Law:

Section:

Section 40A(8) of the Income-tax Act, 1961 - Business disallowance - Interest on deposits - Assessment year 1983-84 - Whether amount deposited by director of company in his current account on which interest has been paid by company will be considered as deposit and, interest so paid to director is disallowable to extent prescribed under section 40A(8) - Held, yes Words and phrases: - Meaning of word 'deposit' as occurring in section 40A(8) FACTS The ITO in view of the section 40A(8) disallowed 15 per cent of interest paid to directors on their current accounts maintained with the company. The CIT(A) deleted the disallowance. The Tribunal affirmed the decision of the CIT(A) holding that amount deposited by director in current account was not deposit. On reference : HELD On a correct interpretation of the provisions of section 40A(8) the payments which are made by a director to a company in the current account of the said director on which the company is paying interest will be considered as a deposit. As a matter of fact, the word "deposit" which has been used in the said sub-section refers to the payment by way of loan. It is an admitted fact that interest was paid by the company and the only distinction between a fixed deposit and this deposit is that the term for which the payment has been made in the case of a fixed deposit is a fixed one whereas, in the case of a current account, no time is fixed therein and this distinction will not take the amount outside the purview of deposits used in the clause. Assistance cannot be taken from the Companies (Acceptance of Deposits) Rules, 1975, because the said Rules came into force on February 3, 1975, and clause (9) was specifically added in the definition of deposit in the said Rules with effect from September 18, 1975, which excluded deposits by directors from the term deposit. This specific exclusion by the amendment in the Rules makes it more clear that deposits by the directors were included in the term deposit and it is by way of a specific provision that the same has been excluded. The words deposit by the directors, which were excluded by the insertion of clause (9), refers to all deposits whether they are…

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