TMI Blog1988 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in section 40A(8)(b)(ix) of the Act. It was claimed that the depositors were demanding interest and, consequently, the board of directors of the company passed a resolution on December 2, 1976, stating, inter alia, "the demand of the depositors has been considered and it was resolved to create a charge in favour of all the depositors through a representative who is fully authorised by the members through resolution". A copy of the above resolution was lodged with the Registrar of Companies on December 27, 1976, and finally an agreement was executed on March 17, 1977, describing it as a deed of agreement for creating the charge. It was claimed before the Income-tax Officer that inasmuch as a charge was created in favour of the deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court. Before we refer to the relevant facts, we may first refer to the provisions contained in section 40A(8). Sub-section (8) was inserted in section 40A by the Finance Act, 1975, with effect from April 1, 1976. Eventually, this was omitted by the Finance Act, 1985, with effect from April 1, 1986, so that from the assessment year 1986-87 onwards, the provision out of the statute book. It is not in dispute that for the assessment year 1977-78, sub-section (8) was very much on the statute book. It provided that where the assessee, being a 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 deduction. Interest, if any, paid in exces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the balance-sheet for the year ended on December 31, 1976, of the assessee-company, the entire amount of deposits was shown as unsecured, although the Tribunal which has gone into the question explains it as a mistake on the part of the auditors. Be that as it may, the evidence in support of the creation of the charge, as will be noticed from the facts enumerated above are these : (a) Resolution dated December 2, 1976, passed by the board of directors ; (b) Lodgment of the resolution with the Registrar of Companies on December 27, 1976 ; and (c) Deed of agreement creating charge dated March 17, 1977. A perusal of the resolution of the board of directors would not indicate that by that resolution any charge is created in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfil the requirements of a charge. It may, however, be pointed out that in any event, this document is dated May 2, 1977, which clearly fell after the end of the previous year relevant to the assessment year under consideration. We are, therefore, finally left with the deed of agreement for creating a charge. This deed is executed between the company on the one hand and Sri Mahesh Chand described as an authorised representative of the depositors on the other and states that the company agreed to give security for the deposit of Rs. 10,96,300. The properties agreed to be given as security are specified in the memorandum. Beyond this, there is nothing more in the document which would spell out the creation of a charge against the proposed ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot think that such a presumption can be spelt out. The factum of deposit of title deeds has to be established by evidence. All that we can say is that the documents placed before us do not indicate the fulfilment of the requirement of essential ingredients. In the circumstances, the Income-tax Officer was justified in declining to allow interest at fifteen per cent. and holding that the exception contained in clause (ix) to section 40A(8) is not applicable. In our opinion, the Tribunal was in error in directing the allowance of the expenditure. Having regard to the above, we answer the question referred in the negative, that is to say, in favour of the Revenue and against the assessee. There shall be no order as to costs. - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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