Deposits under section 40A(8) include director loans with interest, and "other agents" is construed narrowly

Amounts credited to directors in current accounts were treated as deposits within the meaning of section 40A(8) because the statutory definition was wide enough to cover money borrowed by the company, including loans on which interest was paid. The distinction between a loan and a deposit under company law did not control the income-tax provision, so the interest disallowance was justified. The directors were also not treated as "other agents" under the Explanation to section 40A(8), because that expression had to be read narrowly in its statutory context. The disallowance was sustained and the assessee's appeals failed.

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Issues: (i) Whether the amounts standing to the credit of the directors in current accounts constituted "deposits" within the meaning of section 40A(8) of the Income-tax Act, 1961 so as to attract disallowance of interest. (ii) Whether the directors could be treated as "other agents" under the Explanation to section 40A(8), excluding the amounts from the scope of "deposit".

Issue (i): Whether the amounts standing to the credit of the directors in current accounts constituted "deposits" within the meaning of section 40A(8) of the Income-tax Act, 1961 so as to attract disallowance of interest.

Analysis: The definition of "deposit" in the Explanation to section 40A(8) was held to be wide enough to include money borrowed by a company. The accounts showed that the sums credited to the directors were loans on which interest was paid, and the distinction between a deposit and a loan did not assist the assessee in the statutory setting of section 40A(8). The interpretation placed on a different provision of the Companies Act did not control the meaning of the term in the income-tax provision.

Conclusion: The amounts were deposits for the purpose of section 40A(8) and the disallowance of interest was justified, against the assessee.

Issue (ii): Whether the directors could be treated as "other agents" under the Explanation to section 40A(8), excluding the amounts from the scope of "deposit".

Analysis: The expression "other agents" was construed in context with the preceding words and was not treated as a general reference to directors as agents of the company under company law. The statutory context of section 40A(8) did not permit the amounts due to directors to be excluded on that basis.

Conclusion: The directors were not "other agents" for the purpose of the Explanation to section 40A(8), against the assessee.

Final Conclusion: The interest disallowance under section 40A(8) was sustained and both appeals failed.

Ratio Decidendi: Where the statutory definition of "deposit" expressly includes borrowed money, amounts paid by a company to directors as loans with interest may fall within section 40A(8), and the expression "other agents" must be construed narrowly in its statutory context.

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