1991 (9) TMI 127 - AT - Income Tax

Tribunal upholds deposit disallowance but allows car expenses deduction

Manaktala Chemicals (P.) Ltd. Versus Income-Tax Officer.

Manaktala Chemicals (P.) Ltd. Versus Income-Tax Officer. - ITD 039, 035, TTJ 041, 447, Issues Involved:1. Applicability of Section 40A(8) of the Income-tax Act, 1961, to deposits received by a private company from its directors and shareholders.2. Disallowance of car maintenance expenses.Detailed Analysis:1. Applicability of Section 40A(8) to Deposits from Directors and Shareholders:The primary issue was whether the term 'deposits' as defined in Section 40A(8) of the Income-tax Act excludes deposits received by a private company from its directors and shareholders. The assessee, a private limited company, contended that such deposits should not fall under Section 40A(8), arguing that the provision was meant for public deposits. The Income-tax Officer had disallowed Rs. 12,825 under Section 40A(8), which was upheld by the CIT (Appeals). The CIT (Appeals) interpreted the term 'any deposit of money' in Section 40A(8) to include all deposits except those specifically exempted in the Explanation (b) to Section 40A(8).The Tribunal examined the legislative intent behind Section 40A(8), referencing the Finance Minister's speech and notes on clauses, which emphasized restricting the provision's application to public deposits. However, the Tribunal found that the legislative language in Section 40A(8) did not exclude deposits from directors and shareholders. The Tribunal reasoned that the term 'any deposit' used in Explanation (b) to Section 40A(8) was broad and inclusive, covering all deposits unless explicitly excluded by sub-clauses (i) to (ix).The Tribunal also considered the definition of 'deposit' under Sections 58A and 58B of the Companies Act, which excluded deposits from directors and shareholders. However, it concluded that this definition was not relevant for interpreting Section 40A(8) of the Income-tax Act. The Tribunal noted that the object of Section 40A(8) was to discourage the growth of deposits in the non-banking sector and that including deposits from directors and shareholders served this purpose.The Tribunal referred to various judicial decisions, including the Madhya Pradesh High Court's ruling in CIT v. Kalani Asbestos (P.) Ltd. and the Punjab & Haryana High Court's decision in CIT v. Sandika (P.) Ltd. The Tribunal found that these decisions supported the view that deposits from directors and shareholders were not excluded from Section 40A(8).Ultimately, the Tribunal upheld the disallowance of Rs. 12,825 under Section 40A(8), concluding that deposits received by a company from its directors and shareholders are subject to the provisions of Section 40A(8).2. Disallowance of Car Maintenance Expenses:The second issue involved the disallowance of Rs. 5,000 out of car maintenance expenses claimed by the assessee. The Income-tax Officer had disallowed the entire claim on the ground that the car was registered in the personal name of the director and not the company. The CIT (Appeals) found that the car was used partly for the company's purposes and restricted the disallowance to Rs. 5,000.The Tribunal reviewed the facts and found no evidence that the car was used for non-business purposes. It noted that the company had no other car and that the car maintenance expenses were incurred wholly and exclusively for the business. Therefore, the Tribunal held that the entire car maintenance expenses were allowable under Section 37 and deleted the disallowance of Rs. 5,000.Conclusion:The Tribunal's decision was twofold: it upheld the disallowance under Section 40A(8) for deposits received from directors and shareholders, reinforcing the broad definition of 'deposit' in the provision. However, it allowed the full deduction of car maintenance expenses, finding no evidence of personal use. The appeal was thus partly allowed, addressing both issues comprehensively.