V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated June 5, 1985, in respect of the assessment year 1983-84 under Section 256(1) of the Income-tax Act, 1961 : " Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the interest paid to directors on their deposits in running accounts was not disallowable to the extent prescribed under Section 40A(8) of the Act ?" THE matter with regard to disallowance of the interest paid to the directors on their deposits in running accounts was considered by this court in the case of CIT v. Gandhi Metals Mills (P.) Ltd. [1993] 200 ITR 252 -- D. B. I. T. Reference No. 14 of 1985 decided on March 11, 1992, and it was held that (at page 257) : " 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 the fixed deposit and this deposit is that the term for which 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 deposit 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 amendment in the Rules makes it more clear that the 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 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, the deposits by directors in their current accounts cannot be excluded." Following the aforesaid decision, we are of the opinion that the Tribunal was not justified in holding that the interest paid to directors on their deposits in running accounts was not disallowable to the extent prescribed under Section 40A(8) of the Act.
(2.) ACCORDINGLY, the reference is answered in favour of the Revenue and against the assessee. No order as to costs.;