable income of assessee-firm for asst. yr. 1981-82 after giving due opportunity to assessee. In result, ITA No. 481/Bang/82 is allowed while I.T.A. No. 165/Bang/83 is allowed for statistical purposes. *** FIRST INCOME TAX OFFICER v. MEGARVALLI FINANCING CO.