TMI Blog1990 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 99,320. The assessee took up the matter in appeal before the Commissioner (Appeals). Its contention before the Commissioner (Appeals) was that out of ₹ 99,320, ₹ 93,247 was paid as interest to Amit Kumar Daga, Godavari Devi Daga, Lila Bhoopal, Sunil Kumar Daga and others, Bhagwandas Daga and others, Bhawandas Daga and Bansidhar Sitaram and Co., who were directors, their relatives and firms in which they were interested. The credits in their accounts, the assessee-company took a stand, could not be considered to be deposits within the meaning of section 40A(8) of the Act. The plea of the assessee found favour with the Commissioner (Appeals). He accordingly deleted the disallowance of interest paid to these persons. The Department came up in appeal before the Tribunal. The Tribunal, following its earlier order dated July 27, 1984, in the cross-objection Nos. 148 to 150 (Cal) of 1982 in I.T.A. Nos. 2124 to 2126 (Cal) of 1982 relating to the assessment years 1979-80 to 1981-82 filed by the assessee allowed the Department appeal by the order under reference. The Tribunal's order in the appeals relating to the assessment years 1979-80 to 1981-82 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,284.00 3,197.00 1,962.00 Bhagwandas Daga and others 22,381.87 24,558.00 26,501.75 Bhagwandas Daga 20,868.86 16,869.00 16,189.59 S. K. Daga and others --- 173.63 --- 1,54,512.00 1,11,165.00 1,35,284.00 Such disallowance has been maintained by the Commissioner (Appeals) in the appeals for all the three years. According to the tax authorities below 15 per cent. of such expenditure towards the payment of interest was not allowable deduction. The contention of counsel for the assessee is that the interest was paid on the current account of the directors of the company and their relatives and friends. Such payment does not fall within the mischief of section 40A(8) of the Act. Reliance was placed upon orders of C Bench of the Tribunal at Madras in Income-tax Appeals Nos. 444 to 446 (Mad) of 1981, dated February 19, 1982 in the case of Shivraj Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id on a current account and it does not fall within the meaning of deposit. Thus, the crucial point for determination in this case is as to whether the amounts on which interest was paid by the assessee-company in all these three years were deposits or were the cash credits in the current account or in the course of business of the company. To constitute a current account or an account in the course of business of the company, there must be a transaction each side creating an independent obligation on the other. Mere credit entries with adjustment entries like payments of interest and deduction of tax at source cannot make an account a current account or an account in the course of business transaction. Such account cannot be taken out of the ambit of the word deposit . Since the assessee claimed deduction in full, the burden lay on it to prove that the interest was not paid on deposits. The assessee-company has filed copies of accounts of the persons payment of interest to whom is in question. A minute examination of these accounts shows that they were not current accounts. There are credit entries of cash balance and the amount of interest accrued and also the amounts of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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,---... (b) deposit means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company--- (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government; (ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India; (iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); (iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrow the money, the question will still remain whether the amounts that were lying with the company in the accounts of the directors and other shareholders were moneys deposited with the company. The main difficulty in the way of the assessee in this case is that the assessee has not established the facts to get out of the scope and ambit of section 40A(8) at all. It was for the assessee to prove how these alleged accounts came into existence and when the directors and shareholders of the company started depositing money with the company. Mr. Roy submitted that the company might have run into financial trouble and the directors and shareholders interested in the company might have helped out the company with money. But that is not a fact found by the Tribunal. Mr. Roy has referred us to the accounts that were lying with the company and has tried to argue that there were both debit and credit entries in these accounts. It will appear from the various accounts that large sums of money were lying to the credit of the various parties. Some moneys were paid out of these accounts to discharge personal or statutory obligation of the depositors. One of the accounts annexed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no cross-entries in this account. The Tribunal is right in its conclusion that the debit entries were really made to discharge the statutory obligations. Counsel on behalf of the assessee referred us to the balance-sheets of the company. The balance-sheets indicate that the company was not in need of any loan. The company's subscribed share capital was shown in the balance-sheet as ₹ 14,87,000. It appears that 3,800 ordinary shares of ₹ 500 were issued at only ₹ 365 each. The reserve and surplus account of the company stood at more than ₹ 62 lakhs. The company had also advanced large amounts by way of loan. It could also not be explained why this full amount of ₹ 500 per share was not realised in spite of the alleged financial difficulties of the company. There is nothing to indicate that these accounts of the directors and their associates were current business accounts of the company with its business associates. In such a case there would have been the cross-entries of debit and credit between the company and the account-holder. The only debit entries in the accounts were in respect of statutory payments made to the Government or to the Li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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