TMI Blog1998 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., 15 per cent. of the amount of interest paid by invoking the provisions of section 40A(8) of the Income-tax Act. Before the Income-tax Officer, the assessee by his letter dated March 8, 1979, submitted that the assessee-company was a private limited company ; it had not borrowed any money from the public and hence the provisions of section 40A(8) of the Income-tax Act could not be applied in its case. The assessee also pointed out to a news item dated September 20, 1975, appearing in the Times of India wherein a certain clarification by the Company Law Board was published. In the said news item, it was clarified that deposits secured by a company, whether public or private limited, from its directors were excluded from the definition of "deposits". However, it was clarified that as far as shareholders were concerned, only deposits received by a private limited company, from their shareholders, were exempt from the definition of "deposits", but the deposits received by a public limited company from its shareholders would continue to be considered as "deposits". It appears that the Income-tax Officer did not discuss the above contention of the assessee and made a disallowance un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting their total income. This amendment will take effect from April 1, 1976, and will, accordingly, apply in relation to the assessment year 1976-77 and subsequent years." Taking into consideration the several contentions raised by the assessee, the Tribunal allowed the appeal filed by the assessee and deleted the disallowance of Rs. 9,957 made by the Income-tax Officer. The controversy centres around sub-section (8) of section 40A (as it stood at the relevant time), as inserted by the Finance Act, 1975, with effect from April 1, 1976 (later on omitted by the Finance Act of 1985), with effect from April 1, 1986). The relevant part of the provision is extracted and reproduced hereunder : "Expenses or payments not deductible in certain circumstances.--(8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction. Explanation.--In this sub-section, (a) 'banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mortgage, charge or pledge for the relevant loan ; . . ." According to the said provision where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, 15 per cent. of such expenditure shall not be allowed as a deduction. The Explanation appended to the sub-section, defines "deposit" to mean any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company belonging to any of the categories (i) to (ix) provided therein. In the exclusionary categories directors and shareholders are not to be found mentioned. On a plain reading of the abovesaid provision, it is clear that the deposits made by directors and shareholders are not excluded therefrom. However, the Tribunal has tried to ascertain the underlying object behind the provision by reading the speech of the Finance Minister and deriving assistance from the Notes on Clauses and the clarification issued by the Company Law Board, to form an opinion that deposits by directors and shareholders were not intended by Parliament to be covered by the said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, these must say so. The true test must always be the language used : Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 ; AIR 1990 SC 781. Primarily the language employed is the determining factor of the intention of the Legislature. The first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. The question of interpretation arises only when the language is ambiguous and, therefore, capable of two interpretations : Om Prakash Gupta v. Dig Vijendrapal Gupta, AIR 1982 SC 1230, para 5 ; P. K. Unni v. Nirmala Industries, AIR 1990 SC 933, para 11. Before going in search of any external aids of construction, look at the language employed by the Legislature because no canon of construction can be said to be more firmly established than this that the Legislature uses appropriate language to manifest its intention : Babaji Kondaji Garad v. Nasik Merchants Co-operative Bank Ltd., AIR 1984 SC 192, para 10. The golden rule of construction which interprets according to the grammatical and ordinary sense of the word can be departed from if the words are ambiguous, uncertain or any doubt arises as to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o construction of expressions in another Act cannot be resorted to in the absence of ambiguity in the statute in hand (see Board of Muslim Wakfs v. Radha Kishan, AIR 1979 SC 289). In Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104 AIR 1990 SC 2114, para 22, their Lordships refused to accept the words used in the explanatory memorandum while introducing the Finance Bill in Parliament to be determinative of or to camouflage the true object of the legislation. The catch-phrase used therein was considered to have been possibly used as a populist measure. In Smt. Mary Oommen v. Manager, MGM High School, AIR 1987 SC 1163, while interpreting certain statutory rules, their Lordships observed that the note appended to the rule, did not form part of the rule nor did it have any binding effect, though it could have a persuasive force for clarificatory purposes. We are definitely of the opinion that the Notes on Clauses do not form part of the enactment as passed by the Legislature and therefore do not have utility for interpreting the otherwise plain language of an enactment. What are relied on by learned counsel for the assessee for interpreting the provisions of section 40A( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), interest on credit balances in current accounts of shareholders and directors was held to be covered by section 40A(8). In CIT v. Jain Cables Pvt. Ltd. [1995] 214 ITR 190 (Raj), interest paid to directors on their deposits in running accounts was held liable to be disallowed to the extent prescribed under section 40A(8) of the Act. We have carefully gone through the Supreme Court judgment in K. P. Varghese v. ITO [1981] 131 ITR 597 ; AIR 1981 SC 1922, forcefully relied on by counsel for the assessee. Their Lordships have held that the speeches made by the members of the Legislature during the course of the debate on a Bill are inadmissible for interpreting the statutory provisions but the speech made by the mover of the Bill can be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. As to the marginal note to the section, their Lordships have held that they cannot be referred to for the purpose of construing the section but can be relied upon as indicating the drift of the section or to show what the section is dealing with. As to the circulars issued by Central Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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