MEHTA INVESTMENTS & TRADERS PVT LTD vs. COMMISSIONER OF INCOME TAX

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ITR/187/1986HC GujaratGJHC24010811198604 July 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal was correct in law in holding that the current accounts in the names of directors constituted 'deposits' under Section 40A(8) of the Income-tax Act, 1961. Consequently, the disallowance of 15% of the interest paid on these accounts by the Income Tax Officer was justified. The Court's reasoning was based on the precedent set by this court in the case of Agew Steel Manufacturers Pvt. Ltd. v. CIT, 209 ITR 77, which was considered to cover the issue at hand. The ratio decidendi is that funds held in current accounts by directors of a company can be construed as 'deposits' for the purpose of Section 40A(8) if they meet the criteria for deposits, leading to the disallowance of a portion of the interest paid thereon. The question was answered in the affirmative, in favour of the revenue. No issue was expressly left undecided.

What were the facts?

This case involves an Income Tax Reference filed by the assessee, Mehta Investments & Traders Pvt Ltd, against the Commissioner of Income Tax. The assessment year(s) are not explicitly stated. The order under challenge is the decision of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'B', which upheld the Income Tax Officer's disallowance. The dispute concerns the disallowance of 15% of the interest paid by the assessee company on current accounts held in the names of its directors. The total interest paid on these accounts was Rs. 3,30,446/-. The ITAT held these accounts to be 'deposits' within the meaning of Section 40A(8) of the Income-tax Act, 1961, justifying the disallowance.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that accounts in current accounts in the names of directors were 'DEPOSITS' within the meaning of Sec.40A(8) of the Income-tax Act, 1961 and therefore the Income-tax Officer was justified in disallowing u/s 40A(8) 15% of the interest of Rs. 3,30,446/- paid on such accounts? Assessee's contentions: No arguments were recorded for the assessee as nobody appeared on their behalf despite being served. Revenue's contentions: The revenue, represented by Shri B.B. Naik, relied on the case of Agew Steel Manufacturers Pvt. Ltd. v. CIT, 209 ITR 77, to support the Tribunal's decision.

Which sections of the Income-tax Act were involved?

Section 40A(8),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 187 of 1986

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO @ MEHTA INVESTMENTS & TRADERS PVT LTD Versus COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: NOTICE SERVED for Petitioner No. 1 MR BB NAIK for MR MANISH R BHATT for Respondent No. 1

CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE D.A.MEHTA

Date of decision: 04/07/2001

ORAL JUDGEMENT (Per : MR.JUSTICE A.R.DAVE)

At the instance of the assessee, the following question of law has been referred to this court for its opinion under the provisions of sec. 256(1) of the Income-tax Act, 1961 by the Income Tax Appellate Tribunal Ahmedabad Bench 'B'.

"Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that accounts in current accounts in the names of directors were 'DEPOSITS' within the meaning of Sec.40A(8) of the Income-tax Act, 1961 and therefore the Income-tax Officer was justified in disallowing u/s 40A(8) 15% of the interest of Rs. 3,30,446/- paid on such accounts?"

2.

Though served, nobody has appeared for the applicant-assessee. Learned advocate Shri B.B. Naik has appeared for the revenue.

3.

The question involved in this reference is with regard to disallowance of 15% of interest given on deposits by the assessee company to its directors.

4.

Learned advocate Shri Naik has drawn our attention to the case of Agew Steel Manufacturers Pvt. Ltd. CIT, 209 ITR 77 which covers the issue which is involved in the present reference. Looking to the law laid down by this court in the case of Agew Steel Manufacturers (supra), in our opinion, the Tribunal was justified in disallowing 15% of the interest under the provisions of sec. 40A(8) of the Act.

5.

In the circumstances, we answer the question in the affirmative i.e. in favour of the revenue and against the assessee.

The reference stands disposed of accordingly with no order as to costs.

(A.R. Dave, J.)

(D.A. Mehta, J.) (hn)

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