Rajesh Bindal, J. - (1.) FOLLOWING question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal), arising out of order passed in I.T.A. No. 253/Chandi/89 in respect of the assessment year 1985 -86: Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the provisions of Section 49A(8) are not applicable to the interest paid by the asseseecompany on the credit balances of the erstwhile partners and thereby deleting the dis -allowance of Rs. 1,75,801/?
(2.) BRIEFLY the facts, as noticed by the Tribunal, are that the assessee was a partnership firm, which was dissolved on June 30, 1982. the business of the firm was taken over by the assessee company and credit balance lying in the account of partners was taken over as liabilities. With effect from July 1, 1982 interest at the rate of 20% on the outstanding balance was paid to ex -partners. The plea of the assess is that the liability had arisen on account of dissolution of the firm and the same was shown as current liability in the accounts of the company. It was a kind of contractual obligation and not a deposit in the hands of the company. Accordingly, the same was not covered under the provisions of Section 40A(8) of the Income Tax Act, 1985 (for short 'the Act). However, the claim was rejected by the Assessing Officer which order was upheld in Appeal by Commissioner of Income Tax (Appeals) ( for short "CIT(A)). Before the Tribunal, the assessee succeeded following the view taken by different Tribunals on the issue where it was held that money existed in the current account was neither deposit nor borrowing. Learned Counsel appearing on behalf of the revenue submitted that the nomenclature of the account will not determine the real nature thereof. Where the amount was lying outstanding in the accounts of the company and the company was paying interest thereon, the same would be covered under the provisions of Section 40A (8) of the Act and had to be dealt with accordingly. The Tribunal while accepting the appeal of the assessee committed an error in law.
(3.) ON the other hand, learned Counsel appearing on behalf of the assessee submitted that liability in the books of account of the company was contractual one after the business of the firm was over by the company and the amount outstanding in the credit of the accounts of partners was shown as current liability of the company. The does not attain the character deposit or borrowing as ingredients thereof were not there.;