COMMISSIONER OF INCOME TAX vs. NAVJIVAN ROLLER & PULES MILLS

ITR/247/1984HC GujaratGJHC24011912198403 May 1999Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE12 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal was not right in concluding that Section 40A(8) is not applicable. The Court found that the definition of 'deposit' in Explanation (b) to Section 40A(8) is very wide, encompassing 'any deposit of money with, and includes any money borrowed by, a company'. The Court opined that the tenure or nature of the deposits is immaterial in determining whether it is a deposit. The decisive factor is the true relationship between the assessee-company and its creditors. Since the amounts were used by the assessee-company for its business and interest was paid on these amounts lying with the company, they could not be anything other than 'deposits'. The High Court disagreed with the reasoning of the ITAT and the CIT (Appeals) that current account balances are fundamentally different from deposits or borrowings. The Court answered the question in the negative, in favour of the Revenue and against the Assessee. The operative direction was to answer the reference in favour of the Revenue.

What were the facts?

The Commissioner of Income-tax (CIT) referred a question of law to the High Court of Gujarat concerning an order of the Income Tax Appellate Tribunal (ITAT). The dispute pertains to Assessment Years 1978-79 and 1979-80. The assessee company paid interest on various accounts, including Rs. 31,886 and Rs. 47,176 in the respective years to directors, shareholders, and others. The Assessing Officer treated these amounts as interest on deposits under Section 40A(8) of the Income-tax Act, 1961, and disallowed 15% of the expenditure. The CIT (Appeals) and the ITAT held that these credit balances in current accounts were not 'deposits' or 'borrowings' as contemplated by Section 40A(8), thus reversing the Assessing Officer's disallowance.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the various accounts on which interest of Rs. 31,886 and Rs. 47,176 is paid fall outside the purview of Explanation (b) to Section 40A(8)? Assessee's Contention: The credit balances in current accounts are not 'deposits' or 'borrowings' within the meaning of Section 40A(8). The CIT (Appeals) and ITAT found that current account balances are meant for withdrawal at any time, unlike deposits or borrowings which imply a consciousness of the money being kept for a foreseeable period or a specified duration. The distinction between current accounts and deposits, as maintained by banks, should also apply to companies. Revenue's Contention: The revenue argued that Section 40A(8) defines 'deposit' broadly to include any deposit of money with, and any money borrowed by, a company. The nature or tenure of the deposit is irrelevant. The amounts were used by the assessee company for its business, and interest was paid on these amounts lying with the company, thus constituting 'deposits'. The revenue relied on decisions of various High Courts, including Madras, Rajasthan, Bombay, and Calcutta, which held that interest paid on current accounts of directors, shareholders, and others falls within the purview of Section 40A(8).

Which sections of the Income-tax Act were involved?

40A(8)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 247 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.BALIA. and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes

2.

To be referred to the Reporter or not? Yes To be referred to the Reporter or not? Yes To be r ferred to the Reporter or not? Yes To be referred to he Reporter or not? Yes To be referred to the Reporte or not? Yes To be referred to the Reporter or not? es To be referred to the Reporter or not? Yes To be referred to the Reporter or not? Yes To be referred to the Reporter or not? Yes To be referred to the Reporter or not? Yes To be referred t the Repor

The order continues below.

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