1988 (11) TMI 150

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....ch. The members deposit their funds and earn interest. The assessee also advances loans to the members and earns interest. Whenever a loan is granted apart from taking substantial security for the loan, the member is also required to maintain a recurring deposit account and make monthly contribution therein. The assessee pays interest at a guaranteed rate on the recurring deposit which was very much below the rate of interest charged on the loan granted. The recurring deposit holders, therefore, clamoured for higher rate of interest. At the general body meeting of the assessee-company for the year 1962 it was resolved as under : "At the last Annual General Meeting a desire was expressed by the members for provision to be made for the pay....

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....-1980 be approved and that a sum of Rs. 1,86,613 be granted as additional interest on recurring deposits calculated at 3 per cent of the paid-up recurring deposits standing to the credit of each depositor as on 31st December 1980." Similar resolutions were passed for the assessment years 1982-83, 1983-84 and 1984-85 and the corresponding figures of additional interest are Rs. 2,76,193, Rs. 3,14,051 and Rs. 3,71,910 respectively. The Chartered Accountants who have audited the accounts have certified that, "That the additional interest is paid only to the Recurring Deposit holders in their capacity as creditors and this payment does not relate to the shareholding of any person in the company." 3. On these facts it was contended on....

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....se of Dharamvir Dhir v. CIT [1961] 42 ITR 7. The Supreme Court has observed that in a commercial sense if the payments were an expenditure wholly and exclusively laid out for the purpose of the assessee's business they were deductible revenue expenditure. It might be voluntary but so long as it was incurred for the assessee's benefit, i.e., for the carrying on of the business, the deduction would be allowable. In that case the assessee had agreed to pay interest at 6 per cent and a share of profits of the business. The Tribunal had noticed that the share of profits had been debited in the appellant's profit and loss account and appropriation accounts and therefore concluded that it was an appropriation of the profit and not a business outgo....