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TMI Blog1998 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... eated by the company. It is relevant to notice that the first charge was created in favour of the Karnataka State Financial Corporation, Bangalore. The assessee created a second charge by way of hypothecation of the fixed assets of the company belonging to the assessee and also on the assets which may thereafter be acquired or brought about by the company for a sum of Rs. 5,45,000, subject, however, to the existing first charge. The hypothecation deed was not registered under the provisions of the Indian Registration Act, but it was registered under the Companies Act with the Registrar of Companies, Chennai, to satisfy the requirements of the Companies Act. The assessee-company during the course of the assessment proceedings for the assessment years 1982-83 and 1983-84 claimed deduction of the interest relatable to the deposits. The Inspecting Assistant Commissioner of Income-tax (Assessment) rejected the claim of the assessee on the ground that the trustees were the directors of the assessee-company and the hypothecation deed would not fully secure the interest of the depositors. He, therefore, held that the interest claimed by the assessee is liable to be disallowed under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her company and accordingly the cause title was ordered to be amended in T. C. M. P. Nos. 2 and 3 of 1998 by order dated January 27, 1998. Mr. Philip George, learned counsel for the assessee, submitted that the Tribunal was not correct in holding that the amounts received by the assessee by way of deposit are not secured by way of creation of a charge on the fixed assets of the company and it would fall under sub-clause (ix) of section 40A(B)(b) of the Act as the loan is to be secured by creation of a charge on the fixed assets of the company. According to learned counsel for the assessee, section 40A(8) deals with companies and companies' deposits and when there was a valid charge created under the provisions of the Companies Act that would be sufficient to take the case out of the provisions of section 40A(8) of the Act, notwithstanding the fact that the deed of hypothecation was not registered under the provisions of the Indian Registration Act. Mr. C. V. Rajan, learned counsel for the Department, submitted that under the Indian Registration Act, the trust deed has to be registered under the provisions of section 17 of the Indian Registration Act and, therefore, without the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent. of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan ;" A careful study of the provisions of section 40A(8) indicates that the provision deals with companies other than a banking company or a financial company. It deals with the allowance of expenditure by way of interest in respect of any deposit received by the company of an extent of 15 per cent. on such expenditure and to that extent it shall not be allowed as a deduction. Clause (b) of section 40A(8) deals with the definition of the term, "deposit" and clause (a) excludes certain loans from the scope of the deposit. Under sub-clause (ix), if any loan is secured by the creation of mortgage, charge or pledge of any assets of the company and the amount of the relevant loan together with the amount of any other prior debt or loan secured by the creation of a mortgage, is not more than 75 per cent. of the mortgage value of the assets on the date of the creation of the charge for the relevant loan, then the loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But the basic assumption of the doctrine of notice enunciated in the second paragraph is that there may be cases where the subsequent transferee may not have notice of the charge. The plain implication of this paragraph is that a charge can be made without any writing." Learned counsel for the Revenue also relied on the decision in the case of State of Madras v. Madras Electric Tramways (1904) Ltd. [1956] 26 Comp Cas 398 (Mad) where a Division Bench of this court held that the debenture creates a charge, whether floating or fixed over any immovable property, should be registered according to the provision of law laid down under section 17 of the Registration Act. This court also noticed that the registration under the Registration Act is essential to make a charge in respect of immovable properties in favour of the debenture holder valid and enforceable, but it would not affect the right of the debenture holder over the movable property. The Delhi High Court in the case of Sushil Prasad v. Official Liquidator, Vinod Motors Pvt. Ltd. [1984] 55 Comp Cas 52 has taken the view that a charge over the property can be created orally as well as by the written document. However, if a ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to include the interest by invoking the provisions of section 40A(8) of the Act. It is significant to notice that a floating charge was created and for creation of floating charge there is no requirement that a document of title should be delivered to the charge holder as in the case of equitable mortgage. If the document has been delivered, that itself would be evidence for the creation of the charge over the company properties. However, even from the conduct of the parties, it can be inferred that there was a valid charge over the company's assets. Hence, we are not able to agree with the view endorsed by the Andhra Pradesh High Court in the case of CIT v. Kohinoor Glass Factory P. Ltd. [1989] 175 ITR 237 that there must be a clear evidence to show that there was a delivery of title deeds to create a valid charge. In the case of a floating charge, we are of the view that a charge can be created orally as held by the Supreme Court in the case of M. L. Abdul Jabbar Sahib v. H. Venkata Sastri and Sons, AIR 1969 SC 1147, and the case of M. C. Chacko v. State Bank of Travancore, AIR 1970 SC 504 and by the conduct of the parties, the creation of a valid charge can be inferred. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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