V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law for the decision of this court, under section 256(1) of the Income-tax Act (hereafter to be called as "the Act") : " Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the interest paid to the directors on their deposits in running accounts was not disallowable to the extent prescribed under Section 40A(8) of the Act ?"
(2.) THE brief facts of the case are that the Income-tax Officer, while finalising the assessment for the assessment year 1983-84, disallowed a sum of 15 per cent. interest paid under Section 40A(8) of the Act. This interest was paid to the directors on their current accounts maintained with the company. THE Commissioner of Income-tax (Appeals) deleted the said disallowance and, affirming the decision of the Commissioner of Income-tax (Appeals), it was held by the Tribunal that, under Section 40A(8) of the Act, where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction. THE expression "deposit" as used in Section 40A(8) of the Act is defined in Clause (b) of the Explanation thereto to mean "any deposit of money with, and includes any money borrowed by, a company, but does not include any of the amounts received by the company in the exceptions provided therein ". Admittedly, the present case does not fall under one or the other of the exceptions provided therein. It is to be noted that the definition of the expression "deposit" as used in Section 40A(8) of the Act, vide Clause (b) of the Explanation thereto, is a comprehensive and complete definition. We say so because the said definition defines "deposit" to mean any deposit of money with a company. It has been further expanded to include therein by including any money borrowed by a company. A current account, as is well known and is ordinarily understood under the accountancy principles, is an account to meet current expenses involving amounts brought in the form of credits and debits representing the outgoings. So far as the money in the current account is concerned, there is no restriction of withdrawal whether as to the amount or as to the time. THE amount credited to such an account cannot, by any stretch of imagination, be taken to represent borrowing of money by the company. We say so because borrowal involves the taking of money as loan which is never there in the case of a current account. THEre is also no deposit in the case of a current account. As already stated, deposit for the purposes of Section 40A(8) means a " deposit". A " deposit", according to the ordinary dictionary meaning as given in Chambers' 20th Century Dictionary (Revised Edition) at page 281, is " something entrusted to another's care ". THE restrictions of withdrawal may be of the amount or as to the time. Such a situation does not exist in the case of an amount standing to the credit of a person in a current account like the one involved in the present case. The provisions of Sub-section (8) of Section 40A of the Act, during the relevant period, were as under : (8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as deduction. Explanation,--In this sub-section,--. . . (b) ' deposit' means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company -- (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or by a State 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 co-operative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a co-operative 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 for the supply of goods or for the rendering of any service ; (vii) 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 company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company ; (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent. of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan." This sub-section has been omitted by the Finance Act, 1985, with effect from April 1, 1986. From a perusal of the above section, it would be evident that the word " deposit" mentioned therein has not clearly been defined. In the Explanation, an inclusive definition of " deposit" has been given which refers to the word " deposit" as meaning any deposit of money with, and includes any money borrowed by, a company. This Explanation in Clause (b) has defined the word " deposit" in a wider sense and, besides any deposit of money with a company, the money borrowed by the company is also taken within the ambit of the word "deposit". A distinction has been drawn in this definition with regard to the deposit of money and money borrowed. In the said Explanation, certain exceptions have been provided therein which would not include the amount received by the company as deposit. Admittedly, the amount deposited by a director in the company in its current account has not been excluded therefrom. According to Halsbury's Laws of England, the bank account can be a deposit account repayable on demand, a deposit account repayable at a fixed future date and after a lapse of specified time and a deposit account repayable at the end of a given period of notice. When the amount is deposited in the bank, a relationship of debtor and creditor is established. There are instances where, after a fixed deposit receipt is obtained by a person and the same is pledged in the current account maintained in the bank and withdrawals are made from such current account, the withdrawals and deposits in such current account are also of the nature of loans and deposits. The deposits which are understood in the business in a bank may be in the current account, savings bank account or fixed deposit account. The payment in a current account cannot be excluded from the nature of deposits which are made in banks. The expression " current account" has been defined in Earl Jowitt's Dictionary of English Law as under : " Current Account: in banking a term used to distinguish drawing accounts from fixed deposits accounts, in partnership and individual entrepreneur's account, a current account where each partner or the entrepreneur is usually set up as an account current (q.v.) between the individual and the business." According to Black's Law Dictionary, a " general deposit" is where the money deposited itself is not returned but a sum equivalent to the money (i.e., a like sum) is to be returned.
(3.) ON a correct interpretation of the provisions of Section 40A(8) of the Act, 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 for a fixed period or in their current accounts. In the Explanation referred to above by defining the word " deposit ", no such exclusion has been made and, therefore, deposits by directors in their current accounts cannot be excluded. The reasoning of the Tribunal that the current account is understood under the accounting principles as an amount to meet the current expenses involving the amount brought in the form of credit and debit representing the outgoings has no relevance to the facts of the present case. Whenever any amount is paid by a director in his current account, it was not for meeting any expenses. The said amount was paid to earn interest and the company has in fact paid interest thereon after deducting the withdrawals therefrom. Simply because the period of time or the amount which could be withdrawn is not restricted, the nature of the deposit will not change. We are of the opinion that the Income-tax Appellate Tribunal was not justified in coming to the contusion that the amount deposited by the director of a company in his current account on which interest has been paid by the company does not fall within the term " deposit". ;