1994 (11) TMI 56

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.... in law in holding that the provisions of section 40A(8) of the Income-tax Act, 1961, were not applicable in respect of the payments of interest aggregating to Rs. 1,92,668 made to the current accounts of the directors and their family members and friends during the previous year relevant to the assessment year 1977-78 ? " The assessee is a private limited company. The books of account of the assessee carried current accounts of the directors, other shareholders and their family members and friends. The assessee credited interest to these accounts. For the assessment year concerned, such interest amounted to Rs. 1,92,668. The Income-tax Officer was of the opinion that the interest credited to these accounts was interest paid on deposits ....

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....held that the interest paid by the assessee was interest paid on deposits. He, therefore, applied the provisions of section 40A(8) of the Act and did not allow 15 per cent. of the above expenditure as a deduction. The assessee challenged this action of the Income-tax Officer, as according to it, the current amount standing to the credit of its directors, shareholders and their family members in its accounts were not "deposits " within the meaning of section 40A(8) of the Act. This contention of the assessee found favour with the Commissioner (Appeals) and the Tribunal, who accepted the same and held that section 40A(8) of the Act was not applicable to interest paid to directors, shareholders and their family members. Under section 40A(8)....

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.... of the assessee-company in its accounts in respect of which interest was paid or credited by the assessee amounted to " deposits " within the meaning of sub-section (8) of section 40A of the Act, particularly in view of the fact that the said accounts were current accounts. It is an accepted position that if these amounts are held to be " deposits ", section 40A(8) would be attracted as it does not fall in any of the exclusionary provisions contained in clause (b) of the Explanation. The point for determination, therefore, is whether the amounts standing to the credit of the shareholders and their families and friends in the current accounts of a company amount to " deposit " within the meaning of sub-section (8) of section 40A of the Act ....