TMI Blog1994 (11) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 received by the assessee and, hence, subject to the provisions of section 40A(8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, 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), 15 per cent. of the interest paid by the companies (other than banking companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dited 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 or not. On a careful perusal of the provisions of section 40A(8) of the Act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation of its income. In such a situation, the amounts in question cannot be said to be anything else than " deposits ". As already indicated above, the term or tenure of deposit and the nature of the account in which the amount is kept by the company are not relevant for deciding whether it is a " deposit " or not. A deposit would not cease to be so merely because of the fact that it is kept in a current account if it does not fall in any of the exclusions contained in clause (b) of the Explanation to section 40A(8) of the Act. We are, therefore, of the clear opinion that the amounts standing to the credit of its directors, shareholders and their family members and friends would amount to " deposit " within the meaning of section 40A(8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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