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TMI Blog1985 (8) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel, the provision of s. 40A (8) were not applicable. Some decision of the Tribunal were also cited before the ITO. Rejecting the contention of the assessee and holding that it was not possible to distinguish between loans raised by the company from directors or relatives and deposits as envisaged by s. 40A (8), the ITO computed the interest paid on deposits at Rs. 68,090 and disallowed 15 per cent of the same, namely, Rs. 10,213. 3. On appeal, the CIT (A) held that the provisions of s. 40A (8) applied to the case and confirmed the ITO's order. Incidentally, it requires to be mentioned that in para 2.10 of his order the CIT (A) held that order of the Tribunal unacceptable to him, if not misconceived. It is against this order of the CIT (A) that the present appeals are laid before the Tribunal. 4. The ld. counsel for the assessee has pointed out that the definition of 'deposit' obtaining in s. 40A (8) Explanation (b) does not fit in with the facts of the present case. Interest was paid for the asst. Yr. 1979-80 in the assessee case to three directors, Tulsiram Nathumal, R. T. Arora and R. K. Sachdev and also two of their relatives, Lala Shorimal Tulsidas and Master Vijay Aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-banking and non-financial companies are not applicable to others. In fact, there was no justification as would be clear from the Finance Minister's speech and other details for this "discounted deduction" in cases other than deposits for a period. 5. The intention behind the provisions as clarified by the Finance Minister piloting the Bill and the Memorandum of Explanation to the Finance Act clearly supports the assessee's case. There is a difference between a loan and a deposit as Art. (s) 21 and 22 of the Limitation Act would indicate. There was no limitation on a deposit. The definition of "current account" obtaining in Strounds Dictionary and other legal books is also referred to in this connection. As would be clear from the Civil Court Manual, Vol. 9, 11th Edition, M. L. J., pages 715 to 717, 'deposit' and 'current account' constitute distinctive ideas. Deposits are for the specified term. The Rules also provide that a company cannot accept deposits for a period less than that specified. reference is made in this connection to r. 2 sub-r. (ix) and r. 3 of the Companies Acceptance of Deposits Rules, 1975. According to sub-r. (ix), 'deposits' does not include amounts r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simultaneously the rules under s. 58A of the Companies Act and provisions of s. 40A (8) of the IT Act were introduced. Both deal with the case of companies only, when the Finance Act was introduced on 20th Feb., 1975 after the Companies Rules were framed on 3rd Feb., 1975, the legislature was clearly aware of the definition of 'deposits' obtaining in the Companies Act, Sec. 40A (8), therefore was intended, to apply only to those deposits already specified under the Deposit Rules. Alternatively, it is contended, deposit, should mean that deposit which was understood as such by the companies and the public at large. All accounts do not refer to deposits or to borrowings. They can also refer to loan accounts. In deposits or borrowings account, a person who wants money has to seek it by giving an advertisement, whereas in several cases in spite of there being no need for the money, money is brought to the company, The initiative in this latter case will lie with the lender. Moneys are also in such cases to be repaid on demand. In a deposit account or a fixed deposit account, generally, there is provision for repayment on a particular date. It is always called a term deposit. As far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 18th Sept., 1975. Sec. 40A (8), on the other hand, belongs to a field where there was no pre-existing law. For the first time, there was an enactment. In view of these clear legal provisions, according to the learned counsel a reference to the Finance Minister's speech etc., is not necessary or relevant. Reference is made in this connection to the decision in CIT vs. Raja Benoy Kumar Sahas Ray (1957) 32 ITR 466 (SC) especially at pages 476 and 477. One has to read the statute to effectuate the intention of the legislature. That which advances the remedy and suppresses the mischief was to be ascertained. The intention of the legislature is important in this connection. Reference is made to State of West Bengal vs. Union of India AIR 1963 SC 1241. It is the expression of the collective will of the legislature as a whole which is important K. P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC) is referred to in this connection. In the first case referred to, on facts, there is no current account of the director. In fact, the assessee themselves disallowed 15per cent but only at the time of the assessment they backed out of this. The learned counsel has pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 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 cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a cooperative 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 institution or body by notification in the Official Gazette, specify in this behalf; (v) from any other company; (vi) from an employee of the company by way of security deposit; (vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders of the supply of goods or for the rendering of any service; (viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of s. 40A (8) is. There is, however, a definition of this expression in cl. (b) of the Explanation reproduced above. According to this 'deposit' means a deposit of money with a company. When a 'deposit' is defined as a deposit, it virtually means that the statute takes it for granted that the meaning of the expression 'deposit' is clear. It must have the general or any other acceptable meaning. There could, however, be deposits of various types and deposit means only deposit of various things. The Explanation would appear to serve only to indicate certain purposes instead of giving a general definition of the expression 'deposit'. The first is that it clarifies that a deposit means only deposit of money with a company it also acts as an inclusive definition including "any money borrowed by" a company and also excluding the amounts received by the company in the nine types of amounts dealt with in the Explanation. Theses exclusions follow a pattern and cover (1) amounts received from Govt., (2) loans from banking company coop. society, specified institutions etc., (3) from other companies, employees, etc. and (4) by way of security from agents, subscription, mortgage, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Deposit Rules. In our view, s. 40A (8) does not, in the first place, make any difference between a director, a non-director, a relative of a director etc. as far as the deposit is concerned. It only refers to expenditure of interest "in respect of any deposit received by it". Whether therefore the depositor is a director, a non-director, a shareholder, a relative of these or an outsider does not matter at all for the purpose of this discount of expenditure allowable. whatever applies to directors would apply to relatives, outsider in fact to all persons who make deposits. We are emphasising this fact for the reason that irrespective of the ground of appeal raised before us in these appeals, the question referred to the Special bench appears to deal with interest on deposits from directors or and their relatives. Incidentally, there was a dispute regarding the terms 'loans' and 'deposits' Essentially, they are not mutually exclusive terms. There are a number of features common to them, an important distinction being the time of repayment. A loan is repayable the minute it is incurred, whereas in the case of a deposit, the repayment would depend upon the maturity date fixed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in this context-would represent an account which outlines in the accountancy terms a series of truncations one person has with another. Here, money is either paid in cash or by cheque or withdrawn in cash or against cheques issued. Adjustments for other receipts of money, incurring of expenditure, etc. are also made through this account. There would be no prohibition for putting any money into the account at any time or taking it out also. In the course of the same day, in a very actively operated running account, there could be several transactions in respect of cash, bank items, expenditure and even other transactions. The balances in these accounts are struck after every transaction or a series of transactions and a balance at the beginning of the day may not be the same as at the end of the day or even at any other point during the day. What normally one has in this account is therefore a balance of account. It is not even impossible that the running account shows, if the party tolerates it, an excess withdrawal by the person who puts in money so that the actually owes money instead of having a positive balance in his favour. Money in a current account can be with drawn or pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the business." A deposit account, on the other hand, is treated as a single time or payment to be held by the recipient for a specific term under specific conditions of interest etc. and not to be called back before the specified term except in exceptional cases. In the latter case, generally, the higher rate of interest charged for term deposits is not paid by the debtor. While in a deposit, generally, both the terms of the deposit and a rather higher rate of interest than in other accounts is stipulated, it is not always the case that in current accounts no interest is granted. A savings account in the bank is a running account and for the purposes of operation almost like a current account. Interest is charged in the savings account. Sometimes (as it sued to be earlier) banks grant interest even on balances in current account even though now-a-days no interest is granted. All these clearly indicate that there is a distinct difference between moneys on current or running account and moneys kept as deposit both in accountancy and finance. 16. Even from the purely legal point of view there is a difference between a current account and a deposit. The right to demand return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits of the assessee in this account since these represent amounts the assessee is to get from this account ? The account can also show a negative balance if the assessee has been permitted to withdraw more moneys from the running account that he has put in over-all. Could a negative balance be called a "deposit" or, for that matter, a "negative deposit"? 18. The above facts therefore clearly indicate that a current account would not be the subject matter of discounted interest envisaged in s. 40A (8). 19. It was argued for the Department that even if a current account could not be brought into the mischief of s. 40A (8), in the present case, the directors or relatives, accounts are not current or running accounts. There are large amounts deposited on specified dates. The amounts remained with the assessee company for a long time. If at all, it is only a misuse of the current account provisions to keep a deposit with the company so as to get over the provisions of s. 40A (8). 20. The accounts of these persons with the company have been seen. Copies of their accounts are on record. We do not see how these running accounts could not be regarded as running or current account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice-president and need not, therefor, be repeated. The short question at issue is whether the amounts to the credit of directors, their relatives, friends and some trusts, described as relatives, are covered by the term 'deposit' in s. 40A (8) as defined in the Explanation. The definition is inclusive. If the meaning of deposit can be clearly gleaned from the definition, then external aids to interpretation statutes cannot be brought into consideration for varying the meaning of deposit. 3. In CIT vs. Shahzada Nand & Sons (1966) 60 ITR 392 (SC), the Supreme Court dealing with the interpretation of statutes held as follows: "In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. To this may be added a rider: in a case of reasonable doubt, the construction most beneficial to the subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. the underlying principle is that the meaning and intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of a foreign State, or form 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 cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a cooperative 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 Govt. may, having regard to the nature and objects of he institution or body, by notification in the Official Gazette, specify in this behalf; (v) from in any other company; (vi) from an employee of the company by way of security deposit; (vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service; (viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or lien on the assets of the company) pending the allotment of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been credited, TDS and IT debited. Master Vijay R. Arora VI. 31-3-1979 To TDS on Int. 240.00 18-5-1979 By Cheq. 35,000.00 " " Bal. c/f. 37,153.00 31-5-1979 " Int. 2393.00 Rs. 37,393.00 . Rs. 37,393.00 There is no transaction except interest credited and TDS debited. STATEMENT OF ACCOUNT OF SMT. CHANDRIKABEN J. JHAVERI FROM 1-4-1978 TO 31-3-1979 DEBIT CREDIT Date Particulars Amount Date Particulars Amount 31-3-1979 To TDS on Int. 879.00 1-4-1978 By Bal. b/f. 68,443.32 31-3-1979 To Bal. c/f. 92,554.50 4-12-1978 By Bank 15,000.00 . . . 31-3-1979 By Int. 4790.18 . . . 31-3-1979 By Meeting fees 1200.00 . . Rs.93,433.50 . . Rs. 93,433.50 STATEMENT OF ACCOUNT OF SMT. PRABHAVATIBAN AMRUTLAL SHAH FROM 1-4-1978 TO 31-3-1979 DEBIT CREDIT 31-3-1978 To TDS on Int. 147.00 1-4-1978 By Bal. b/f. 12,252.35 . To Bal. c/f. 13,575.60 31-3-1979 By Int. 1470.25 . . 13,722.60 . . 13,722.60 STATEMENT OF ACCOUNT OF SHRI BHUPENDRAKUMAR AMRUTLAL SHAH FROM 1-4-1978 TO 31-3-1979 DEBIT CREDIT 31-3-1978 To Bal. c/f. 3795.00 1-4-1978 By Bal. b/f. 3388.44 . . . 31-3-1979 By Int. 406.56 . . 3795.00 . . 3795.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitutes the banker a debtor to the depositor but not a trustee thereof for him. No new contract is created every time there is a fresh deposit, the account is a continuing one. The debt is repayable either on demand or on conditions agreed with the depositor." 15. If that be the legal relationship created by the deposit in current account (deposit account repayable on demand) in a bank that the bank becomes a debtor to the depositor, the same relationship would be created when amounts are deposited with the company under the so-called current accounts. A person taking a loan is a debtor while a person giving the loan is a creditor. 'Loan' is included in the definition of 'deposit'. Therefore, all deposits in these current accounts would be deposits within the meaning of 'deposit' in s. 40A (8). 16. It is immaterial that in some cases there have been a number of deposits, and withdrawals. Once it is held that these are deposits, all that the ITO the ITO has to do is to disallow arithmetically 15 per cent of the interest paid thereon. It was not necessary for Parliament to say that the disallowance of interest would be on balance, as observed by the learned Vice President in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing from the reading of the definition. Nothing, however, in our opinion, turns on such a conclusion, for reasons already given by us. 23. The Companies (Acceptance of Deposits) Rules came into effect on 3rd Feb., 1975, and till 18th Sept., 1975, the definition of 'deposit' in the Rule and s. 40A (8) was the same, but on 18th Sept., 1975, however, cl. 9 of the Rules (Deposits by Directors) was enacted to exclude deposits by Directors from the term 'deposit'. That it become necessary to except deposits from the directors from the definition of 'deposit' in the Deposit Rules clearly means that otherwise the deposit by directors would be covered by definition of 'deposit'. 24. Sec. 40A (8) was, however, not amended to exempt deposits by directors from the definition in IT Act. The conclusion is inescapable that under the IT Act. deposits by directors continued to be included in the definition of deposits rules they did not amount to deposit for disallowance of interest, though under the deposit for calculating the limits of borrowing. The failure to amend the definition in s. 40A (8) appears to have been a conscious decision. 25. The difference between a loan and a deposit u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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